Asana, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 31, 2020. This is Asana’s third fiscal quarter of fiscal 2021. Asana provides a cloud-based work management platform. The company completed a direct listing on the NYSE on September 30, 2020.
Financial performance and liquidity
| Metric | Three months ended October 31, 2020 | Nine months ended October 31, 2020 |
|---|---|---|
| Revenue | $58.9 million, up 55% year over year | $158.6 million, up 60% |
| Gross margin | 88%, versus 86% | 87%, versus 86% |
| Operating loss | $61.9 million | $124.6 million |
| Net loss | $73.3 million | $150.2 million |
| Net loss per share, basic and diluted | $0.65 | $1.70 |
| Operating cash flow | Not separately stated for the quarter in the cash flow statement | Cash used: $74.7 million, versus $24.0 million |
For the quarter, cost of revenue was $7.3 million and operating expenses were $113.5 million. For the nine months, operating expenses were $262.7 million, up 46%. Quarterly results included $15.7 million of direct-listing expenses; nine-month direct-listing expenses were $18.0 million. Stock-based compensation was $8.9 million for the quarter and $18.3 million for the nine months.
Nine-month investing cash use was $117.3 million, including $35.2 million of property and equipment purchases, principally related to headquarters construction. Financing provided $178.7 million, including $150.0 million from a related-party convertible note and $12.9 million of net term-loan proceeds. Non-GAAP free cash flow was negative $19.5 million for the quarter and negative $58.5 million for the nine months; the company’s calculation adjusts for headquarters construction spending and direct-listing costs.
At October 31, cash and cash equivalents were $297.4 million and marketable securities were $126.4 million, or $423.9 million combined. Current assets were $472.4 million and current liabilities were $152.5 million. The company reported $13.0 million principal outstanding on its secured term loan and $450.0 million principal on related-party convertible notes; the notes’ net carrying amount was $340.8 million. Accumulated deficit was $479.9 million. Management said available liquidity and the term-loan facility should cover working capital and capital expenditure needs for at least 12 months.
Material changes and operating indicators
- Revenue growth reflected new paying customers, larger customer contracts, and expansion among existing customers. As of October 31, Asana reported over 89,000 paying customers, versus over 73,000 a year earlier.
- Customers spending at least $5,000 annually increased to 8,938 from 5,648; customers spending at least $50,000 increased to 318 from 156. Dollar-based net retention was over 115%, down from over 120% overall, while rates for customers spending over $5,000 and $50,000 remained over 125% and 140%, respectively.
- Management attributed the overall retention decline primarily to the pandemic’s disproportionate effects on smaller businesses. Sales to customers outside the United States represented 42% of nine-month revenue.
- Quarterly sales and marketing expense increased 34%, while general and administrative expense rose 61%, including costs associated with the direct listing and public-company operations. Research and development expense fell 17%, principally reflecting lower stock-based compensation tied to a 2019 tender offer.
- Deferred revenue was $90.1 million at period-end. Remaining performance obligations from subscription contracts were $101.4 million, with substantially all expected to be recognized over the following 24 months.
Outlook, risks, and unusual items
The filing provides no specific revenue or earnings guidance. Management expects continued investment in sales and marketing, research and development, hiring, and public-company costs, and stated that it does not expect near-term profitability. It expects gross margin to remain relatively consistent over the long term and expects operating expenses to rise in dollars, while generally declining as a share of revenue over time.
COVID-19 had disrupted operations, kept offices temporarily closed, and required remote work and travel restrictions. Management cited longer sales cycles, pricing pressure, and weaker retention among smaller businesses; it warned that economic conditions could also affect demand, collections, renewals, and customer spending. Other stated risks include intense competition, reliance on a single principal solution and AWS hosting, security and service interruptions, international and data-protection compliance, and continued operating losses.
Unusual financial and commitment items include the CEO-affiliated trust’s $450.0 million of 3.5% mandatory convertible notes, maturing in 2025, with conversion terms that could result in 17.0 million to 27.2 million Class B shares. The company also reported approximately $421.8 million of future minimum payments and capital commitments related to its new headquarters, including lease payments and outstanding construction commitments. Letters of credit related to operating leases totaled $21.7 million. The company said it was in compliance with term-loan financial covenants and that no pending legal proceedings were expected to have a material adverse effect; an OFAC voluntary disclosure remained under review, with possible penalties not ruled out.
Important facts for investors to verify
- Whether revenue growth and larger-customer expansion can offset the decline in overall dollar-based net retention, especially among smaller customers.
- Cash burn, non-GAAP free cash flow, and the effect of headquarters construction and ongoing operating losses on liquidity.
- The economic and dilution implications of the CEO-affiliated convertible notes, including potential share conversion and related-party governance considerations.
- The scale and timing of headquarters lease and construction commitments, and whether they remain aligned with business needs.
- How pandemic-related demand, sales-cycle, renewal, and collection risks—and the unresolved OFAC disclosure—develop after the reporting date.