Asana Reports Steady Q2 Growth and Plans AI Studio Launch, While PagerDuty Exceeds Expectations

Earnings call: Asana reports steady Q2 growth, plans AI Studio launch By Investing.com

Asana Inc. (NYSE: ASAN), the collaborative work management platform, has reported a 10% year-over-year revenue increase in its second quarter of fiscal year 2025, with revenues reaching $179.2 million. During the earnings call, CEO Dustin Moskovitz emphasized the company's transition to the enterprise market and the development of Asana AI. Asana's customer base has grown, with a 17% increase in customers spending over $100,000. The company also reported a positive free cash flow of $12.8 million and announced the upcoming launch of Asana AI Studio. Additionally, Asana is preparing to pursue FedRAMP certification to expand into government agencies and regulated industries. The departure of CFO Tim Wan and the appointment of Sonalee Parekh to the position was also announced. Asana continues to solidify its position in the enterprise market, with a clear strategic focus on AI and high-value functionality expansion. The company's commitment to improving the post-sales experience and streamlining sales processes, along with leveraging AI products, indicates a dedication to long-term growth and customer satisfaction. Asana's pursuit of FedRAMP certification and the introduction of new pricing and packaging strategies are poised to unlock new market opportunities and potentially drive revenue and adoption. With a robust financial position and strategic initiatives in place, Asana appears to be on a trajectory towards stabilizing and reaccelerating its business in the quarters to come. Asana Inc. (NYSE: ASAN) has demonstrated resilience and strategic focus in its latest quarterly report, with a notable 10% year-over-year revenue increase and an expansion of its high-value customer base. To further enhance our understanding of Asana's financial health and market position, here are some insights based on real-time data and InvestingPro Tips: InvestingPro Tips highlight that Asana holds more cash than debt on its balance sheet, which is a positive indicator of the company's financial stability. Additionally, 4 analysts have revised their earnings upwards for the upcoming period, signaling optimism about Asana's future performance. While Asana's strategic initiatives and AI product development are promising, analysts do not anticipate the company will be profitable this year, and it has not been profitable over the last twelve months. This aligns with the reported operating loss in the article. Moreover, the stock has taken a significant hit over the last six months, with a price total return of -33.38%. For readers interested in a deeper dive into Asana's financials and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/ASAN, offering a comprehensive analysis to guide investment decisions. Operator: Good day and thank you for standing by. Welcome to the Asana's Second Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Catherine Buan, Head of Investor Relations. Please go ahead. Catherine Buan: Good afternoon and thank you for joining us today's -- on today's conference call to discuss the financial results for Asana's second quarter fiscal year 2025. With me on today's call are Dustin Moskovitz, Asana's Co-Founder and CEO; Anne Raimondi, our Chief Operating Officer and Head of Business; and Tim Wan, our Chief Financial Officer. Today's call will include forward-looking statements including statements regarding our expectations for free cash flow, our financial outlook, strategic plans, our market position, and growth opportunities. Forward-looking statements involve risks, uncertainties and assumptions that may cause our actual results to be materially different from those expressed or implied by the forward-looking statements. Please refer to our filings with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q for additional information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings release, which is posted on our investor relations webpage at investors.asana.com. And with that, I'd like to turn the call over to Dustin. Dustin Moskovitz: Thank you, Catherine, and thank you all for joining us on the call today. In the second quarter, Asana continued to execute on our transition to the enterprise and make strides on Asana AI. I'll go through a few highlights from the quarter and then jump into some of the key trends that are shaping our industry and informing our strategy to be the enterprise leader in the category. In Q2, our revenues grew 10% year-over-year, ahead of our guidance and consistent with our expectations that Q2 would be a baseline for stabilization going forward. We saw great leading indicators for growth in pockets of our business, including key wins in manufacturing, energy, transportation and government, which Anne will talk about. Excluding the technology vertical, our Q2 revenue growth rate would have been in the mid-teens. We also reported free cash flow positive of $12.8 million, or 7% on a free cash flow margin basis in Q2, reflecting our continued focus on operational discipline. The number of customers spending over $100,000 or more grew 17% year-over-year. We had a record number of multi-year deals as we continue to build partnerships with industry leaders and the most innovative companies in the world, who are redefining how they work. In fact, two of the most well-known AI lab companies had significant expansions in Q2 as they adopted Asana internally and partnered with us on the technology front as well. We are clearly on the right path and are confident that our business will accelerate, however, the macro headwinds persist. Also, the technology vertical remains a drag on our overall growth. At the same time, we see encouraging signs in some of our top verticals, such as retail and consumer goods and media and entertainment. We have more work to do, and this quarter marks a stabilization point from which we're well poised to inflect in the coming quarters. Today, we're at a pivotal moment where AI, particularly Generative AI, has enormous potential to revolutionize work management and reshape the software industry. This era of AI transformation is poised to be as significant as, if not more than, the digital transformation trend that preceded it. At Asana, we're laser-focused on unlocking the potential of AI for our customers. At our Work Innovation Summit in San Francisco this June, we previewed for the first time Asana AI workflows, a groundbreaking advancement that leverages AI to manage your work, helping our customers tackle complex workflows and elevate teamwork with AI. These AI workflows, which have been in beta since June, will be part of our upcoming paid offering, Asana AI Studio, launching in October, the AI studio platform will allow customers to build, deploy, and enhance workflows with AI teammates taking on some of the work. In AI studio, a program manager or any designated team member can dictate where an AI teammate can start doing useful work without anyone else having to learn something new, adopt a new application, or change their behavior. Importantly, employees don't need to go elsewhere to access this AI capability. It's embedded right where they work every day. This provides a practical powerful solution for organizations trying to adopt AI internally. It also means you have existing integrations to all your important tools across CRM, finance, HR, productivity suites, and more. This supports our long-term strategy to be the hub that moves work forward across your systems using AI. Of course, automated workflows and workflow builders have been around for years, but now customers have the ability to design these workflows in Asana with AI teammates to assist with any step in the workflow. Customers will be able to subscribe to AI studio builder and begin creating and deploying AI workflows. This model will allow customers to unlock AI actions on a consumption basis, allowing enterprises to buy exactly what they need to fit their organization at that moment in time. It's been exciting to see the early momentum in our AI Studio beta program since we rolled it out in June. The Beta program has already attracted industry leaders across various sectors, including media, technology, financial services, manufacturing, healthcare, professional services, and consumer goods. There's a healthy amount of skepticism around AI and the value it's currently providing in the enterprise. My view is we're still early in the adoption cycle, especially in businesses, and customers are just beginning to successfully leverage the potential and understand how to apply it effectively to more parts of their business. AI is powerful, but it demands new skills and behaviors from users. Most of these capabilities are currently being offered in chat apps and copilots, leaving it up to every individual to determine how to extract value. Likewise, autonomous agents are not ready to take over real roles in an organization. They're too unpredictable and unreliable. Effective AI adoption means integrating AI directly into everyday work and workflows, where AI can drive meaningful and measurable impact at scale, complementing human efforts rather than replacing them. Let me detail a few specific early use cases from actual customer implementations to make this real for all of you. Regardless of industry or size, every company has work and workflows that touch multiple departments and teams, such as strategic planning, customer service, store openings, procurement, and due diligence. Coordinating work cross-functionally is notoriously difficult because it extends across teams, tools and geographies. Work intake is oftentimes the bridge across a lot of these teams' tools and processes, and now Asana AI teammates can not only improve the process holistically, it can manage and do a lot of the work. Each of the four phases of cross-functional work gets easier, including intake. This is where AI teammates are able to refine tasks, extract data, triage requests, prioritize work, communicate with requesters, and route tasks. Next stage is planning, where AI teammates are able to summarize requests, conduct research, including via integrations with other tools, and recommend next steps. Execution, where AI teammates are able to draft content, do translations, incorporate feedback, and answer questions using various data sources. And finally, reporting reflection. This is where AI teammates are able to update metadata for reporting and suggest retrospective topics, driving continuous improvement. One of our customers, a global cybersecurity leader, has tested how our AI teammates can contribute to their global marketing organization and significantly improve their processes for intaking email requests to execution. Before Asana AI teammates, they faced challenges with missing information and submissions, time-consuming prioritization meetings, and delays in global market launches. Our AI teammates have shown how we can address these pain points comprehensively. So the first step is requesting intake. AI can now evaluate requests at the point of submission, auto-naming them for clarity, and proactively flagging missing information. Requests are summarized in natural language, making their relative importance clear at a glance. Second step, prioritization. We've shown how we can streamline their alignment meetings with better first stab prioritization, reducing the time spent on these sessions. Third step, execution. Perhaps most impressively, this customer has expressed how this can eliminate translation delays that have previously caused more than two-week gaps between English and other market launches. Now, all launches can happen simultaneously, ensuring no market feels deprioritized and the marketing organization can deliver a more consistent, improved customer experience globally. It's worth noting that this AI-powered solution replaces the need for dedicated, industry-specific translation software or services that companies might traditionally use for such tasks. And we expect to offer this for much less than what those traditional translation services cost, providing significant value and cost savings to customers. Last, reporting. In the reporting reflection phase, AI can update metadata, which, you know, as custom fields, to inform work reporting and suggest topics for retrospectives. This helps teams capture learnings and insights more effectively, leading to continuous improvements in their processes. Let me share another customer example. A global leader in outdoor advertising has been testing Asana AI teammates for their creative request intake process across regions. The team is very encouraged by the potential hearing. In the words of the VP of marketing operations, it allows them to prioritize the bigger things they want to do to show more business impact and affect the bottom line. Importantly, this customer views AI as an enabler for human creativity and strategic thinking, not as a replacement for human work. This encapsulates our vision for AI teammates, tools that enhance human capabilities, drive efficiency and ultimately contribute to our customers' bottom line. These stories exemplify how our AI capabilities built on the foundation of our unique and proprietary Work Graph data model can drive efficiency, improve collaboration, and ultimately contribute to better business outcomes for our customers. It's a testament to the power of AI teammates working alongside human teams to enhance productivity and strategic impact. These are just a few early examples of AI teammates in action. We hope to be able to report next year that we have hundreds or even thousands of such workflows at a meaningful number of our customers. Now, let me talk about how we're capturing the consolidation opportunity. We remain in a budget-focused environment and customers are looking for consolidation opportunities. Our proven ability to scale the structural advantages of the Work Graph, especially as it relates to AI, and our focus on essential functions across the enterprise, makes us particularly well-suited to capitalize on this opportunity. We believe we're the only collaborative work management platform that's proven at scale for large enterprises and we have several customers with over 10,000 seats and one customer with 200,000 seats actively deployed. In practice, there's no organization too big for Asana, and we've proven that the value and differentiation of Asana accrues with scale, thanks to our unique and differentiated data model. To support this effort and help our customers realize more value even faster, we're expanding the baseline offering of our enterprise tiers. In addition to premium AI features, we're adding more high-value functionality like request tracking and work intake, resource management, enhanced executive reporting, and visualizations of how goals and work are inextricably linked in Asana. We're also rolling out unlimited view-only licenses to see work in Asana with an in-product path to request a paid license to comment or add work. We think this has the potential to meaningfully contribute to paid seat growth within our accounts. Finally, we announced our official commitment to pursue FedRAMP certification, which will unlock new market opportunities in government agencies and other regulated industries. These initiatives are designed to help enterprises quickly achieve the critical mass needed to fully leverage the AI-enhanced work graph and consolidate their work management needs on a single, powerful platform. Finally, let me explain how we believe AI will help us drive revenue and adoption in three key ways. First, it already enhances the value we deliver in our core work management functionality, such as smart goals and smart status features. This is what customers get in most of our packages today, depending on their tiers. Second, AI is enabling us to introduce new add-ons, and we have specific ones we're developing now. Resource planning will be a license-based add-on, for example. And third, we continue to believe in the potential of usage-based AI revenue. We're in the early stages here, but we're learning more on this front every day from our customers in our AI Studio beta program, which we're expecting to formally launch soon. In closing, we're clearly making progress with our enterprise strategy, but the shape of the reacceleration curve will be very modest in the next few quarters and more pronounced later. We're confident it'll happen because we've already seen it in some segments of the business, and we're beginning to see stabilization in others. We remain committed to a sustained, positive free cash flow by the end of Q4. We're winning strategic customers across important industries, closing more multi-year deals, and investing in AI to meet enterprise demands. We're excited to share more of our innovation and customer success stories at the Work Innovation Summit in New York City on October 22nd and again in London on November 13th. We hope to see you there. Before I hand it over to Anne, I'd like to also say a few words about the announcements we made today in conjunction with our earnings release. As you've probably read, we announced Tim's departure and the arrival of a new CFO. Change is always bittersweet, but it's part of being in a high-growth environment. As many of you already appreciate, Tim has been a great leader, partner, and friend for all of us at Asana for almost eight years, and now, he'll be handing over the Baton. He's been an integral part of the Asana journey, joining Asana in 2017, building financial infrastructure to help us scale, and navigating us through our entry into the public markets, and improving operating margins dramatically while we continue to invest in growth. I'll miss working with Tim. He's been a strong partner to me and the Asana leadership team, but he'll remain on as an advisor to help in the transition. Tim, we're very grateful for your many contributions. At the same time, I'm excited to announce our new Chief Financial Officer, Sonalee Parekh. Sonalee is a Seasoned Finance Executive with over 25 years of experience in high-growth technology. Most recently, she was CFO of RingCentral (NYSE:RNG). Sonalee brings deep operational and financial experience in leading companies at scale. I look forward to partnering with her in our next stage of growth. And with that, I'll hand it over to Anne. Anne Raimondi: Thanks, Dustin. And I'll just echo Dustin's sentiment on both fronts. And Tim, thank you for everything. You will certainly be missed, but definitely not forgotten. As Dustin mentioned, early access to our Asana AI Studio beta program is getting great response from our customers. When we talked to our top 100 customers, virtually every customer wanted to be part of our beta program. Customers are interested in Asana AI studio for everything from translating global communications across over 100 countries in minutes to managing and prioritizing complex work requests and even making other existing applications more effective by adding a workflow layer on top of a customer database. Importantly, customers are most excited with what AI can do inside their Asana workflows. Customers are saying the quality, efficiency, and personalization that we can deliver at scale is groundbreaking. As we're seeing in our beta program, our AI Studio offering is opening up new kinds of conversations across our customer base and helping us access new incremental budget dollars. Through our AI Studio beta program, we've seen AI help us gain more executive mind share and create significant inroads with executive leadership and AI strategy groups. Our AI capabilities are not just operational tools, but strategic assets. This level of access is allowing us to enhance the traditional workflows our customers rely on Asana for such as work intake, product launches and strategic planning, while also giving us the opportunity to support new workflows due to the power, ease of use and flexibility of our AI