Anaplan, Inc.
Q1 2020 Earnings Call Transcript

Published: 28 May 2019

[Operator:]

My name is Sharon, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Anaplan First Quarter Fiscal 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. Thank you. Edelita Tichepco, you may begin your conference.

[Edelita Tichepco:]

Good morning. And thank you for joining us on today’s conference call to discuss Anaplan’s First Quarter Fiscal Year 2020 Financial Results. Joining me on the call are Frank Calderoni, our Chief Executive Officer; and Dave Morton, our Chief Financial Officer.

[Frank Calderoni:]

Thank you, Edelita, and good morning, and welcome to our first quarter earnings call. I would like to first start-off by saying thank you to our customers, partners, investors and especially our employees, who have been instrumental in helping us get to where we are today. We are very proud of how far we have come in a short amount of time and we could have done it without the commitment, dedication and loyalty from all of our stakeholders. We are very pleased with our first quarter results as it marked a strong start to the year with solid financial and operational performance. This is a reflection of our committed market momentum and an indicator that all main drivers behind our growth are producing well. We believe we are the leading modern business planning platform, as we are the only connected planning solution that can address the phenomenon of digital transformation. The rapid growth and expansion we are seeing is a result of the key role Anaplan play in helping enterprises regardless of industry adapt faster to the increased business dynamics. Every business leader is now applying new rules of engagement in order to compete and grow and they are seeking solutions that can address their needs for the future. Our platform is quickly becoming the new core digital technology standard that can dramatically improve the economics of any business and our results reflect it.

[Dave Morton:]

Thanks, Frank, and good morning, everyone. For the first quarter of fiscal 2020, we exceeded our expectations across all of our key financial metrics. We drove year-over-year revenue growth of 47%, and within this, subscription revenues were up 45% year-over-year and comprised 86% of total revenue. Service revenues were $11 million, up from $7 million in the first quarter last year and calculated billings of $87 million grew 57% year-over-year.

[Operator:]

And our first question comes from Richard Davis with Canaccord. Your line is open.

[Richard Davis:]

Thanks. Just a quick question. So no tipping point is always kind of a loaded phrase. But, Frank, you are not seeing a bunch of past companies kind of try and fail the scale in connected planning. So when I kind of think about this and when you think about this, what -- is there -- what’s the most important factor that’s kind of broken the dam to kind of get this upgrade cycle, is it -- you talked about time delay, is it early steps to verticalization, is consult and validation, I mean, I guess, you could just say it’s everything? But can you identify something that outsiders we can kind of focus on to think about what’s making this thing work well? Thanks.

[Frank Calderoni:]

Yeah. Richard, that’s a good question. I have to say this spending over 30 years in the planning vertical or I should say. The first thing I would say is that there hasn’t really been that much change in planning in decades from the standpoint of process, as well as the tools and applications. And I think if you look back over the last several years what I think has hit a strong point with customers is that, they are trying to digitize, as I mentioned in the prepared remarks, and they haven’t been able to really effectively do that in planning. And to have a platform that Anaplan has so pervasive across an enterprise, I think, it’s very compelling for many of these companies to start to leverage that and really start on embarking on a new way of doing their planning. And once they start, and all the examples that we have seen especially myself over the last two and a half years with Anaplan, really starts to show that we are in the early stages of what I think is really pretty phenomenal as far as what companies, large G2K companies, enterprise companies can accomplish over a period of time. So I think it’s really kind of taking processes that haven’t had a much change, that are very costly, that haven’t been very flexible, that has been more backward looking rather than forward looking and providing these customers with an option where they can make some change and realize value in a short period of time, and that’s the compelling part the Anaplan platform delivers.

[Richard Davis:]

Great. That’s super helpful. Thanks so much.

[Operator:]

Your next question comes from Alex Zukin with Piper Jaffray. Your line is open.

[Alex Zukin:]

Hey, guys. Thanks for taking my questions. As far as the third straight quarter of billings acceleration, and I think, it’s actually the biggest dispersion from a growth rate perspective between billings growth and revenue growth. So maybe can you first talk about any unusually large renewals in the quarter and maybe how we should think about the renewal opportunity this year versus last? And then as we think about some of the recent changes in the sales and marketing leadership. Just an update on how that’s going, what you are looking for and what you are expecting there? Thanks again guys.