offering. We're finding that customers don't want to introduce another siloed tool for their AI workflows. They want AI embedded where their employees are already managing their work, and that's in Asana. This engagement at the highest levels of organizations and direct collaboration with AI Councils positions Asana as a key partner in shaping our customers' AI strategies and sets us up well for expanded partnerships and growth opportunities. Turning to Q2, as we expected going into the quarter, ongoing budget scrutiny and longer sales cycles continued to impact our business, consistent with last quarter. As a result, we saw a number of deals pushed out, but they remained in our pipeline. Secondly, the headwinds in the technology vertical continue to weigh down our overall revenue growth. Despite the continued headwinds, we closed some very strategic deals across industries such as automotive, manufacturing, government, energy, among many others. By geography, international-led revenue growth at 12.3% reported and 12.8% year-over-year when we exclude the currency impact. The international team continues to execute well with particular success in key verticals such as energy and manufacturing. In the US, we continued in Q2 to be pressured by early successes in the technology sector. Overall US growth was 9% year-over-year, heavily impacted by the technology sector exposure. Fortunately, we now have put our largest seat adjustments behind us as of last quarter and we believe that the in-quarter dollar-based net retention rate is at a stabilizing point. As Dustin mentioned on a previous call, in order to get to reacceleration, you need to first go through stabilization and that's where we believe we are today. We are well poised for slight reacceleration in the near term and more substantial acceleration in the out quarters. Now, turning to customer dynamics in Q2. Our enterprise customers continue to expand and multiyear deals jumped significantly this quarter, pointing to the types of longer-term partnerships we are forming with large and strategic enterprises. The first sector I'll mention you may be very familiar with. While the overall technology sector has been cycling through various buying dynamics, there are specific cohorts such as AI, where growth is very healthy. For example, we are the de-facto standard across two of the most well-known AI labs, both significantly expanded their use of Asana so more departments can manage their strategic programs and work in a central platform. They also both upgraded to our enterprise plus solution to access enhanced security capabilities and get the most value from our platform. Both companies have seen rapid organic adoption of Asana in departments like marketing, sales, growth, engineering, finance, and more, thanks to improved cross-department collaboration, which is enabling them to release products faster and work more effectively. The energy vertical is another place where the need for innovation and efficiency is fueling demand for Asana. For example, one of the largest energy companies in Iceland selected Asana's enterprise plus solution after a competitive evaluation. They will use Asana to manage their long-term strategic investment projects like the construction of energy plants, low temperature and high temperature geothermal, hydropower, fiber networks and more. Also, the British renewable energy group, specializing in sustainable energy, empowering millions of homes in eight countries, renewed their use of Asana to manage work across their entire company this quarter. Asana is the hub for all business activities, and teams manage everything from hardware development to business strategy planning to vendor management so they can innovate and execute quickly to deliver continued value to their customers. In transportation, we closed a deal with Fleetio, a leader in fleet management software, who upgraded to our Enterprise plus solution this quarter to gain access to our latest features, including Asana AI. They use Asana to manage their core work across the entire company so they can make data-driven decisions and execute on their goals. And we had several deals across the manufacturing sector. Through one of our partners, we landed a subsidiary of a prominent Korean automotive manufacturer this quarter after winning a competitive RFP. They are replacing their legacy project management system with Asana's Enterprise plus. Additionally, a Japan-based global innovator in manufacturing electronics expanded their use of Asana this quarter because of our ease of use, ability to enable seamless collaboration across departments, and ability to integrate Asana into their current tech stack like Microsoft (NASDAQ:MSFT) 365. Now more departments like engineering chain management will manage their work in Asana to drive innovation faster. Within the public sector, a major department within the US government needed a new collaborative work management tool to bring together nine separate units to establish their first project management organization to manage operations and complex projects for the office in charge of planning, policy and resources and they selected Asana. They will use Asana to track the executive team's strategy, budget and finance management, complex project and process management, and work intake from satellite government offices. With Asana, they have visibility across all current projects so they can report to leadership on progress and the support they are providing their satellite offices. This great public sector customer win punctuates the importance of our government strategy as seen by our recent announcement to pursue FedRAMP certification. These are just a few stories to illustrate how well Asana can execute. We are driving initiatives to replicate these playbooks and scale the methodologies to repeatable, consistent processes. We're focused on several key initiatives that will help us develop and transform our business. First, investing in a more consistent post-sales experience to drive expansions. Second, improving velocity by further streamlining sales processes. Third, building on excitement around AI products to improve account engagement and adoption, and finally focusing on strategic industry verticals to further diversify our business. In summary, our strategies are designed to drive seat expansion, deepen our customer relationships, and ultimately grow ARR. And with AI joining the team, we can deliver even greater value to our customers. We're excited about the path ahead and confident in our ability to execute on these initiatives. And with that, I'll hand it over to Tim. Tim Wan: Thank you, Anne. Q2 revenues came in at $179.2 million, up 10% year-over-year. We have 22,948 core customers or customers spending $5,000 or more on an annualized basis. Revenue from core customers grew 11% year-over-year. This cohort represented 75% of our revenues in Q2, up from 74% in the year-ago quarter. We have 649 customers spending $100,000 or more on an annualized basis and this customer cohort grew at 17% year-over-year. As a reminder, we defined these customer cohorts based on annualized GAAP revenues in a given quarter. Our overall dollar-based net retention rate was 98%. Our dollar-based net retention rate for our core customers was 99%. And among customers spending $100,000 or more, our dollar-based net retention rate was 103%. As a reminder, our dollar-based net retention rate is a trailing four-quarter average calculation and thus a lagging indicator. However, it's important to highlight the in-quarter trends as we go through this transition. We believe that the in-quarter dollar-based net retention rate is at a stabilization point in Q2. As I turn to expense items and profitability, I would like to point out that I will be discussing non-GAAP results in the balance of my remarks. Gross margins came in at 89%. Research and development was $56.5 million or 32% of revenue. Sales and marketing was $91.1 million or 51% of revenue. G&A was $27.7 million, or 15% of revenue. During the quarter we also realized the one-time property tax credit related to our corporate headquarter, which lowered our operating expenses by $3.1 million. This was an allocation impacting each OpEx line item. Operating loss was $15.7 million and our operating loss margin was 9%. Net loss was $11.1 million, and our net loss per share was $0.05. Moving on to the balance sheet and cash flow. Cash and marketable securities at the end of Q2 were approximately $521.6 million. Our remaining performance obligation, or RPO, was $394.5 million, up 18% from the year-ago quarter. This is a re-acceleration from last quarter, driven by multiyear deals. 83% of our RPO will be recognized over the next 12 months. That current portion of RPO grew 14% from the year-ago quarter. Our total ending Q2 deferred revenue was $289.2 million, up 11% year-over-year. Q2 free cash flow was $12.8 million, or 7% on a margin basis. However, remember that Q3 free cash flow will be seasonally lower, but we expect to see durable positive free cash flow by the end of Q4. As you know, we announced the $150 million stock repurchase program in June. In Q2, we repurchased $19.7 million of our shares at an average price of $13.64 per share. We remain committed to investing in our growth and managing dilution while returning excess capital to shareholders via share repurchases. Moving to guidance for Q3 fiscal 2025, we expect revenues of $180 million to $181 million, representing growth of 8% to 9% year-over-year. We expect non-GAAP loss from operations of $19 million to $18 million, representing an operating margin of negative 10% at the midpoint of guidance. And we expect a net loss per share of $0.07 assuming basic and diluted weighted average shares outstanding of approximately $227 million. For the full fiscal year 2025, we expect revenues to be in the range of $719 million to $721 million, representing a growth rate of 10% year-over-year. We expect non-GAAP loss from operations of $58 million to $55 million, representing an operating margin of negative 8% at the midpoint of guidance. And we expect net loss per share of $0.20 to $0.19 assuming basic and diluted weighted average shares outstanding of approximately $227 million. As you can see from our guidance and commentary, we continue to see the software macro environment consistent with last quarter and we expect these headwinds to continue. The technology vertical continues to drag our overall growth dramatically. However, we see pockets of reacceleration across some of our key verticals as noted in some of the significant wins Anne mentioned in the last two quarters. Also, we believe that our end-quarter net dollar retention rate and gross retention rates have stabilized, and we're poised for moderate revenue reacceleration in the coming quarters. Therefore, we are tightening the fiscal year guidance range to be more conservative in the back half, but overall underlying trends continue to be stabilizing. In addition, we have made a great deal of progress on operating margins and improving our free cash flow through a disciplined approach to balancing growth and profitability. I'll add just a few words of thanks before we go to Q&A. Thank you, Dustin, and thank you, Anne. And also a big thank you to our employees. It's been an incredible fulfilling time at Asana. The company has grown so much in the nearly eight years I've been here, and I feel fortunate to have had the opportunity to lead as CFO. I also want to thank the investment community and, especially those of you who have been our shareholders over the last several years. I continue to be incredibly bullish about Asana's potential, so this hasn't been an easy decision to make. There's never been a greater need amongst enterprises for a solution like Asana, and I believe the company is poised for even greater things in the years ahead. Before I turn it over to the operator for Q&A, let me hand it over to Dustin for some closing comments. Dustin Moskovitz: Thanks, Tim. One thing I want to add to my formal comments is that I'm planning to enter into a 10b5-1 trading plan as early as September 5th to purchase up to 13.5 million shares of our Class A common stock. The plan is subject to the required cooling-off period. I'm entering into this new plan because I continue to personally believe Asana shares are undervalued given the size and relatively low penetration of the work management market, and I trust in the path we've charted ahead to be the leader in the category while delivering value to our investors. Catherine Buan: Thank you, Dustin. Before I open it up to Q&A, I wanted to note that Mr. Moskovitz's plan is separate from the company's ongoing share repurchase program. And his statements regarding his trading plan to purchase shares of our Class A common stock may be considered forward-looking statements that are subject to risks and uncertainties, including that his trading plan may be modified, suspended, or terminated by him at any time. There can be no assurance that the price and volume parameters of his trading plan will result in purchases of our shares of our Class A common stock in line with his expectations in such forward-looking statements. And with that, operator, we are ready for questions. Operator: [Operator Instructions] Our first question will come from the line of Taylor McGinnis with UBS. Taylor McGinnis: Hi. Thanks so much for taking my questions. Just the first one. So you talked about seeing stabilization and expansion rates in the quarter and being through the worst of the renewal optimization, but it also sounds like upside might have been a little bit lighter due to some deal delays. So, can you just offer what gives you confidence in the acceleration implied in 4Q based on what you're seeing at the start of 3Q? Is that just a function of retention rates improving and starting to maybe see an inflection in revenue growth amongst technology companies or do you need to see an acceleration in other verticals or an improvement in net-net upsells? Thank you so much. Tim Wan: Hey, Taylor. This is Tim. Yeah, I wanted to just say the -- what we had talked about, even in our kind of previous earnings call, is really kind of getting past these bigger renewals that we knew about -- that would likely be downgraded. And I feel like we are past that now, and that will be a tailwind and essentially kind of the stabilization point that we needed to reaccelerate the business. Some of the deals, and I would say, that we had hoped to close in Q2, have moved into Q3. They haven't fallen out of the pipeline. We expect the team and the businesses to essentially close those deals in Q3. So I think we're encouraged kind of by the pipeline, but a lot of it is really just the bottoming out of our gross renewal rate. Taylor McGinnis: Great. Thank you. And then maybe, Dustin, one for you, would just be, you talked a lot about innovation around Asana and AI and what you guys are doing there as well as it relates to some tinkering around pricing and packaging. So can you just maybe talk about when those changes could be a bigger driver of growth down the line and some of the customer feedback that you've heard that that's driving those decisions? Thank you. Dustin Moskovitz: Yeah. So I think you're referring to in the last earnings call, I was talking about the possibility of consumption-based revenue around what we called in that call custom workflows. This time we're introducing a new term, AI Studio, which is the same idea, but this is really a new package that customers will be able to purchase starting in Q4. That will give them the ability to build those custom workflows. I think we're still seeing incredibly great engagement from the customers and the pilot, and they all want to proceed. And I have huge hopes for how far that goes. I'm hoping to be here next year talking about the pilot customers now doing hundreds or even thousands of workflows in Asana, but it's still pretty early to be able to quantify it. What I do know is sales will have something to sell in Q4, and I expect some amount of revenue from that, but not material revenue. And then the hope is that's building pretty quickly into the early quarters of next year when we see some of those early customers start to get into enough volume that they're also triggering the incremental consumption revenue. So I think it will start by buying a package, probably including some professional services, and that will begin by -- in Q4. And then next year, I'm hoping it becomes material revenue, and we'll just know more and more as we go along with the pilot customers and can see what they look like later in the funnel, and that will give us the ability to quantify it better for guidance. Operator: Our next question will come from the line of Josh Baer with Morgan Stanley (NYSE:MS). Josh Baer: Thanks. And Tim, it's been great working with you. Good luck in the next chapter. Wanted to ask about the deals that were pushed. Any sense for why they were pushed? How big they were? How many? And what gives you confidence that they'll close next quarter? Anne Raimondi: Hi, Josh, it's Anne. Thanks so much for your question. So what we saw in the selling environment was, especially for larger deals in larger organizations, is the decision-making cycle has been elongated, but things are relatively stable compared to last quarter in terms of sentiment. While a number of these deals did push out of the quarter, we actually saw a good percentage of them close in August, and the rest are remaining in the pipeline. So a lot of our focus as a team really is on big-deal conversion rates in this environment. And so that's what we're swarming around the teams that are working on the largest deals, both the ones that got pushed into the quarter and the ones that are -- that we're working through in this quarter. So that's where our focus really is, is making sure those large deals have the right resources to get them across the finish line. Josh Baer: Got it. Thanks, Anne. And maybe for Tim or Dustin, just wondering if there's any more context as far as the CFO transition, any more color you could provide as far as the timing and the change. Thank you. Dustin Moskovitz: This is Dustin. Tim should speak up too. But, I think it's easy to look at something like this and think it's in reaction to what's happening right now. But the reality is, this is a much longer arc conversation that Tim and I have been having and just trying to figure out the right time for him to make a transition because he wanted to take some time off and then also think about maybe one last big career move before retirement. And so we've been talking about this for a while. Don't love how the timing ended up, but I think it's pretty much a coincidence. And this just ended up being how it worked out after talking about it for a while, really sad to see him go. But also, as I said, it's bittersweet because we're also getting the opportunity to work with a really talented new CFO in Sona. And I know from experience you lose something important when somebody with Tim's experience walks out the door. But it's also just a chance to kind of shake things up and see things with new eyes. Tim Wan: Yeah. Hey, Josh, this is Tim. Yeah, there was, like Dustin mentioned, this was a very long conversation, and I had wanted to -- I've been here for almost eight years, and it was really an opportunity to take some time off, reset, refresh my mind, and think about what's next. I love this company. I love the people I work with every day. I love the problems that we solve. And honestly, it was an incredibly difficult decision. Operator: Our next question comes from the line of George Iwanyc with Oppenheimer. George Iwanyc: Thank you for taking my question. And Tim, I also wish you the best with what's ahead. Anne, maybe just starting with the technology vertical, can you give us a little bit of color there? Have you reached a point of stability with most of your customers there? And maybe put that in perspective of what you're seeing from a logo insurance standpoint as well? Anne Raimondi: Yeah. Thanks, George. Happy to dive in a little bit more on Tech. While tech was a drag on growth for us this quarter, I do want to just pause and reiterate that tech continues to be super important to us for a number of reasons. It's where we partner with some of the most innovative companies in the world to build our products. We mentioned earlier we're the platform of choice for the two largest LLM companies and we expanded with them this quarter as well as we continue to work really closely with them as we build out our AI solutions. So our ability to partner with technology companies who are innovators and early adopters really helps us to continue to differentiate our product and really shape where the category is going. And so we feel that's also quite important to our growth in the developing verticals such as manufacturing, energy, retail and consumer transportation, and healthcare. Our non-tech sector actually had good mid-teens growth this quarter. And some of that partnership with technology organizations is important to these non-tech customers because the leading organizations really care about implementing the best solution that's available that they can securely and innovatively scale with. So where -- we saw stability, I think, as we mentioned, in terms of our -- where retention and renewals are. I think we'll continue to partner with technology companies, but the diversification outside of tech is one of our main focus areas and we're pleased to see some early signs and positive indicators in those sectors. George Iwanyc: Okay. And just following up on that with respect to logo churn and then maybe give us a sense of where you are with the sales initiatives across the four points that you were highlighting? Anne Raimondi: Yeah, the focus areas that we mentioned investing in more consistent post-sales. Including services, we are seeing that services are incredibly important for larger deals, in particular, migration and deployment. And so those services are either provided by us or our growing partner ecosystem. I mentioned improving velocity, that's really important, especially with the bigger deals. So, further streamlining our sales processes and systems. In particular, we're also excited about the energy and interest in AI products, especially from our largest customers. So it gives us an opportunity actually to have a different conversation, in particular, with AI councils or people within a CIO organization that are leading AI initiatives and kind of opens up new avenues for us. So, while it's early and we're piloting, the positive feedback from our largest and most important customers has been great, and we're excited to bring that to more of our customers when we go GA. And then, just reiterate my earlier point, focusing on strategic industry verticals to really diversify our business. So we're working hard on all those fronts and continue to be excited that most important for us is that our global revenue leadership team is in place and working really well together. Operator: Our next question will come from the line of Alex Zukin with Wolfe Research. Rich Magnus: Hey, guys. This is Rich Magnus on for Alex. Can you talk more about how the competitive landscape has evolved over the last 12 months? And separately, can you give us some more color on how to think about billings trends over the next two quarters? Thanks. Dustin Moskovitz: Yeah, this is Dustin. Not going to be surprised to hear this. We haven't seen a whole lot of change in the competitive landscape in recent months. I think we're seeing -- we think we're in a lot of the consolidation deals and we're seeing customers hesitate to make a decision either way. And so, I think that's sort of definitionally what our competitors are seeing as well who are in those deals. Anne, do you want to take the second half of that? So the question was just like, what is giving us confidence about billings in the next two quarters? Is that fair? Rich Magnus: Yeah, for sure. Anne Raimondi: Yeah. I think what's giving us confidence is just the continued improvement across our revenue operations and execution. I think some of the things that we're also seeing early signs are, we've been investing a lot in enablement and ramping new reps. That's been a big initiative I mentioned earlier, just investment in streamlining our processes and that's both operational processes, but also systems. Just making sure frankly, that more of our reps' time is spent strategically with customers and prospects. And then just consistency around being able to close the larger deals. So I think as that work continues and we're seeing that in, across all of our regions. Maybe I'll also dig in a little bit deeper. This quarter, some of the areas and regions that we saw good consistent growth were actually outside of the US. So by geography, EMEA and Japan led our revenue growth and grew about 12% year-over-year. And so, those teams continue to execute really well, especially on larger deals. Those leadership teams have been in place a bit longer than our Americas team. So those are good leading indicators that North America, where we've -- where our general managers, has been in place for two quarters, and has been really working with the team there, we'll be able to sort of see that in the coming quarters. Rich Magnus: Thanks, guys. Operator: Our next question will come from the line of Michael Funk with Bank of America (NYSE:BAC). Michael Funk: Yeah. Hi. Thank you for the questions this evening. And, Tim, thank you again for all the help with the company. So a couple of, if I could. I know you mentioned a couple of times that some deals stalled in the pipeline during the quarter. Can you be more specific about where in the pipeline they stalled? You know, presumably, you have metrics on deal closure rate certainty as you're closer to the end of the pipeline with the deal versus the beginning. So any additional color or commentary there would be appreciated. Anne Raimondi: Sure. Happy to add some more commentary. As our focus has been on moving up market and working with larger enterprise customers, we are seeing more back-end loading in the quarter on the larger deals. I think that's sort of just a natural evolution of our focus-up market. And so, what we saw in those deals was that they sort of slipped from the end of Q2, as I mentioned, into Q3. But again, we're seeing signals that we're able to close those in Q3. So a lot of that is just a pattern that we're seeing as we work with larger deals and larger enterprise customers. And part of that is strengthening our muscle to be able to close those in a quarter, and that's the focus for us. Michael Funk: Okay. And then I think investor focus and stock reaction aftermarket is primarily the 3Q guide and the greater weighting on 4Q now, I think presume or the implied for 4Q sequential dollar step up. It'd be one of the larger moves in the last couple of years. So what concrete breakdown of the factors can you give us -- to give us confidence in that 4Q revenue step up? Whether that is your forecast for less seat churn, large deal go-lives that you have towards the end of pipeline, anything to help people get more confidence in the back-end loading for the year would be appreciated. Tim Wan: Yeah. Hey, Michael, this is Tim. I think there's really two points. One, as I mentioned, we know what the renewal base looks like, and many of the larger renewals and downgrades that we had to lap have already happened. And we feel really confident around the base of the rates that we're going into the quarter with respect to renewal. So we view that less of a headwind. So that's one. Two, a good majority of the deals that did move from Q2 and Q3 have already closed. The pipeline continues to be healthy and I feel like we have really good visibility in terms of the dials and the levers converting those deals. So, it's really a combination of just like, hey, lapping some of the more difficult renewals, which we have, and two, kind of what we're going into the quarter with. So if we close those deals in Q3, generally the GAAP revenue you'll see will impact Q4. So... Operator: Our next question will come from the line of Brent Thill with Jefferies. Brent Thill: Tim, congrats on the eight-year run, and looking forward to the next chapter. Dustin, you're not alone in terms of what's happening in the software industry. It feels like many are taking down guide or seeing things pushed out. I guess from your perspective, what do you think is going on, if you had to take a look at a 40,000-foot level? Is it consuming what customers have, is it AI stall? Is there a blend of things that you're seeing? What do you think is actually causing this stall out across the industry? Dustin Moskovitz: Yeah. There are a few big trends. Obviously, I think that especially what we're seeing in tech is still kind of the unwinding of the over-hiring and overspending that we saw at the beginning of the pandemic. And it's the same thing we're doing with our own internal IT budgets, as we're just being incredibly judicious about starting new vendor relationships. We're trying to consolidate vendors. We're actively deprovisioning seats. And all of that is just about budget control. And additionally, I think IT and procurements is taking the opportunity to try and consolidate and choose the vendors that they're going to bet on for the long run. But at the same time, they're trying to do that within a constrained both dollar and sort of energy environment internally. And it takes a little bit of change management to do that consolidation and to push it through and to make those big decisions that they're going to live with for a while. And so, they just have like a little bit less capacity to do that, and then that all couples with what I think is massive uncertainty in the economic environment, and then also just with how AI is going to play out. So we've been talking a lot about this idea lately, that the coming wave of AI transformation is even bigger than what people have been calling digital transformation for the past 10 years. And I think that some enterprises are trying to figure out whether and where it may actually leapfrog their digital transformation and it would actually be kind of a waste of time to invest in a technology that's just going to be sort of obsoleted by something else in one or two years. So that's a pretty difficult environment to make decisions. Again, we are often faced with those same sorts of decisions ourselves, internally, and end up doing proofs of concepts, some things, and then pulling back and trying another vendor, trying to solve things in Asana or not in Asana. And so, I'm very sympathetic, and strategically what we're trying to do is meet the customers in the moment and provide a solution that can be part of their digital transformation, continuity, and the answer to AI transformation for them by embedding AI Studio -- by delivering AI studio and giving them the opportunity to embed AI directly in the workflows where they already lived. Brent Thill: Great. Quick one for Tim or Anne. About a year ago, Ed joined and took over on the sales side. Can you walk through the changes kind of how far you're in implementing some of those changes that he's made? Or maybe they're fine tunes. I don't know how you would characterize his strategic actions, but if you can just give us a sense of kind of where you're at for that journey, having onboard since last August? Anne Raimondi: Yeah, I'm happy to cover that. So, yeah, Ed just crossed kind of the one-year mark with us. And I would say the one of the most important things that he's been doing, we now have a global revenue leadership team in place, general managers in all of our most important regions as well as new enterprise sales leaders in our top markets. So that's been also really important. Ed also brought on board a new Head of Global Channel, who's now been with us almost two quarters, has been also working really diligently with our post-sales team, which is really important. Both services, customer success, renewals teams across every region. And so I'd say the most important things has just been ensuring that we have the right team around the world and in all of our top markets. I think some other focus areas have been really diving in on verticals -- our most important verticals outside of technology. And so that's also where we're seeing good progress. And I would also say just a really tight partnership with our global marketing teams. So some of the things where we're seeing grid signal, that's helping us build the right kind of pipeline and the right relationships with director plus decision-makers and C-level decision makers is all our investments in our Work Innovation Summit, that pacing has been really strong this year. We brought that event to all of our markets. We have our two most important events coming up in October and November. And just the -- I think the customer engagement and the volume of responses and the ability to really have our global team kind of meet our customers where they are, as Dustin said, but also meet with prospects and decision-makers who are looking at their medium to long term AI investments. So I think those are all a result of the investment that Ed has been putting in place over the last year. And we're excited to see more to come. Operator: Our next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Jackson Ader: Great. Thanks for taking our questions, guys. Anne or Dustin, the first question for you guys on the impact of the tech sector. How much of the modest slope in the reacceleration curve is kind of due to that sector's subdued spending now? And then how much do you think that the steepening of that curve could be reduced by tech coming back in the future as being one of the, I assume, an early adopter or a frequent adopter of some of your AI innovations? Dustin Moskovitz: Not quite sure quite how to answer that, but I think we've been clear that the tech is a drag on overall growth. And so, we're seeing some segments that are growing faster than our overall growth rate right now, and look like they're starting to accelerate. And so, if tech stopped being a drag, we would at least go up to those overall -- to the growth rates of the better segments. And if it re-accelerated, yeah, that would be fantastic. We're certainly not modeling it that way, and it's really hard to know the timing. But, if AI transformation really takes off and Asana is seen as the solution of choice for that, then that is definitely an excellent outcome for us. Jackson Ader: Right. Okay. All right. Thank you. And then, Dustin, a couple of quick follow-ups on the 10b5-1. I know, I've asked this before, but I think it's just relevant again. Do you worry at all about like the -- your stepping in again and again at some point sends a counterproductive message to employees or the company around operational and financial discipline? And then second, is there anything that we should take away from the relative size of this plan that starts a couple of days from now versus the 30 million shares from last year? Dustin Moskovitz: The operational discipline thing would make more sense to me if I was funding the operations of the company, but I think it's pretty independent. Our commitment to discipline on free cash flow and building up margins, I don't think has changed much by me being a buyer in the market. In terms of the timing, I just wanted to point out, you know, people often sort of read into when I put the plans in market or even the days they're buying and what's going on in the market or going on in the business. But I actually have to plan, like, way in advance. And so, the company buying plan is very different. In fact, during the open window, it can kind of be aggressive on a day-to-day basis. But for me, I've got the cooling off period, and then it sort of set it and forget it on what the plan is. And, historically, I found it difficult to sort of predict what the market was going to do to the stock, especially during all the uncertainty with inflation and with everything that was happening in the years before that. And the reason I'm entering the market now is I think this is different. I think this is a point of stabilization, a low point -- at a point of stabilization for the economy and for the tech sector and relatedly for the Asana business. And even though I think there will be some continued uncertainties, I just feel more confident that this is a time in the market when I can do this very slow process to declare my intentions way in advance and not end up getting too rocked by exogenous factors. But it's not something I plan to do again and again. The sizing -- the number of shares is really a function of the price schedule. And I made -- more made a decision around the amount of money. And I'll just say also the -- I found it interesting to put in plans, announce a sort of up-to-number, and then have people sort of anchor around that. I'll just emphasize there is a price schedule. And I think what happened with the last plan had as much to do with sort of prevailing market conditions as what my original intentions were. So pretty hard to give you a lot more detail than that without sort of revealing enough information to be front-run. But that's kind of where I'm at. I'm intrigued, I guess, by this operational discipline thing, but that isn't really a primary lens I've had for thinking about it. Operator: Our last question will come from the line of Patrick Walravens with Citizens JMP. Patrick Walravens: Great. Thank you. So bigger picture here, Dustin. How do you see this whole world of AI agents playing out? I mean, you guys have yours and you have nine different features, I think, that are generally available from one of your slides. Bret Taylor just launched Sierra. Benioff just announced Agentforce and said that was going to be the highlight of Dreamforce. So what should investors expect in terms of how these things are going to be differentiated and how do you see it playing out? Dustin Moskovitz: Yeah. I think Agent is an interesting term because it means a lot of different things to different people. One of the things that I've seen a lot of people try and deliver and try and buy is really almost the equivalent of a humanoid physical robot, just something that could theoretically be a drop-in replacement to an actual person you have in the yard. We even had that cycle with BambooHR wanting to onboard them and have them be part of the HRIS system. And that I think, as with humanoid robots, I think we're still a few years away from at least. And in the meantime, our point of view is we want to focus AI on more specific jobs to be done. So it's a little more analogous to the robots that Amazon (NASDAQ:AMZN) uses in its factory warehouses that are specially designed for that purpose and have more well-defined objectives, and sort of rules of engagement. And I think that is how Asana agents are going to show up. You're going to be able to give them a specific workflow to go off of specific instructions for each step of that workflow, a predefined process, and knowledge bases that sort of, yeah, give it the rules for the road. And I think that will make customers a lot more successful because they'll be able to deploy it in exactly the places where it's possible to be productive without worrying about things kind of going off the rails or say, a customer chat agent that offers a refund you didn't intend just being able to put these into much more sort of predefined workflows, I think is how customers are going to find the slope of productivity. In terms of the specific competitors you mentioned, I think that agents will do sort of context-relevant things. And so it'll matter a little more what the product is they're being introduced into. And I think, Sierra, I don't know a whole ton about it, but I think they're coming at it more from the sort of Swiss Army knife approach. And I think that it's going to be difficult to get that deployed in the short run. Patrick Walravens: Awesome. Thank you. And Tim, if I could ask you a follow-up? So, I mean, it's been great working with you, and looking forward to getting to do it again. But what do you think is the number one metric that investors should be looking at for Asana, once you -- after you've gone, over the next year or two, what's the number one thing we should be focused on to see that this business is turning around? Tim Wan: Yeah, I think the most important thing is seats. I think that's one of the North Star metrics that we run the business on. The more seats we can deploy, the more value we can deliver across an organization. And as we add more SKUs and some of these AI functionality, I think we'll be able to really differentiate the product and demonstrate a lot more value where we'll have more pricing power over time. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Catherine Buan for closing remarks. Catherine Buan: Thank you so much for joining us today, and we look forward to see you on the road this quarter. We'll be at the Piper Sandler Conference, the Wolfe Conference, the Deutsche Bank (ETR:DBKGn) Bus Tour, the Keybanc bus tour, and those are just a few off the top of my head. Most of all, please join us on October 22nd in New York at our own Work Innovation Summit, and we look forward to seeing you there. Thank you again. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Asana, Inc. (ASAN) Q2 2025 Earnings Call Transcript