[Dave Morton:]

Hey, Alex. It’s Dave Morton and then I will take the first part and then I will turn it over to Frank to address the latter. In regards to our billings dispersion as you referred it to. I would just articulate that there was nothing abnormal within a quarter. It was really clean and as you know, our standard contracts are approximately three years. We get the first year up front from a billing perspective. And so we don’t look at anything being abnormal within that, and quite candidly, we are not goal seeking on billings per se. At the end of the day, we are just finding some great customer success, not only with the land, but then also with the expense. We continue, I mean, even this quarter, our top 10 deals both lands and expands continue to be well above $500,000, and so with the strong pipeline coverage and momentum that we have experienced, it just so ensues. So that’s pretty much it from a billings perspective.

[Frank Calderoni:]

So, Alex, in regard to the CRO, I am extremely, first of all, let me just say that I am extremely proud of the leadership team. We focused on strong execution and I think our first quarter results really demonstrate the progress that we are making. Our focus, and I mentioned this last time, and internally this is what we talk about is on scaling the business to $1 billion and beyond and so we have been putting plans in place, making our investments in order to do that. As part of that, talent is top focus as we continue to scale. I focus on talent. I’d probably say this almost every week or several times a week as far as making sure we have the right talent, we can retain the right talent that we are really going out in the marketplace and attracting more. Over the six -- last six months, we have continued to enhance the leadership team with the addition of YY Lee back in the September time frame as our Chief Strategy Officer and she’s been very effective and really helping both the product and engineering team kind of think about the platform going forward. Ana Pinczuk joined us back at the beginning of this year as our Chief Transformation Officer. She’s been focused on the go-to-market, as well as operations across the company. And then also in helping us build various solutions, as we think about what really hits the marketplace best in different verticals. And so as it relates to the CRO, I continue to evaluate our options. Right now, we have a very strong internal team with strong geographic sales leaders, who have been performing extremely well. And I am going to continue to see and receive, I get strong inbound interest, and so I will continue to see how this plays out.

[Alex Zukin:]

Great. Thank you, guys. Congrats.

[Operator:]

Your next question comes from Heather Bellini with Goldman Sachs.

[Heather Bellini:]

Great. Thank you. I had a couple of questions, Frank. First, I wanted to talk about the increase. I mean just everyone’s been talking about the acceleration business both from the billings and the subscription revenue growth perspective. I was wondering if you could share with us a little bit about the ramp and the quota carrying sales reps. I know you guys have made obviously big investments there over the years, but how have we seen the growth in the ramped sales headcount trend in kind of if you have any thoughts about how we should think about growth this year versus last year, even if you can just give us a sense of the magnitude without giving us a specific number? And then, also had a question on the competitive environment, I was wondering if you are seeing adaptive in the market more and if you thought having workday sales reps talking about this product now was helping to grow awareness? Thank you.

[Frank Calderoni:]

So, Heather, as far as your first question, as you expect we will continue to invest in the market opportunity, which I think is quite large, and I think, we are in the early stages in order to maintain or even accelerate the topline growth. So, we are going to have a continued investment cycle in our reps. I have to say that in the last three quarters since the IPO, I have been pleased with the progress that the ramped reps have been able to deliver. We will continue to have ramping reps, and as you know, ramping takes nine months to 12 months from that period of time. But even in the last quarter alone, even the ramping reps have been able to produce close deals, which is great to see. I would have to say that very pleased with the progress. I have to also mention that we monitor the overall productivity of our reps through our Anaplan SPM platform, which we have been able to deploy especially over that timeframe, where we can monitor how -- and also the RVPs in the different regions, they can monitor how the reps are performing, which reps are doing what type of business, what kind of coverage they have, where they have been able to build pipeline over an extended several quarters in advance, how they have to better manage or consult or develop some of the reps. And this, we call this the RVP dashboard, has been very instrumental in allowing the RVPs, as well as the regional geography leaders and also across the company, better monitor the overall performance of the sales reps, and so far, it’s going, I’d say, quite well. As far as the competitive dynamics, I would say there’s been no change. We have not seen anything in particular in the marketplace. I think it’s because, as I mentioned earlier, the platform that we have is quite compelling. We are the only ones, I believe, out there with the Enterprise Planning platform that can address six different quadrants within finance, sales, workforce planning, supply chain, and so no one really comes close when you think about it from that perspective. And as a result, customers are coming to us and looking for this opportunity to be on our platform.

[Heather Bellini:]

Great. Thank you.

[Operator:]

Your next question comes from Stan Slotsky with Morgan Stanley.