Taylor McGinnis - UBS Josh Baer - Morgan Stanley George Iwanyc - Oppenheimer Rich Magnus - Wolfe Research Michael Funk - Bank of America Brent Thill - Jefferies Jackson Ader - KeyBanc Capital Markets Patrick Walravens - Citizens JMP Good day and thank you for standing by. Welcome to the Asana's Second Quarter Fiscal Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Catherine Buan, Head of Investor Relations. Please go ahead. Catherine Buan Good afternoon and thank you for joining us today's -- on today's conference call to discuss the financial results for Asana's second quarter fiscal year 2025. With me on today's call are Dustin Moskovitz, Asana's Co-Founder and CEO; Anne Raimondi, our Chief Operating Officer and Head of Business; and Tim Wan, our Chief Financial Officer. Today's call will include forward-looking statements including statements regarding our expectations for free cash flow, our financial outlook, strategic plans, our market position, and growth opportunities. Forward-looking statements involve risks, uncertainties and assumptions that may cause our actual results to be materially different from those expressed or implied by the forward-looking statements. Please refer to our filings with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q for additional information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus their closest GAAP equivalents are available in our earnings release, which is posted on our investor relations webpage at investors.asana.com. And with that, I'd like to turn the call over to Dustin. Dustin Moskovitz Thank you, Catherine, and thank you all for joining us on the call today. In the second quarter, Asana continued to execute on our transition to the enterprise and make strides on Asana AI. I'll go through a few highlights from the quarter and then jump into some of the key trends that are shaping our industry and informing our strategy to be the enterprise leader in the category. In Q2, our revenues grew 10% year-over-year, ahead of our guidance and consistent with our expectations that Q2 would be a baseline for stabilization going forward. We saw great leading indicators for growth in pockets of our business, including key wins in manufacturing, energy, transportation and government, which Anne will talk about. Excluding the technology vertical, our Q2 revenue growth rate would have been in the mid-teens. We also reported free cash flow positive of $12.8 million, or 7% on a free cash flow margin basis in Q2, reflecting our continued focus on operational discipline. The number of customers spending over $100,000 or more grew 17% year-over-year. We had a record number of multi-year deals as we continue to build partnerships with industry leaders and the most innovative companies in the world, who are redefining how they work. In fact, two of the most well-known AI lab companies had significant expansions in Q2 as they adopted Asana internally and partnered with us on the technology front as well. We are clearly on the right path and are confident that our business will accelerate, however, the macro headwinds persist. Also, the technology vertical remains a drag on our overall growth. At the same time, we see encouraging signs in some of our top verticals, such as retail and consumer goods and media and entertainment. We have more work to do, and this quarter marks a stabilization point from which we're well poised to inflect in the coming quarters. Today, we're at a pivotal moment where AI, particularly Generative AI, has enormous potential to revolutionize work management and reshape the software industry. This era of AI transformation is poised to be as significant as, if not more than, the digital transformation trend that preceded it. At Asana, we're laser-focused on unlocking the potential of AI for our customers. At our Work Innovation Summit in San Francisco this June, we previewed for the first time Asana AI workflows, a groundbreaking advancement that leverages AI to manage your work, helping our customers tackle complex workflows and elevate teamwork with AI. These AI workflows, which have been in beta since June, will be part of our upcoming paid offering, Asana AI Studio, launching in October, the AI studio platform will allow customers to build, deploy, and enhance workflows with AI teammates taking on some of the work. In AI studio, a program manager or any designated team member can dictate where an AI teammate can start doing useful work without anyone else having to learn something new, adopt a new application, or change their behavior. Importantly, employees don't need to go elsewhere to access this AI capability. It's embedded right where they work every day. This provides a practical powerful solution for organizations trying to adopt AI internally. It also means you have existing integrations to all your important tools across CRM, finance, HR, productivity suites, and more. This supports our long-term strategy to be the hub that moves work forward across your systems using AI. Of course, automated workflows and workflow builders have been around for years, but now customers have the ability to design these workflows in Asana with AI teammates to assist with any step in the workflow. Customers will be able to subscribe to AI studio builder and begin creating and deploying AI workflows. This model will allow customers to unlock AI actions on a consumption basis, allowing enterprises to buy exactly what they need to fit their organization at that moment in time. It's been exciting to see the early momentum in our AI Studio beta program since we rolled it out in June. The Beta program has already attracted industry leaders across various sectors, including media, technology, financial services, manufacturing, healthcare, professional services, and consumer goods. There's a healthy amount of skepticism around AI and the value it's currently providing in the enterprise. My view is we're still early in the adoption cycle, especially in businesses, and customers are just beginning to successfully leverage the potential and understand how to apply it effectively to more parts of their business. AI is powerful, but it demands new skills and behaviors from users. Most of these capabilities are currently being offered in chat apps and copilots, leaving it up to every individual to determine how to extract value. Likewise, autonomous agents are not ready to take over real roles in an organization. They're too unpredictable and unreliable. Effective AI adoption means integrating AI directly into everyday work and workflows, where AI can drive meaningful and measurable impact at scale, complementing human efforts rather than replacing them. Let me detail a few specific early use cases from actual customer implementations to make this real for all of you. Regardless of industry or size, every company has work and workflows that touch multiple departments and teams, such as strategic planning, customer service, store openings, procurement, and due diligence. Coordinating work cross-functionally is notoriously difficult because it extends across teams, tools and geographies. Work intake is oftentimes the bridge across a lot of these teams' tools and processes, and now Asana AI teammates can not only improve the process holistically, it can manage and do a lot of the work. Each of the four phases of cross-functional work gets easier, including intake. This is where AI teammates are able to refine tasks, extract data, triage requests, prioritize work, communicate with requesters, and route tasks. Next stage is planning, where AI teammates are able to summarize requests, conduct research, including via integrations with other tools, and recommend next steps. Execution, where AI teammates are able to draft content, do translations, incorporate feedback, and answer questions using various data sources. And finally, reporting reflection. This is where AI teammates are able to update metadata for reporting and suggest retrospective topics, driving continuous improvement. One of our customers, a global cybersecurity leader, has tested how our AI teammates can contribute to their global marketing organization and significantly improve their processes for intaking email requests to execution. Before Asana AI teammates, they faced challenges with missing information and submissions, time-consuming prioritization meetings, and delays in global market launches. Our AI teammates have shown how we can address these pain points comprehensively. So the first step is requesting intake. AI can now evaluate requests at the point of submission, auto-naming them for clarity, and proactively flagging missing information. Requests are summarized in natural language, making their relative importance clear at a glance. Second step, prioritization. We've shown how we can streamline their alignment meetings with better first stab prioritization, reducing the time spent on these sessions. Third step, execution. Perhaps most impressively, this customer has expressed how this can eliminate translation delays that have previously caused more than two-week gaps between English and other market launches. Now, all launches can happen simultaneously, ensuring no market feels deprioritized and the marketing organization can deliver a more consistent, improved customer experience globally. It's worth noting that this AI-powered solution replaces the need for dedicated, industry-specific translation software or services that companies might traditionally use for such tasks. And we expect to offer this for much less than what those traditional translation services cost, providing significant value and cost savings to customers. Last, reporting. In the reporting reflection phase, AI can update metadata, which, you know, as custom fields, to inform work reporting and suggest topics for retrospectives. This helps teams capture learnings and insights more effectively, leading to continuous improvements in their processes. Let me share another customer example. A global leader in outdoor advertising has been testing Asana AI teammates for their creative request intake process across regions. The team is very encouraged by the potential hearing. In the words of the VP of marketing operations, it allows them to prioritize the bigger things they want to do to show more business impact and affect the bottom line. Importantly, this customer views AI as an enabler for human creativity and strategic thinking, not as a replacement for human work. This encapsulates our vision for AI teammates, tools that enhance human capabilities, drive efficiency and ultimately contribute to our customers' bottom line. These stories exemplify how our AI capabilities built on the foundation of our unique and proprietary Work Graph data model can drive efficiency, improve collaboration, and ultimately contribute to better business outcomes for our customers. It's a testament to the power of AI teammates working alongside human teams to enhance productivity and strategic impact. These are just a few early examples of AI teammates in action. We hope to be able to report next year that we have hundreds or even thousands of such workflows at a meaningful number of our customers. Now, let me talk about how we're capturing the consolidation opportunity. We remain in a budget-focused environment and customers are looking for consolidation opportunities. Our proven ability to scale the structural advantages of the Work Graph, especially as it relates to AI, and our focus on essential functions across the enterprise, makes us particularly well-suited to capitalize on this opportunity. We believe we're the only collaborative work management platform that's proven at scale for large enterprises and we have several customers with over 10,000 seats and one customer with 200,000 seats actively deployed. In practice, there's no organization too big for Asana, and we've proven that the value and differentiation of Asana accrues with scale, thanks to our unique and differentiated data model. To support this effort and help our customers realize more value even faster, we're expanding the baseline offering of our enterprise tiers. In addition to premium AI features, we're adding more high-value functionality like request tracking and work intake, resource management, enhanced executive reporting, and visualizations of how goals and work are inextricably linked in Asana. We're also rolling out unlimited view-only licenses to see work in Asana with an in-product path to request a paid license to comment or add work. We think this has the potential to meaningfully contribute to paid seat growth within our accounts. Finally, we announced our official commitment to pursue FedRAMP certification, which will unlock new market opportunities in government agencies and other regulated industries. These initiatives are designed to help enterprises quickly achieve the critical mass needed to fully leverage the AI-enhanced work graph and consolidate their work management needs on a single, powerful platform. Finally, let me explain how we believe AI will help us drive revenue and adoption in three key ways. First, it already enhances the value we deliver in our core work management functionality, such as smart goals and smart status features. This is what customers get in most of our packages today, depending on their tiers. Second, AI is enabling us to introduce new add-ons, and we have specific ones we're developing now. Resource planning will be a license-based add-on, for example. And third, we continue to believe in the potential of usage-based AI revenue. We're in the early stages here, but we're learning more on this front every day from our customers in our AI Studio beta program, which we're expecting to formally launch soon. In closing, we're clearly making progress with our enterprise strategy, but the shape of the reacceleration curve will be very modest in the next few quarters and more pronounced later. We're confident it'll happen because we've already seen it in some segments of the business, and we're beginning to see stabilization in others. We remain committed to a sustained, positive free cash flow by the end of Q4. We're winning strategic customers across important industries, closing more multi-year deals, and investing in AI to meet enterprise demands. We're excited to share more of our innovation and customer success stories at the Work Innovation Summit in New York City on October 22nd and again in London on November 13th. We hope to see you there. Before I hand it over to Anne, I'd like to also say a few words about the announcements we made today in conjunction with our earnings release. As you've probably read, we announced Tim's departure and the arrival of a new CFO. Change is always bittersweet, but it's part of being in a high-growth environment. As many of you already appreciate, Tim has been a great leader, partner, and friend for all of us at Asana for almost eight years, and now, he'll be handing over the Baton. He's been an integral part of the Asana journey, joining Asana in 2017, building financial infrastructure to help us scale, and navigating us through our entry into the public markets, and improving operating margins dramatically while we continue to invest in growth. I'll miss working with Tim. He's been a strong partner to me and the Asana leadership team, but he'll remain on as an advisor to help in the transition. Tim, we're very grateful for your many contributions. At the same time, I'm excited to announce our new Chief Financial Officer, Sonalee Parekh. Sonalee is a Seasoned Finance Executive with over 25 years of experience in high-growth technology. Most recently, she was CFO of RingCentral. Sonalee brings deep operational and financial experience in leading companies at scale. I look forward to partnering with her in our next stage of growth. Thanks, Dustin. And I'll just echo Dustin's sentiment on both fronts. And Tim, thank you for everything. You will certainly be missed, but definitely not forgotten. As Dustin mentioned, early access to our Asana AI Studio beta program is getting great response from our customers. When we talked to our top 100 customers, virtually every customer wanted to be part of our beta program. Customers are interested in Asana AI studio for everything from translating global communications across over 100 countries in minutes to managing and prioritizing complex work requests and even making other existing applications more effective by adding a workflow layer on top of a customer database. Importantly, customers are most excited with what AI can do inside their Asana workflows. Customers are saying the quality, efficiency, and personalization that we can deliver at scale is groundbreaking. As we're seeing in our beta program, our AI Studio offering is opening up new kinds of conversations across our customer base and helping us access new incremental budget dollars. Through our AI Studio beta program, we've seen AI help us gain more executive mind share and create significant inroads with executive leadership and AI strategy groups. Our AI capabilities are not just operational tools, but strategic assets. This level of access is allowing us to enhance the traditional workflows our customers rely on Asana for such as work intake, product launches and strategic planning, while also giving us the opportunity to support new workflows due to the power, ease of use and flexibility of our AI offering. We're finding that customers don't want to introduce another siloed tool for their AI workflows. They want AI embedded where their employees are already managing their work, and that's in Asana. This engagement at the highest levels of organizations and direct collaboration with AI Councils positions Asana as a key partner in shaping our customers' AI strategies and sets us up well for expanded partnerships and growth opportunities. Turning to Q2, as we expected going into the quarter, ongoing budget scrutiny and longer sales cycles continued to impact our business, consistent with last quarter. As a result, we saw a number of deals pushed out, but they remained in our pipeline. Secondly, the headwinds in the technology vertical continue to weigh down our overall revenue growth. Despite the continued headwinds, we closed some very strategic deals across industries such as automotive, manufacturing, government, energy, among many others. By geography, international-led revenue growth at 12.3% reported and 12.8% year-over-year when we exclude the currency impact. The international team continues to execute well with particular success in key verticals such as energy and manufacturing. In the US, we continued in Q2 to be pressured by early successes in the technology sector. Overall US growth was 9% year-over-year, heavily impacted by the technology sector exposure. Fortunately, we now have put our largest seat adjustments behind us as of last quarter and we believe that the in-quarter dollar-based net retention rate is at a stabilizing point. As Dustin mentioned on a previous call, in order to get to reacceleration, you need to first go through stabilization and that's where we believe we are today. We are well poised for slight reacceleration in the near term and more substantial acceleration in the out quarters. Now, turning to customer dynamics in Q2. Our enterprise customers continue to expand and multiyear deals jumped significantly this quarter, pointing to the types of longer-term partnerships we are forming with large and strategic enterprises. The first sector I'll mention you may be very familiar with. While the overall technology sector has been cycling through various buying dynamics, there are specific cohorts such as AI, where growth is very healthy. For example, we are the de-facto standard across two of the most well-known AI labs, both significantly expanded their use of Asana so more departments can manage their strategic programs and work in a central platform. They also both upgraded to our enterprise plus solution to access enhanced security capabilities and get the most value from our platform. Both companies have seen rapid organic adoption of Asana in departments like marketing, sales, growth, engineering, finance, and more, thanks to improved cross-department collaboration, which is enabling them to release products faster and work more effectively. The energy vertical is another place where the need for innovation and efficiency is fueling demand for Asana. For example, one of the largest energy companies in Iceland selected Asana's enterprise plus solution after a competitive evaluation. They will use Asana to manage their long-term strategic investment projects like the construction of energy plants, low temperature and high temperature geothermal, hydropower, fiber networks and more. Also, the British renewable energy group, specializing in sustainable energy, empowering millions of homes in eight countries, renewed their use of Asana to manage work across their entire company this quarter. Asana is the hub for all business activities, and teams manage everything from hardware development to business strategy planning to vendor management so they can innovate and execute quickly to deliver continued value to their customers. In transportation, we closed a deal with Fleetio, a leader in fleet management software, who upgraded to our Enterprise plus solution this quarter to gain access to our latest features, including Asana AI. They use Asana to manage their core work across the entire company so they can make data-driven decisions and execute on their goals. And we had several deals across the manufacturing sector. Through one of our partners, we landed a subsidiary of a prominent Korean automotive manufacturer this quarter after winning a competitive RFP. They are replacing their legacy project management system with Asana's Enterprise plus. Additionally, a Japan-based global innovator in manufacturing electronics expanded their use of Asana this quarter because of our ease of use, ability to enable seamless collaboration across departments, and ability to integrate Asana into their current tech stack like Microsoft 365. Now more departments like engineering chain management will manage their work in Asana to drive innovation faster. Within the public sector, a major department within the US government needed a new collaborative work management tool to bring together nine separate units to establish their first project management organization to manage operations and complex projects for the office in charge of planning, policy and resources and they selected Asana. They will use Asana to track the executive team's strategy, budget and finance management, complex project and process management, and work intake from satellite government offices. With Asana, they have visibility across all current projects so they can report to leadership on progress and the support they are providing their satellite offices. This great public sector customer win punctuates the importance of our government strategy as seen by our recent announcement to pursue FedRAMP certification. These are just a few stories to illustrate how well Asana can execute. We are driving initiatives to replicate these playbooks and scale the methodologies to repeatable, consistent processes. We're focused on several key initiatives that will help us develop and transform our business. First, investing in a more consistent post-sales experience to drive expansions. Second, improving velocity by further streamlining sales processes. Third, building on excitement around AI products to improve account engagement and adoption, and finally focusing on strategic industry verticals to further diversify our business. In summary, our strategies are designed to drive seat expansion, deepen our customer relationships, and ultimately grow ARR. And with AI joining the team, we can deliver even greater value to our customers. We're excited about the path ahead and confident in our ability to execute on these initiatives. Thank you, Anne. Q2 revenues came in at $179.2 million, up 10% year-over-year. We have 22,948 core customers or customers spending $5,000 or more on an annualized basis. Revenue from core customers grew 11% year-over-year. This cohort represented 75% of our revenues in Q2, up from 74% in the year-ago quarter. We have 649 customers spending $100,000 or more on an annualized basis and this customer cohort grew at 17% year-over-year. As a reminder, we defined these customer cohorts based on annualized GAAP revenues in a given quarter. Our overall dollar-based net retention rate was 98%. Our dollar-based net retention rate for our core customers was 99%. And among customers spending $100,000 or more, our dollar-based net retention rate was 103%. As a reminder, our dollar-based net retention rate is a trailing four-quarter average calculation and thus a lagging indicator. However, it's important to highlight the in-quarter trends as we go through this transition. We believe that the in-quarter dollar-based net retention rate is at a stabilization point in Q2. As I turn to expense items and profitability, I would like to point out that I will be discussing non-GAAP results in the balance of my remarks. Gross margins came in at 89%. Research and development was $56.5 million or 32% of revenue. Sales and marketing was $91.1 million or 51% of revenue. G&A was $27.7 million, or 15% of revenue. During the quarter we also realized the one-time property tax credit related to our corporate headquarter, which lowered our operating expenses by $3.1 million. This was an allocation impacting each OpEx line item. Operating loss was $15.7 million and our operating loss margin was 9%. Net loss was $11.1 million, and our net loss per share was $0.05. Moving on to the balance sheet and cash flow. Cash and marketable securities at the end of Q2 were approximately $521.6 million. Our remaining performance obligation, or RPO, was $394.5 million, up 18% from the year-ago quarter. This is a re-acceleration from last quarter, driven by multiyear deals. 83% of our RPO will be recognized over the next 12 months. That current portion of RPO grew 14% from the year-ago quarter. Our total ending Q2 deferred revenue was $289.2 million, up 11% year-over-year. Q2 free cash flow was $12.8 million, or 7% on a margin basis. However, remember that Q3 free cash flow will be seasonally lower, but we expect to see durable positive free cash flow by the end of Q4. As you know, we announced the $150 million stock repurchase program in June. In Q2, we repurchased $19.7 million of our shares at an average price of $13.64 per share. We remain committed to investing in our growth and managing dilution while returning excess capital to shareholders via share repurchases. Moving to guidance for Q3 fiscal 2025, we expect revenues of $180 million to $181 million, representing growth of 8% to 9% year-over-year. We expect non-GAAP loss from operations of $19 million to $18 million, representing an operating margin of negative 10% at the midpoint of guidance. And we expect a net loss per share of $0.07 assuming basic and diluted weighted average shares outstanding of approximately $227 million. For the full fiscal year 2025, we expect revenues to be in the range of $719 million to $721 million, representing a growth rate of 10% year-over-year. We expect non-GAAP loss from operations of $58 million to $55 million, representing an operating margin of negative 8% at the midpoint of guidance. And we expect net loss per share of $0.20 to $0.19 assuming basic and diluted weighted average shares outstanding of approximately $227 million. As you can see from our guidance and commentary, we continue to see the software macro environment consistent with last quarter and we expect these headwinds to continue. The technology vertical continues to drag our overall growth dramatically. However, we see pockets of reacceleration across some of our key verticals as noted in some of the significant wins Anne mentioned in the last two quarters. Also, we believe that our end-quarter net dollar retention rate and gross retention rates have stabilized, and we're poised for moderate revenue reacceleration in the coming quarters. Therefore, we are tightening the fiscal year guidance range to be more conservative in the back half, but overall underlying trends continue to be stabilizing. In addition, we have made a great deal of progress on operating margins and improving our free cash flow through a disciplined approach to balancing growth and profitability. I'll add just a few words of thanks before we go to Q&A. Thank you, Dustin, and thank you, Anne. And also a big thank you to our employees. It's been an incredible fulfilling time at Asana. The company has grown so much in the nearly eight years I've been here, and I feel fortunate to have had the opportunity to lead as CFO. I also want to thank the investment community and, especially those of you who have been our shareholders over the last several years. I continue to be incredibly bullish about Asana's potential, so this hasn't been an easy decision to make. There's never been a greater need amongst enterprises for a solution like Asana, and I believe the company is poised for even greater things in the years ahead. Before I turn it over to the operator for Q&A, let me hand it over to Dustin for some closing comments. Dustin Moskovitz Thanks, Tim. One thing I want to add to my formal comments is that I'm planning to enter into a 10b5-1 trading plan as early as September 5th to purchase up to 13.5 million shares of our Class A common stock. The plan is subject to the required cooling-off period. I'm entering into this new plan because I continue to personally believe Asana shares are undervalued given the size and relatively low penetration of the work management market, and I trust in the path we've charted ahead to be the leader in the category while delivering value to our investors. Catherine Buan Thank you, Dustin. Before I open it up to Q&A, I wanted to note that Mr. Moskovitz's plan is separate from the company's ongoing share repurchase program. And his statements regarding his trading plan to purchase shares of our Class A common stock may be considered forward-looking statements that are subject to risks and uncertainties, including that his trading plan may be modified, suspended, or terminated by him at any time. There can be no assurance that the price and volume parameters of his trading plan will result in purchases of our shares of our Class A common stock in line with his expectations in such forward-looking statements. And with that, operator, we are ready for questions. [Operator Instructions] Our first question will come from the line of Taylor McGinnis with UBS. Taylor McGinnis Hi. Thanks so much for taking my questions. Just the first one. So you talked about seeing stabilization and expansion rates in the quarter and being through the worst of the renewal optimization, but it also sounds like upside might have been a little bit lighter due to some deal delays. So, can you just offer what gives you confidence in the acceleration implied in 4Q based on what you're seeing at the start of 3Q? Is that just a function of retention rates improving and starting to maybe see an inflection in revenue growth amongst technology companies or do you need to see an acceleration in other verticals or an improvement in net-net upsells? Thank you so much. Tim Wan Hey, Taylor. This is Tim. Yeah, I wanted to just say the -- what we had talked about, even in our kind of previous earnings call, is really kind of getting past these bigger renewals that we knew about -- that would likely be downgraded. And I feel like we are past that now, and that will be a tailwind and essentially kind of the stabilization point that we needed to reaccelerate the business. Some of the deals, and I would say, that we had hoped to close in Q2, have moved into Q3. They haven't fallen out of the pipeline. We expect the team and the businesses to essentially close those deals in Q3. So I think we're encouraged kind of by the pipeline, but a lot of it is really just the bottoming out of our gross renewal rate. Taylor McGinnis Great. Thank you. And then maybe, Dustin, one for you, would just be, you talked a lot about innovation around Asana and AI and what you guys are doing there as well as it relates to some tinkering around pricing and packaging. So can you just maybe talk about when those changes could be a bigger driver of growth down the line and some of the customer feedback that you've heard that that's driving those decisions? Thank you. Dustin Moskovitz Yeah. So I think you're referring to in the last earnings call, I was talking about the possibility of consumption-based revenue around what we called in that call custom workflows. This time we're introducing a new term, AI Studio, which is the same idea, but this is really a new package that customers will be able to purchase starting in Q4. That will give them the ability to build those custom workflows. I think we're still seeing incredibly great engagement from the customers and the pilot, and they all want to proceed. And I have huge hopes for how far that goes. I'm hoping to be here next year talking about the pilot customers now doing hundreds or even thousands of workflows in Asana, but it's still pretty early to be able to quantify it. What I do know is sales will have something to sell in Q4, and I expect some amount of revenue from that, but not material revenue. And then the hope is that's building pretty quickly into the early quarters of next year when we see some of those early customers start to get into enough volume that they're also triggering the incremental consumption revenue. So I think it will start by buying a package, probably including some professional services, and that will begin by -- in Q4. And then next year, I'm hoping it becomes material revenue, and we'll just know more and more as we go along with the pilot customers and can see what they look like later in the funnel, and that will give us the ability to quantify it better for guidance. Our next question will come from the line of Josh Baer with Morgan Stanley. Josh Baer Thanks. And Tim, it's been great working with you. Good luck in the next chapter. Wanted to ask about the deals that were pushed. Any sense for why they were pushed? How big they were? How many? And what gives you confidence that they'll close next quarter? Anne Raimondi Hi, Josh, it's Anne. Thanks so much for your question. So what we saw in the selling environment was, especially for larger deals in larger organizations, is the decision-making cycle has been elongated, but things are relatively stable compared to last quarter in terms of sentiment. While a number of these deals did push out of the quarter, we actually saw a good percentage of them close in August, and the rest are remaining in the pipeline. So a lot of our focus as a team really is on big-deal conversion rates in this environment. And so that's what we're swarming around the teams that are working on the largest deals, both the ones that got pushed into the quarter and the ones that are -- that we're working through in this quarter. So that's where our focus really is, is making sure those large deals have the right resources to get them across the finish line. Josh Baer Got it. Thanks, Anne. And maybe for Tim or Dustin, just wondering if there's any more context as far as the CFO transition, any more color you could provide as far as the timing and the change. Thank you. Dustin Moskovitz This is Dustin. Tim should speak up too. But, I think it's easy to look at something like this and think it's in reaction to what's happening right now. But the reality is, this is a much longer arc conversation that Tim and I have been having and just trying to figure out the right time for him to make a transition because he wanted to take some time off and then also think about maybe one last big career move before retirement. And so we've been talking about this for a while. Don't love how the timing ended up, but I think it's pretty much a coincidence. And this just ended up being how it worked out after talking about it for a while, really sad to see him go. But also, as I said, it's bittersweet because we're also getting the opportunity to work with a really talented new CFO in Sona. And I know from experience you lose something important when somebody with Tim's experience walks out the door. But it's also just a chance to kind of shake things up and see things with new eyes. Tim Wan Yeah. Hey, Josh, this is Tim. Yeah, there was, like Dustin mentioned, this was a very long conversation, and I had wanted to -- I've been here for almost eight years, and it was really an opportunity to take some time off, reset, refresh my mind, and think about what's next. I love this company. I love the people I work with every day. I love the problems that we solve. And honestly, it was an incredibly difficult decision. Our next question comes from the line of George Iwanyc with Oppenheimer. George Iwanyc Thank you for taking my question. And Tim, I also wish you the best with what's ahead. Anne, maybe just starting with the technology vertical, can you give us a little bit of color there? Have you reached a point of stability with most of your customers there? And maybe put that in perspective of what you're seeing from a logo insurance standpoint as well? Anne Raimondi Yeah. Thanks, George. Happy to dive in a little bit more on Tech. While tech was a drag on growth for us this quarter, I do want to just pause and reiterate that tech continues to be super important to us for a number of reasons. It's where we partner with some of the most innovative companies in the world to build our products. We mentioned earlier we're the platform of choice for the two largest LLM companies and we expanded with them this quarter as well as we continue to work really closely with them as we build out our AI solutions. So our ability to partner with technology companies who are innovators and early adopters really helps us to continue to differentiate our product and really shape where the category is going. And so we feel that's also quite important to our growth in the developing verticals such as manufacturing, energy, retail and consumer transportation, and healthcare. Our non-tech sector actually had good mid-teens growth this quarter. And some of that partnership with technology organizations is important to these non-tech customers because the leading organizations really care about implementing the best solution that's available that they can securely and innovatively scale with. So where -- we saw stability, I think, as we mentioned, in terms of our -- where retention and renewals are. I think we'll continue to partner with technology companies, but the diversification outside of tech is one of our main focus areas and we're pleased to see some early signs and positive indicators in those sectors. George Iwanyc Okay. And just following up on that with respect to logo churn and then maybe give us a sense of where you are with the sales initiatives across the four points that you were highlighting? Anne Raimondi Yeah, the focus areas that we mentioned investing in more consistent post-sales. Including services, we are seeing that services are incredibly important for larger deals, in particular, migration and deployment. And so those services are either provided by us or our growing partner ecosystem. I mentioned improving velocity, that's really important, especially with the bigger deals. So, further streamlining our sales processes and systems. In particular, we're also excited about the energy and interest in AI products, especially from our largest customers. So it gives us an opportunity actually to have a different conversation, in particular, with AI councils or people within a CIO organization that are leading AI initiatives and kind of opens up new avenues for us. So, while it's early and we're piloting, the positive feedback from our largest and most important customers has been great, and we're excited to bring that to more of our customers when we go GA. And then, just reiterate my earlier point, focusing on strategic industry verticals to really diversify our business. So we're working hard on all those fronts and continue to be excited that most important for us is that our global revenue leadership team is in place and working really well together. Our next question will come from the line of Alex Zukin with Wolfe Research. Rich Magnus Hey, guys. This is Rich Magnus on for Alex. Can you talk more about how the competitive landscape has evolved over the last 12 months? And separately, can you give us some more color on how to think about billings trends over the next two quarters? Thanks. Dustin Moskovitz Yeah, this is Dustin. Not going to be surprised to hear this. We haven't seen a whole lot of change in the competitive landscape in recent months. I think we're seeing -- we think we're in a lot of the consolidation deals and we're seeing customers hesitate to make a decision either way. And so, I think that's sort of definitionally what our competitors are seeing as well who are in those deals. Anne, do you want to take the second half of that? So the question was just like, what is giving us confidence about billings in the next two quarters? Is that fair? Yeah. I think what's giving us confidence is just the continued improvement across our revenue operations and execution. I think some of the things that we're also seeing early signs are, we've been investing a lot in enablement and ramping new reps. That's been a big initiative I mentioned earlier, just investment in streamlining our processes and that's both operational processes, but also systems. Just making sure frankly, that more of our reps' time is spent strategically with customers and prospects. And then just consistency around being able to close the larger deals. So I think as that work continues and we're seeing that in, across all of our regions. Maybe I'll also dig in a little bit deeper. This quarter, some of the areas and regions that we saw good consistent growth were actually outside of the US. So by geography, EMEA and Japan led our revenue growth and grew about 12% year-over-year. And so, those teams continue to execute really well, especially on larger deals. Those leadership teams have been in place a bit longer than our Americas team. So those are good leading indicators that North America, where we've -- where our general managers, has been in place for two quarters, and has been really working with the team there, we'll be able to sort of see that in the coming quarters. Our next question will come from the line of Michael Funk with Bank of America. Michael Funk Yeah. Hi. Thank you for the questions this evening. And, Tim, thank you again for all the help with the company. So a couple of, if I could. I know you mentioned a couple of times that some deals stalled in the pipeline during the quarter. Can you be more specific about where in the pipeline they stalled? You know, presumably, you have metrics on deal closure rate certainty as you're closer to the end of the pipeline with the deal versus the beginning. So any additional color or commentary there would be appreciated. Anne Raimondi Sure. Happy to add some more commentary. As our focus has been on moving up market and working with larger enterprise customers, we are seeing more back-end loading in the quarter on the larger deals. I think that's sort of just a natural evolution of our focus-up market. And so, what we saw in those deals was that they sort of slipped from the end of Q2, as I mentioned, into Q3. But again, we're seeing signals that we're able to close those in Q3. So a lot of that is just a pattern that we're seeing as we work with larger deals and larger enterprise customers. And part of that is strengthening our muscle to be able to close those in a quarter, and that's the focus for us. Michael Funk Okay. And then I think investor focus and stock reaction aftermarket is primarily the 3Q guide and the greater weighting on 4Q now, I think presume or the implied for 4Q sequential dollar step up. It'd be one of the larger moves in the last couple of years. So what concrete breakdown of the factors can you give us -- to give us confidence in that 4Q revenue step up? Whether that is your forecast for less seat churn, large deal go-lives that you have towards the end of pipeline, anything to help people get more confidence in the back-end loading for the year would be appreciated. Tim Wan Yeah. Hey, Michael, this is Tim. I think there's really two points. One, as I mentioned, we know what the renewal base looks like, and many of the larger renewals and downgrades that we had to lap have already happened. And we feel really confident around the base of the rates that we're going into the quarter with respect to renewal. So we view that less of a headwind. So that's one. Two, a good majority of the deals that did move from Q2 and Q3 have already closed. The pipeline continues to be healthy and I feel like we have really good visibility in terms of the dials and the levers converting those deals. So, it's really a combination of just like, hey, lapping some of the more difficult renewals, which we have, and two, kind of what we're going into the quarter with. So if we close those deals in Q3, generally the GAAP revenue you'll see will impact Q4. So... Our next question will come from the line of Brent Thill with Jefferies. Brent Thill Tim, congrats on the eight-year run, and looking forward to the next chapter. Dustin, you're not alone in terms of what's happening in the software industry. It feels like many are taking down guide or seeing things pushed out. I guess from your perspective, what do you think is going on, if you had to take a look at a 40,000-foot level? Is it consuming what customers have, is it AI stall? Is there a blend of things that you're seeing? What do you think is actually causing this stall out across the industry? Dustin Moskovitz Yeah. There are a few big trends. Obviously, I think that especially what we're seeing in tech is still kind of the unwinding of the over-hiring and overspending that we saw at the beginning of the pandemic. And it's the same thing we're doing with our own internal IT budgets, as we're just being incredibly judicious about starting new vendor relationships. We're trying to consolidate vendors. We're actively deprovisioning seats. And all of that is just about budget control. And additionally, I think IT and procurements is taking the opportunity to try and consolidate and choose the vendors that they're going to bet on for the long run. But at the same time, they're trying to do that within a constrained both dollar and sort of energy environment internally. And it takes a little bit of change management to do that consolidation and to push it through and to make those big decisions that they're going to live with for a while. And so, they just have like a little bit less capacity to do that, and then that all couples with what I think is massive uncertainty in the economic environment, and then also just with how AI is going to play out. So we've been talking a lot about this idea lately, that the coming wave of AI transformation is even bigger than what people have been calling digital transformation for the past 10 years. And I think that some enterprises are trying to figure out whether and where it may actually leapfrog their digital transformation and it would actually be kind of a waste of time to invest in a technology that's just going to be sort of obsoleted by something else in one or two years. So that's a pretty difficult environment to make decisions. Again, we are often faced with those same sorts of decisions ourselves, internally, and end up doing proofs of concepts, some things, and then pulling back and trying another vendor, trying to solve things in Asana or not in Asana. And so, I'm very sympathetic, and strategically what we're trying to do is meet the customers in the moment and provide a solution that can be part of their digital transformation, continuity, and the answer to AI transformation for them by embedding AI Studio -- by delivering AI studio and giving them the opportunity to embed AI directly in the workflows where they already lived. Brent Thill Great. Quick one for Tim or Anne. About a year ago, Ed joined and took over on the sales side. Can you walk through the changes kind of how far you're in implementing some of those changes that he's made? Or maybe they're fine tunes. I don't know how you would characterize his strategic actions, but if you can just give us a sense of kind of where you're at for that journey, having onboard since last August? Anne Raimondi Yeah, I'm happy to cover that. So, yeah, Ed just crossed kind of the one-year mark with us. And I would say the one of the most important things that he's been doing, we now have a global revenue leadership team in place, general managers in all of our most important regions as well as new enterprise sales leaders in our top markets. So that's been also really important. Ed also brought on board a new Head of Global Channel, who's now been with us almost two quarters, has been also working really diligently with our post-sales team, which is really important. Both services, customer success, renewals teams across every region. And so I'd say the most important things has just been ensuring that we have the right team around the world and in all of our top markets. I think some other focus areas have been really diving in on verticals -- our most important verticals outside of technology. And so that's also where we're seeing good progress. And I would also say just a really tight partnership with our global marketing teams. So some of the things where we're seeing grid signal, that's helping us build the right kind of pipeline and the right relationships with director plus decision-makers and C-level decision makers is all our investments in our Work Innovation Summit, that pacing has been really strong this year. We brought that event to all of our markets. We have our two most important events coming up in October and November. And just the -- I think the customer engagement and the volume of responses and the ability to really have our global team kind of meet our customers where they are, as Dustin said, but also meet with prospects and decision-makers who are looking at their medium to long term AI investments. So I think those are all a result of the investment that Ed has been putting in place over the last year. And we're excited to see more to come. Our next question comes from the line of Jackson Ader with KeyBanc Capital Markets. Jackson Ader Great. Thanks for taking our questions, guys. Anne or Dustin, the first question for you guys on the impact of the tech sector. How much of the modest slope in the reacceleration curve is kind of due to that sector's subdued spending now? And then how much do you think that the steepening of that curve could be reduced by tech coming back in the future as being one of the, I assume, an early adopter or a frequent adopter of some of your AI innovations? Dustin Moskovitz Not quite sure quite how to answer that, but I think we've been clear that the tech is a drag on overall growth. And so, we're seeing some segments that are growing faster than our overall growth rate right now, and look like they're starting to accelerate. And so, if tech stopped being a drag, we would at least go up to those overall -- to the growth rates of the better segments. And if it re-accelerated, yeah, that would be fantastic. We're certainly not modeling it that way, and it's really hard to know the timing. But, if AI transformation really takes off and Asana is seen as the solution of choice for that, then that is definitely an excellent outcome for us. Jackson Ader Right. Okay. All right. Thank you. And then, Dustin, a couple of quick follow-ups on the 10b5-1. I know, I've asked this before, but I think it's just relevant again. Do you worry at all about like the -- your stepping in again and again at some point sends a counterproductive message to employees or the company around operational and financial discipline? And then second, is there anything that we should take away from the relative size of this plan that starts a couple of days from now versus the 30 million shares from last year? Dustin Moskovitz The operational discipline thing would make more sense to me if I was funding the operations of the company, but I think it's pretty independent. Our commitment to discipline on free cash flow and building up margins, I don't think has changed much by me being a buyer in the market. In terms of the timing, I just wanted to point out, you know, people often sort of read into when I put the plans in market or even the days they're buying and what's going on in the market or going on in the business. But I actually have to plan, like, way in advance. And so, the company buying plan is very different. In fact, during the open window, it can kind of be aggressive on a day-to-day basis. But for me, I've got the cooling off period, and then it sort of set it and forget it on what the plan is. And, historically, I found it difficult to sort of predict what the market was going to do to the stock, especially during all the uncertainty with inflation and with everything that was happening in the years before that. And the reason I'm entering the market now is I think this is different. I think this is a point of stabilization, a low point -- at a point of stabilization for the economy and for the tech sector and relatedly for the Asana business. And even though I think there will be some continued uncertainties, I just feel more confident that this is a time in the market when I can do this very slow process to declare my intentions way in advance and not end up getting too rocked by exogenous factors. But it's not something I plan to do again and again. The sizing -- the number of shares is really a function of the price schedule. And I made -- more made a decision around the amount of money. And I'll just say also the -- I found it interesting to put in plans, announce a sort of up-to-number, and then have people sort of anchor around that. I'll just emphasize there is a price schedule. And I think what happened with the last plan had as much to do with sort of prevailing market conditions as what my original intentions were. So pretty hard to give you a lot more detail than that without sort of revealing enough information to be front-run. But that's kind of where I'm at. I'm intrigued, I guess, by this operational discipline thing, but that isn't really a primary lens I've had for thinking about it. Our last question will come from the line of Patrick Walravens with Citizens JMP. Patrick Walravens Great. Thank you. So bigger picture here, Dustin. How do you see this whole world of AI agents playing out? I mean, you guys have yours and you have nine different features, I think, that are generally available from one of your slides. Bret Taylor just launched Sierra. Benioff just announced Agentforce and said that was going to be the highlight of Dreamforce. So what should investors expect in terms of how these things are going to be differentiated and how do you see it playing out? Dustin Moskovitz Yeah. I think Agent is an interesting term because it means a lot of different things to different people. One of the things that I've seen a lot of people try and deliver and try and buy is really almost the equivalent of a humanoid physical robot, just something that could theoretically be a drop-in replacement to an actual person you have in the yard. We even had that cycle with BambooHR wanting to onboard them and have them be part of the HRIS system. And that I think, as with humanoid robots, I think we're still a few years away from at least. And in the meantime, our point of view is we want to focus AI on more specific jobs to be done. So it's a little more analogous to the robots that Amazon uses in its factory warehouses that are specially designed for that purpose and have more well-defined objectives, and sort of rules of engagement. And I think that is how Asana agents are going to show up. You're going to be able to give them a specific workflow to go off of specific instructions for each step of that workflow, a predefined process, and knowledge bases that sort of, yeah, give it the rules for the road. And I think that will make customers a lot more successful because they'll be able to deploy it in exactly the places where it's possible to be productive without worrying about things kind of going off the rails or say, a customer chat agent that offers a refund you didn't intend just being able to put these into much more sort of predefined workflows, I think is how customers are going to find the slope of productivity. In terms of the specific competitors you mentioned, I think that agents will do sort of context-relevant things. And so it'll matter a little more what the product is they're being introduced into. And I think, Sierra, I don't know a whole ton about it, but I think they're coming at it more from the sort of Swiss Army knife approach. And I think that it's going to be difficult to get that deployed in the short run. Patrick Walravens Awesome. Thank you. And Tim, if I could ask you a follow-up? So, I mean, it's been great working with you, and looking forward to getting to do it again. But what do you think is the number one metric that investors should be looking at for Asana, once you -- after you've gone, over the next year or two, what's the number one thing we should be focused on to see that this business is turning around? Tim Wan Yeah, I think the most important thing is seats. I think that's one of the North Star metrics that we run the business on. The more seats we can deploy, the more value we can deliver across an organization. And as we add more SKUs and some of these AI functionality, I think we'll be able to really differentiate the product and demonstrate a lot more value where we'll have more pricing power over time. That concludes today's question-and-answer session. I'd like to turn the call back to Catherine Buan for closing remarks. Catherine Buan Thank you so much for joining us today, and we look forward to see you on the road this quarter. We'll be at the Piper Sandler Conference, the Wolfe Conference, the Deutsche Bank Bus Tour, the Keybanc bus tour, and those are just a few off the top of my head. Most of all, please join us on October 22nd in New York at our own Work Innovation Summit, and we look forward to seeing you there. Thank you again. This concludes today's conference call. Thank you for participating. You may now disconnect.

PagerDuty, Inc. (PD) Q2 2025 Earnings Call Transcript

Sanjit Singh - Morgan Stanley Koji Ikeda - Bank of America Securities Jacob Roberge - William Blair Andrew Sherman - TD Cowen Jeff Van Rhee - Craig Hallum Kingsley Crane - Canaccord Genuity John Gomez - Scotiabank Good afternoon, folks. Sorry for the delay. We've had some technical difficulties with Zoom, but we're going to get going here in just 2 seconds. Go ahead, Tony. Tony Righetti All right. So apologies again for the delay. We will start with the safe harbor right about now. Good afternoon, and thank you for joining us to discuss PagerDuty's Second Quarter Fiscal Year 2025 Results. With me on today's call are Jennifer Tejada, Pager Duty's Chairperson and Chief Executive Officer; and Howard Wilson, our Chief Financial Officer. Before we begin, let me remind everyone that statements made on this call include forward-looking statements based on the environment as we currently see it, which involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. These forward-looking statements include our growth prospects, future revenue, operating margins, net income, cash balance, and total addressable market, among others, and represent our management's belief and assumptions only as of the date such statements are made, and we undertake no obligation to update these. During today's call, we will discuss non-GAAP financial measures, which are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our earnings release. Further information on these and other factors that could cause the company's financial results to differ materially are included in filings we make with the Securities and Exchange Commission, including our most recently filed Form 10-K-A, as well as our subsequent filings made with the SEC. Good afternoon. Thanks for your patience, and thanks for joining us today. PagerDuty delivered a solid second quarter with revenue growth within our guidance range at 8% and non-GAAP operating margin 4 points above the range at 17%. This was our eighth consecutive record quarter of non-GAAP profitability. We increased annual recurring revenue by approximately $11 million to $474 million. We have stabilized ARR growth at 10% year-on-year for a third consecutive quarter, as well as dollar-based net retention at 106% quarter-over-quarter. Both results were supported by improving new and expansion bookings, especially in our Enterprise segment. As we've shared in recent quarters, PagerDuty is scaling by addressing the critical operations needs of the Enterprise segment with our operations cloud, a multi-product platform helping the largest companies in the world improve resilience and modernize their digital operations. I'm encouraged by the signals in both the market and the business that validate our strategy. In fact, the value segment of accounts with ARR greater than $500,000 grew more than 20% as we executed a more effective cross-selling and upselling strategy. During the quarter, we signed a record number of multi-year agreements representing nearly a third of renewal ARR despite the volatile macro environment. While we still experienced increased scrutiny and multiple approval levels when selling into the Enterprise segment, which can lengthen sales cycles, our focus is paying off. Our Enterprise segment's first half dollar-based net retention ended 10 points above that of our SMB segment. Many of the Global 2000 companies suffered the negative effects of major incidents in the past quarter. When these incidents occur, global innovation and customer service get disrupted as IT teams and development teams around the world work day and night to diagnose and recover impacted systems, costing billions in lost labor and lost time. For our customers and the broader market, recent major technology failures are a wake-up call, a reminder that suffering negative business impacts from widespread incidents is not a question of if, but when. Nearly two-thirds of enterprise leaders we surveyed this year saw customer facing incidents rise 43% year-over-year. The systematic fragility that triggers these events exposes an existential threat we see across industries where aging infrastructure, growing technical debt, and manual processes persist. This challenge is compounded by the increasing proliferation of complexity, as CI/CD distributed architecture and generative AI co-development all become mainstream. With recent global outages and technology disruptions, these recent global outages and technology disruptions underscore the pivotal role our platform plays. When the world is down, customers rely on PagerDuty to identify issues, orchestrate, and increasingly automate the best possible response to quickly contain and reduce business impact. The July 19th outage tested our platform on a massive scale. The operations cloud rose to the occasion. We saw an over 1,400% increase in incident workflows initiated on that day alone, and we maintained high availability, speed, and fidelity without incurring significant cost surges. Our reliability is the result of our history of investment in innovation, and it's why companies trust us to deliver operational resilience in their most vulnerable moments. Improving operational resilience to protect customer experience and revenues while mitigating risk and the cost of major incidents has upleveled incident management to a CEO imperative, similar to that of what we saw with cybersecurity in the past. PagerDuty's operations cloud scales resiliently to address each of these challenges for enterprise companies. Anecdotally, many of our customers have communicated a renewed preference for choosing a best-in-breed incident management offering and an increased sense of urgency to be better prepared for major incidents. It's early, though we expect to see some benefit in demand over time. Our customers across verticals and regions are also increasingly subject to heightened regulation requiring automation and controls to mitigate risk and support compliance. From DORA in the EU to diverse data and privacy oversight demands worldwide, regulation has become a long-term demand driver for the operations cloud. The financial services vertical exemplified this trend in Q2, with several six and seven-figure strategic expansions and overall ARR growth above 20%. For example, a global banking institution based in North America strengthened their operations cloud journey by expanding usage of incident management, AIOps and automation in Q2. At over $4 million of ARR, they are targeting a 30% reduction in incident duration through automated customizable workflows by partnering with PagerDuty. The ROI over three years is estimated to exceed 500%. Strategic platform agreements like this demonstrate the progress of our product to platform transition and the power of AI, underpinning our platform. During the quarter, new products including AIOps, automation, CSOps, or customer service Ops, and premium support contributed 65% of net new ARR. Two additional financial services customers signed strategic six and seven-figure expansions in Q2. Based in Europe and Australia, respectively, these financial leaders optimized for resilience at scale and chose the operations cloud to grow and protect their revenue. We also closed a high six-figure expansion, including AIOps and customer service operations with a large workforce management software provider to help the company accelerate their operations modernizations efforts. On the hardware side, a computer drive manufacturer and data storage company expanded the size and scope of their relationship by nearly doubling their incident management coverage and adding AIOps. With these products, the customer is targeting an ROI of over 300% in the next three years. The expanded feature set addresses the real-time operations challenges presented by complex modern environments, like, machine learning, flexible data ingestion, and end-to-end event driven automation, environments that are common within our million-dollar ARR cohort of customers. During the quarter, we also hosted five global customer events to build awareness and educate enterprise leaders and practitioners on both the technical and financial benefits of the operations cloud. One of the highlights of this series was the positive response to PagerDuty Advance, a suite of generative AI capabilities embedded in the PagerDuty operations cloud platform, which we made generally available at the end of July. These GenAI offerings can save enterprise teams hundreds of hours, equating to millions of dollars in annual savings. For example, instead of wasting precious time updating leaders and responders as they join an in-progress incident response, these coming -- those coming in late can use simple prompts for summarization of key incident information, and we offer tight integration with both Slack and Teams to efficiently keep work where it happens. PagerDuty Advance can also anticipate diagnostic questions and suggest troubleshooting steps for responders, automating work, and minimizing the financial impact at a time when the average incident costs in enterprise approximately $800,000 per incident. Generative AI postmortems and AI-generated runbooks are progressing well in early access. Together, they further equip enterprise companies to accelerate digital transformation while automating time consuming tasks and recommended actions at every step of the incident lifecycle. We also released new integrated capabilities across the operations cloud, like the combination of dynamic escalation policies connected to incident workflows. Using our proprietary data model, this solves the common challenge of not being able to match a problem to the most knowledgeable, well equipped responder instantly. This requires deep knowledge and correlation on events, past incidents, and people, and as such delivers a differentiated more complete incident lifecycle offering. From a social impact perspective, we announced our third impact accelerator cohort focused on crisis response services through pagerduty.org. These non-profits provide emergency response services to support people in urgent crises, and they leverage PagerDuty to ensure availability of critical online services to their communities. These are an ideal and important PagerDuty use case. Overall, we're encouraged by the gains we have made to scale our enterprise business. This progress moderates the effects of lower growth and higher volatility in SMB. These positive trends validate our strategy and reinforce our optimism in PagerDuty's long-term market opportunity. As we progress through the back half of the year, we remain confident that we can increase dollar-based net retention and professional services attach rates. From an ARR perspective, the elevated awareness of our value proposition following recent IT outages, along with quarterly highs in multi-product and multi-year agreements, culminated in a strong close in the first half. This reinforces my confidence in our ability to exceed 10% ARR growth in FY '25. I would like to express my gratitude to our shareholders for their ongoing support, our customers for their trust, and our dedicated employees and partners for their commitment to revolutionizing operations. With that, I'll turn the call over to Howard and look forward to your questions. Howard Wilson Thank you, Jenn, and good day to everyone joining us on this afternoon's call. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted before the call. In the second quarter, we continued to solidify our progress in the enterprise, consistent with the last quarter closing six and seven-figure multi-product, multi-year contracts with large companies across our U.S. and international regions. Customers remain focused on value when negotiating both new business and renewals. Our Enterprise business is strengthening and expanding with our strategic deal focus, whereas SMB remains a headwind to growth with high levels of churn and downgrade. As our business becomes increasingly enterprise-focused, we continue to make adjustments to the typical rhythms and seasonality of the sales motion. The momentum in the enterprise and the strength of our back half pipeline gives me confidence in a reacceleration of ARR growth by the end of the year. Revenue for the quarter was $116 million, up 8% year-over-year. Despite unfavorable net new ARR linearity and phasing of one-time service engagements, we remained within our guidance range. The contribution from international was 27% of total revenues similar to the year ago period. Annual recurring revenue exiting Q2 grew 10% year-over-year to $474 million. We delivered 106% dollar based net retention in line with our Q2 expectation. Our DBNR expectation for Q3 is to be at least 106% and 107% by year end. Customers spending over $100,000 in annual recurring revenue grew to 820, up 6% from a year ago. In addition, our cohort of logos with greater than $500,000 in ARR grew in the low-20s, up from the high teens in the first quarter. Total paid customers decreased to 15,044 compared to 15,146 in the year ago period. The bulk of the decrease came from customer departures in our SMB segment. Free and paid companies on our platform grew to over 29,000 and increased of approximately 12% compared to Q2 of last year. Q2 gross margin was 86% at the high end of our 84% to 86% target range. We continue to expect services to grow modestly this year, but our current view is that gross margin will remain at the high end of our range until moving closer to the mid-point in FY '26. Operating income was $20 million, or 17% of revenue compared to $14 million, or 13% of revenue in the same quarter last year. The outperformance compared to our guidance was primarily due to headcount shifting to the second half, lower commissions, and marketing expenses shifting from Q2 to Q3. In terms of cash flow for the quarter, cash from operations was $36 million, or 31% of revenue and free cash flow was $33 million, or 29% of revenue. The benefit we received from working capital during the second quarter will even out during Q3, with free cash flow being near breakeven for the quarter. We expect free cash flow for the full year to be a couple of points above our operating margin. Turning to the balance sheet. We ended the quarter with $599 million in cash, cash equivalents, and investments. In Q2, we repurchased 1.3 million shares from our $100 million repurchase plan. We have $72 million remaining through May 2026. On a trailing 12 months basis, billings were $468 million, an increase of 8% compared to a year ago. With respect to Q3, we anticipate trailing 12 months billings growth to be approximately 10%. At the end of Q2, total RPO was approximately $403 million. Of this amount, approximately $280 million, or 70% is expected to be recognized over the next 12 months. As a reminder, our remaining performance obligations disclosure includes contracts with an original term of less than 12 months as of FY '25. Applying the current definition to the year ago period, total RPO for Q2 FY '24 would have been $294 million. Turning to our guidance. For the third quarter fiscal 2025, we expect revenue in the range of $115.5 million to $117.5 million, representing a growth rate of 6% to 8%, and net income per diluted share attributable to PagerDuty Inc., in the range of $0.16 to $0.17. This implies an operating margin of 13%. For the full fiscal year 2025, we now expect revenue in the range of $463 million to $467 million, representing a growth rate of 7% to 8%. This compares to the range previously provided of $471 million to $477 million. And net income per diluted share attributable to PagerDuty Inc., of $0.67 to $0.72. This implies an operating margin of 14%. This compares to our prior guide of $0.66 to $0.71 and 13% to 14%, respectively. As we look to the back half of the year, we remain confident in accelerating ARR growth, exiting the year above our current 10% rate, along with improvement in our dollar based net retention. The success we're having in multi-product, multi-year strategic contracts with enterprise customers and a strong growing multi-quarter pipeline, positions us well for growth while we remain committed to continuing to expand operating margins over time. All right. Thank you, panelists. Our first question will come from Sanjit Singh of Morgan Stanley. Please go ahead, Sanjit. Sanjit Singh Thank you for taking the question. So I guess the theme of this call, it sounds like the underlying fundamentals of business seem to be improving on the enterprise side, yet at the same time, guidance had come down by just under $10 million. So I was wondering, Howard or Jenn, if you want to take it, can you sort of bridge us between the cut to the revenue and it seems like on the ARR side, more stability and your confidence in sort of exiting the year with acceleration. Jennifer Tejada It's a great question. Thanks, Sanjit, and thanks everybody for your patience as we work through a technical issue at the beginning of the call. So first of all, I hate taking down guidance. I'm not happy about it, and it's largely a timing issue. I want to walk you through this. So the larger multi-year, multi-product strategic deals that we're doing are driving less linearity than we had seen in our land and expand transactional business and increased seasonality more so than the past. We saw a little bit of that in Q1, but thought it was an anomaly, but Q2 was quite back and loaded and we're expecting more of that in Q3 and Q4, and that also results in a lag in professional services attached. So it's really just timing from a revenue perspective. Having said that, just to reconfirm, our ARR guidance is unchanged. We still expect ARR to accelerate in the back half, even with SMB, while we're seeing improving trends that that market is yet to stabilize. And I'll remind you, that's mostly tech startups for us, and we know that funding in tech startup land continues to be under pressure. So we're taking some of the risk out given this timing issue. But ARR growth is expected to improve through the year, as is DBNR. So ARR growth above 10% for the full year and DBR above -- or at 107% for the full year. Sorry, I would probably just add to that, Sanjit, that in many respects, as we focus more on the enterprise, the linearity and the seasonality that we're seeing starts to reflect more like other enterprise companies. Sanjit Singh Understood. Jenn, when you talk about the underlying backdrop or just more incidents and these incidents getting more costly, what -- is that just sort of -- how does that translate ultimately to better growth for PagerDuty? Is that something that would turn into better inbound for you, or how do you go sort of prosecute the opportunity in this sort of current environment? Jennifer Tejada Yeah. Anecdotally, it's already driving a higher level conversation at the CEO level, at the audit committee level, in the Board, which I think over time will improve our ability to get to budget and ensure that budget is set aside for this, much in the way we've seen cybersecurity budget be prioritized. Because when business leaders realize the financial impact of a major third-party or worldwide outage, they are forced to think through what precautions am I taking? What infrastructure investments do I need to make? How do I prioritize my tech debt burndown? And what we saw during the incident that took place in July was a lot of senior leaders reaching out to us for best practices, for support, not just in the response, but for advice on where to go from here. We also saw the differences between customers that have adopted the operations cloud and matured their operations, who found -- who discovered the issue very early and were entirely back online by the time the sun rose, and customers who were manually processing secondary and tertiary incidents that took days to get back in full operations, which has a huge cost of revenue, not to mention lost time and excess OpEx in terms of labor. And so I expect that we'll continue to see more and more of these strategic deals show up in the pipeline, and I expect that we will see more protection around investment and the budget for PagerDuty, that's what we're anecdotally seeing. It's too early to see it really show up in pipeline, but it's already showing up in customer conversations. Yeah. Next question, we'll go to Bank of America. Koji, please go ahead. Koji Ikeda Yeah. Hi, guys. Thanks for taking the questions. I wanted to ask maybe some thought process into fiscal '26 from a very, very high level. Just thinking about the billings growth decelerating this quarter, but the guidance implying acceleration in the second half and confidence in the ARR, but then Jennifer, also you mentioned a little bit more of seasonality versus linearity, how should we think about the exit rate of calendar -- I'm sorry, fiscal fourth quarter this year into next year, and do those seasonality type trends continue? Jennifer Tejada Yeah. Well, the good news is some of that seasonality is driven by the fact that we're doing more multi-year, multi-product deals that require different level of approval and scrutiny from the customer base. And so we're seeing, as a result, we saw a record number of large multi-product, multi-year deals this quarter and we also renewed 30% of our ARR available renewed in multi-year, which takes pressure off of retention in the future, enables us to focus on growth. So I think fundamentally that puts us in a better place. But I'll let Howard comment on 2026. Howard Wilson Yeah, Koji. So we haven't provided any specific guidance yet on FY '26, but our expectation is that, that ARR growth rate will be above the 10% mark. If we look at where we think trailing 12 months billing will be, that does actually pick up to approximately 10%. If you're looking at the billings number for Q3, we look at it on a trailing 12 months basis. And the way that I would think about it is, to Jenn's point we're from a retention perspective, the efforts that we've made around doing multi-year arrangements with customers who moved some of the downgrade and churn risk out of the successive year, which creates a really strong platform for future growth. So we would expect that as we go into next year, we're in a better position from a fundamental perspective, but also that the seasonality that we've started to see emerge as we focus on the enterprise that's likely going to remain, and that will mean that, that the third month of every quarter is going to be more heavily weighted, and it would mean that as we progress through the year, like other companies, probably your fourth quarter ends up being the biggest quarter. Koji Ikeda Got it. Thank you so much for taking the questions. Appreciate it. Next up, let's go to William Blair, Jake Roberge, perfect. Thanks. Jake, please go ahead. Jake Roberge Thanks for taking the questions. Just from an expectations perspective, is there anything different about the guidance you're putting out today versus last quarter as it relates to kind of when those large deals start to close or some of the SMB churn that you're seeing? Just trying to understand if there's kind of different puts and takes that you've put into the guidance plan to account for some of these issues. Howard Wilson Yeah. I can break it down a little bit, Jake. I'd say the one element that has led to a change in the guidance is this lag that we're seeing in professional services attached, which is now happening later. As these deals with longer sales cycles are happening, it means that our ability to deliver that revenue gets delayed, and that's taking a couple of million dollars out this year. When we look at some of the phasing that we had even within the first half of this year, some of that linearity change led to less revenue being recognized in Q1 and Q2. And so we've taken that out of the full year, but then when we look at the back half, we're expecting that Q3 is probably going to have a similar complexion in terms of net new ARR as we saw in Q2, and that there will be, again, more of a weighting to the third month in Q3, and we expect that for Q4, it'll be a bigger quarter, not enormously so, but certainly a bigger quarter than Q3, but again, with that weighting towards the back half. Jennifer Tejada Yeah. And I just add to that, Jake. We do have very good visibility to the pipeline in place to deliver the back half. I think our visibility is improving as we've got used to these sales cycles with larger or more strategic deals in them. We also, as you know, have been evolving our go-to-market organization over many quarters, and we're really starting to see the execution behind all of the enablement we've done around top-down, outbound, land and expand, the multi-product, multi-year platform versus the bottoms-up, start with incident response, expand surface area, and then start adding new products. The success there has led to a very strong quarter for AIOps, growing over 20%, or about 20% year-on-year, and customer service ops growing over 50% year-on-year. So we're seeing that evolution in addition to now having new leaders in place in some of our largest markets where they're hitting the ground running and driving both improvements in churn and more productivity around some of these renewals, and that's in EMEA, in North American enterprise, and in federal. So just feeling like we're coming from a stronger foundation as we look towards the back half of the year with like I said, quite a bit of confidence in the pipeline. But also, seeing that cadence of large deals, our growth in the customer value segment, spending over 500k was more than 20%. So continuing to see that momentum there in enterprise and over time SMB represents less and less of the total ARR. Jake Roberge Okay. Yeah. Very helpful. And then just really interesting comment about the 1,400% increase in incidents during the quarter. Sounds like there's been some good top-of-funnel activity since the CrowdStrike outage, but just given it's still kind of early days, when would you expect those -- that early pipeline to start actually layering into the business? Is that kind of a first half of next year, back half of next year? Just would love to kind of understand how you're thinking about that traction. Jennifer Tejada We're not modeling in new pipeline as a result of what we've seen in the last quarter in terms of major incidents. What I would anticipate is, first, we'll see it in conversations, then we will see it in approval processes and just the breadth of what customers are buying. And one of the trends we've already seen is that when a customer really understands the cost of a major incident, on average $800,000 an incident, if you can compress the incident duration by half and that becomes $400,000, like that is real financial business and customer -- end customer value. So the faster leadership understands that the faster our champions can often move to get a multi-product, multi-deal done. And so the biggest, I think, tailwind that we've already seen is just awareness. Just now CEOs and CFOs really understanding that if you scrimp on infrastructure and on having platforms to really detect, orchestrate, and automate the response when these major incidents happen, because they will, you're going to pay for it in spades later. And so that sort of -- I think that short-term thinking is going to manifest to more long-term investment -- long-term investment mindset. And then, I expect that after we see it in terms of sales cycles, we'll start to see it in ads. But I can't predict how long that's going to take to manifest. Some of our customers move really quickly on the back of an issue like this. Recovering from a major incident has long been a primary use case for PagerDuty, and some of our customers take longer to transform their thinking internally. All right. The next question will come from TD Cowen. Andrew, please go ahead. Andrew Sherman Great. Thanks, Tony. Hey, guys. We'd love to hear how the flexible enterprise pricing is tracking? What is feedback from customers? Has this helped drive any expansions in the quarter? What are you expecting from this in the second half to help with those deals? Jennifer Tejada Feedback has been very positive and it's really enabled some of the big deals that we shared in prepared remarks, and I know it took some people some time to get into the call, so we talked about a North American global bank that was already a seven-figure customer, that's expanded beyond that had AIOps as well as customer service ops. We've talked about the global nature of the financial services industry that's under heightened regulation around customer service incident response regulation like, DORA in the EU, and increasingly diverse regulation around data and privacy. That means the genesis of incidence is emerging or is evolving and changing, and that is leading to leadership coming to us and saying, look, we now kind of understand the value of doing this. How do we expand with you? And it's less about, it's just this many users and this price tag for those users, our AIOps business, which, like I said, grew about 20% this quarter, that's consumption-based pricing. So we're getting, I think, a warm reception to that, but also flexibility in terms of thinking about how customers are going to grow their adoption across products and services. Howard, anything that you want to add there? Okay. Thanks. And then, Howard, I get the -- I think we all understand that you're more Q4 weighted now, but how have you factored in the fact that these deals are larger and taking longer to close and anything you've changed as far as your assumption on close rates for Q4? And then how have the renewals tracked as well versus your expectations? Howard Wilson Yeah. Sure. So from a guidance perspective, part of the reason why we made the adjustment to our guidance was because we took into account our most recent history in terms of seeing how these deals are closing and their timing and also anticipating that some of these deals may end up taking longer, so that's been accounted for. That being said, the approach that we're taking in terms of how we're managing our pipeline is certainly around our sales team being incented to get these deals closed within the timing and within this year. And a lot of the sales disciplines that we put in place over the -- over the past year have really been about improving the level of scrutiny and the quality of those deals. So that's improving our level of confidence as we think about it. So we have good visibility into the deals that are in play both in Q3 and Q4 and into next year. Fundamentally, like, from a renewals perspective, we started the initiative about a year ago in earnest to really -- no, it was actually Q4 of last year, it was in earnest to get customers onto multi-year arrangements at renewal, not just when we did a new deal, and that's starting to bear results in that when we look at what's available to renew within Q4 this year, it's a lot less than what it was in Q4 of last year. So that means that we're in a position to manage any potential risk on the retention side more effectively. All right. Next up, Craig Hallum, please. We will go to Jeff Van Rhee. Jeff Van Rhee Great. Thanks, Tony. Hi, guys. A couple of questions for me. I just want to read this back to make sure I understand that the guide at the midpoint is reduced by $9 million. I think, Howard, you mentioned if I caught it, that you think PS is a couple of million. You mentioned seasonality and a bunch of other factors, but just simply put, we're seeing longer cycles in years back and more back-end loaded. But you're going to get to the same ARR, just going to happen later in the year, is that a fair read back? Howard Wilson That is correct. With the exception of the revenue that's specifically professional services related, our expectation is that in terms of what we would expect to book in terms of net new ARR will still get us to above the 10% growth rate by the end of the year. [Multiple Speakers] Jeff Van Rhee Yeah. Got it. Okay. And then from a competitive win rate, when you look at deals that are just incident management, I realize you're going with a much broader proposition. Jennifer, you talked about the attach rate to some of the incremental products, but when you're in just an incident management deal, what do win rates look like now versus a year ago? Jennifer Tejada We haven't published our win rates, obviously, but that part of the market hasn't changed meaningfully. I think that customers are more price sensitive in -- some in the lower end of the market, particularly SMB, but also to some extent mid-market. And they also, like we aren't seeing the level of headcount growth that we've seen in those segments compared to the past, so that puts some pressure on both growth and renewals. But from a competitive standpoint, like it's not a zero-sum market. And I think what you saw with a major outage, like what happened on July 19th, one thing that works in our favor, even in incident management as a standalone offering, is there are still a lot of large companies out there that have manual processes that use very little automation in detection, that have more than 10 observability players that are not correlating that information, right, and need the support of a platform just to even get to responding more effectively. And then I would also say that even our incident management platform is built on an AI-based foundation, of a proprietary data set that is distinctly different to anything else that's out there, and that we have data on the events coming in, the incident workflows themselves, and then also more and more automation around the response, including the generative AI-based features that I mentioned in prepared remarks. One of the things that I think was really interesting about the July event is, we saw -- like I said, a 1,400% (ph) increase of incident workflows running on the platform and suffered no disruption and no cost surge. And there isn't another player incident management notifications alerting observability that can, I think, attest to that kind of pressure live when the rest of the world and the largest companies in the world are suffering a major outage. So I think that reinforces our resilience at scale and the security of our platform, even under a significant global outage or worldwide outage. The last thing that I would say is, we have taken steps to try and support SMB and mid-market customers that are more price-sensitive. Free is one of those. We've made some changes to pricing, but at the end of the day, even in this tough macro, I think we're controlling the controllables and getting there, and -- I'm somewhat of an optimist like, the tech industry will come back, we will start to see venture funding back in SMB at some point in time. I'm just not calling that in our expectations, like we expect that to continue for -- the current conditions to continue. Howard Wilson Sorry, Jenn, I'm going to have to do my CFO thing and say it was 1,400%, not 14,000%. Jennifer Tejada Sorry, good point. I added an extra zero. [Multiple Speakers] Howard Wilson Yeah. The 14,000 sounds fantastic, but [Multiple Speakers] pretty impressive. One last for me, if I could sneak it in on the SMB side. Just two clarifications, Howard, on the numbers, on the customer count number, I know there are some pretty different trends within enterprise versus SMB. The overall customer count was down, but can you give a little more granularity of SMB versus enterprise? And then, just to be clear, on the SMB side, it feels to me, maybe I'm splitting here that there's a little more of a message of stability prior quarter, and a bottom was in on SMB, and it feels slightly more pessimistic, if I'm reading it correctly. But you tell me if I'm wrong there. Howard Wilson Yeah. So, SMB has remained, we've had elevated churn and downgrade there now for four quarters in a row. In fact, it's the fourth consecutive quarter of that contracting year-over-year. And so it's been a real headwind to growth. What I would say is that from a stabilization perspective, we see like elements or signs of some level of stabilization from one quarter to the next, but then that can reverse fairly quickly in terms of movement. Now, from a customer count perspective, our customer count went down year-over-year. Again, the bulk of that churn is actually in SMB, by far the number of accounts that are outside of SMB, the churn is actually relatively small. So this is part of us also focusing more on the enterprise, where landing enterprise and mid-market logos is more important, and so given the volatility, if you like, within the SMB market in general, not specifically for us, that means that we do expect to see higher levels of churn. All right. Next, we'll go to Canaccord Genuity, Kingsley. Kingsley Crane Hi. Thanks for taking the question. So I just want to return a little bit to competition. We've seen some of your smaller competitors combined and some larger competitors reintroduce their products with a couple of new bells and whistles. So just want to hear more about how the competitive environment has evolved. And then more specifically, how you think about that affecting relative enterprise strength versus relative SMB softness. Jennifer Tejada Yeah. I would say most of the -- again, not a zero-sum market, most of the competition that we see is in the mid-market or below in SMB, and that is because the competitive offerings that are out there don't scale effectively into enterprise or purely price led versus feature led. And I think, if anything, what we've seen the last quarter with worldwide outages is that this is an area where performance does matter, and I think that will serve as a competitive driver for us in the future. The other players that are out there have much less functionality, very little AI supported throughout their platforms, and are not proven in Enterprise, which is very clearly our focus. And so I think, I feel confident and believe we are going to continue to outpace the other players from an R&D perspective, and in terms of just delivering the operations cloud platform, not just in detection of incidents, but also the intelligent correlation of those events and orchestration of them to the right teams and increasingly the right agents. As AI starts to take more and more hold, more automation of the actual troubleshooting and diagnostic with the help of both traditional AI and generative AI, and faster resolution that compresses these large enterprise grade incidents that we're seeing on a global basis. Kingsley Crane Great. Really helpful. And then one for Howard, you've really made strides in expense efficiency over the past year. You're close to your long-term model. The business has changed a lot since that was put out. And I would say that your 85% plus gross margin profile suggests you could have an attractive terminal margin. So just any more thoughts on more efficiencies you could find from here would be helpful. Thank you. Howard Wilson Yes. Thanks for the question, Kingsley. As you know, we've always taken a structural and programmatic approach to how we think about improving our productivity and our efficiency as a company. And we've laid really good foundations for that in terms of both our location strategy, our use of technology, our internal use of AI, all of these things contribute to this. So I think you'd expect what you can expect to see more of the same. So leveraging on those areas that we've already made those investments. And on the sales and marketing side, we continue to look at how can we more efficiently raise our brand and how we can more efficiently drive demand gen and at the same time drive efficiency into our sales team. So I think the areas where for the longer term, where we still have the most obvious opportunity is around G&A and then sales and marketing, and then obviously from an R&D perspective, our goal is to try and maintain high levels of investment in R&D to support our innovation strategy. And our final question comes from Scotiabank. John, please go ahead. John Gomez Hi. This is John Gomez for Nick Altmann. Thanks for taking the question. So when you talk about deals taking longer, there can be a lot in there that's driving it, larger deals, the macro focused on enterprise customers, so what has been the biggest driver here and how are you guys feeling about the overall sales cycles relative to prior quarters? Jennifer Tejada I actually feel good about the sales cycles. I don't actually mind that the deals are taking a little bit longer because they represent much larger average deal size, multi-product, which is stickier, more flexible pricing, which also, I think engenders like a long-term partnership and relationship with the customers. So it's a very good investment in the long-term foundational growth and strength in the business. And as I said, like our change in guidance is really about the timing. This kind of small transition to revenue taking a little longer because of the less linearity and more seasonality, but at the end of the day, long-term, it's a tailwind because we are seeing more and more highly referenceable customers doing multi-year deals. So the guidance change is really about de-risking the full year and articulating some conservatism. But also, we are very confident in the ability to accelerate ARR through the back half of the year and end the year at $107 base net retention. And as more and more of our business shifts to that focus on enterprise, I think that is -- that's good for customers and good for shareholders long-term. So I hope that's helpful. John Gomez Super helpful. And obviously, the SMB has been challenged, but when we look at the second half for ARR, can you talk about the underlying assumptions for ARR from SMB? Should we expect that to continue to downtick or should that stabilize? Just any color on the anticipated ARR mix would be super helpful. We're expecting the bulk of our growth to be coming from the enterprise and mid-market segments. We have -- the trends that we've seen around SMB being negative whilst we expect to see some stabilization. We still see that as being a bit of a headwind even in the back half. Tony Righetti Okay. Let's turn it back over to management for closing comments. Please go ahead, Jenn. Jennifer Tejada Well, first of all, thank you for your patience as we got off to a little bit of a late start with some technical glitches, a proof that these incidents happen all the time and everywhere, and thank you to my team for a terrific incident response. I appreciate it. Thank you all for joining us today. The increased recognition in our value proposition following the recent high-profile IT outages, coupled with the record numbers of multi-product and multi-year agreements really underpins my confidence in our ability to surpass 10% ARR growth for the fiscal year. As Howard said, we're going to continue to work on improving efficiency and most of all continue to focus on building trust and long-term relationships with our customers. So thank you very much for your time and have a great rest of your day.