[Stan Slotsky:]

Perfect. Thank you so much guys for taking my question. I wanted to dig into pro services, very strong acceleration, 60% growth year-on-year. What drove the big bump in prof services in the quarter? And maybe as a follow-up question, with the strong expansion of your partner ecosystem, how are you thinking about the prof services growth for the rest of the year?

[Dave Morton:]

Hey, Stan. This is Dave Morton. I will take the first part and then add -- let Frank add on some additional comments. Overall, from a strategic level, nothing has really changed from our point of view. From the Professional services on our end, we are going to continue to deemphasize. Think of it as a continued just back stop to ensure our customer success. We have had some backlog as you know both in FQ4 and then coming in to FQ1 that continue through, but we don’t see our percentages varying in mass amounts as a percentage versus subscription. Quite candidly, subscription is where our key focus is at and we will continue to drive. As you noted, we have an amazing partner, Economy, and so that’s something that we continue to promote, as well as they have been great partners with this in delivering our platform across our multitude of customer sets.

[Frank Calderoni:]

Yeah. Stan, let me just add on what Dave said. I think one of the things we started branch out on this it has to do first of all with the overall volume of transactions that we have both land and expand. I think our strategy is working well, which is focusing high new organization, selling to the C-Suite, looking at larger expand -- larger lands I should say and then, of course, faster and larger expense and that comes through deploying a model. We are seeing a need with our services team, but we are also extending the ecosystem with our partners. The number of partners that have been added as a consultant have been added as a consultant, that’s been added to the ecosystem, continues to grow. We have over a 1,000 right now. We are also leveraging both with Anaplan but more so with our partners embarking on solutions, because as we are now starting to get some traction with many large G2K customers, we are starting to see certain areas of focus around, let’s say, workforce planning or demand planning, a commercial planning, where we can develop solutions or partners can develop solutions that they are best able to go to market. And therefore, that accelerates the success that we have and accelerates the time to market. So I just said that as far as additional color around what we are seeing our services, as well as services from partners.

[Stan Slotsky:]

Got it. And why don’t you just dig in very quickly on something you just mentioned, Frank, and that is the speed at which your add-on deals come in. Have you seen any shrinkage between the initial sale and when the add-ons’ expansions start to roll in versus maybe a year ago or the year before?

[Frank Calderoni:]

I think, as I mentioned in the prepared remarks, the customer expense, when I talked about the Honeycomb, I think that’s a great example of really looking at a G2K customer that starts to see value early. And the minute they start to realize that value and they are able to track that value, which is good also additional added point for Anaplan that allows them to get more support for expanding sooner and faster. And so, I -- I really -- I still say -- I have to say here, we are in the early stages with G2K or just with enterprise in general. But I am seeing larger transactions and faster expense in certain areas. And I believe that that should accelerate as I think and look at the pipeline for the rest of this year. One other fact and I know we mentioned this before, but it continues to get more impressive. If you look at the top 25 customers the average AOR, we are now about 3 million at the end of Q1 and that’s slightly up from what we said last time, which is good to see, right. If your top 25 customers continue to expand with you and the average AOR continues to grow, that’s a good annuity, but also a good traction that you have with these customers for even further expand.

[Stan Slotsky:]

Got it. Thank you so much.

[Operator:]

Next question comes from Brent Bracelin with KeyBanc Capital Market.

[Brent Bracelin:]

Good morning, and thanks for taking my question. Frank, I had one for you and a follow-up for Dave. Frank, I wanted to go back on the demand side, I mean, all the metrics were strong during what is typically a seasonally slower Q1 period for a software company. What was it this quarter that surprised you the most, is the answer just improving sales productivity or is there more nuance here that that drove the momentum this quarter, and again, what is historically a seasonally slower quarter for you?

[Frank Calderoni:]

Yeah. Brent, I have to say the one that comes up to mind is really how everything is coming together. As you would expect getting off to a new start for a new fiscal year with kickoffs and various other things going on, it was great to see how it all came together, many things that we talked about, getting higher into G2K, aligning with partners, so we have the right offering that we can bring to a digital transformation, enabling us to really think and work with our customers more strategically and also the productivity, right? As I mentioned before as far as the investments we are making in the sales in the whole go-to-market is working out well. I have to mention this, if I were to pick an example, I recently, this was back a couple of weeks ago, I have been on the road quite a bit. I think I probably met with over 25 CIOs and C-Suites over the past two months alone, which is great, I did that when I first came to Anaplan, I continued to do that outreach. It’s really hearing firsthand with existing customers, but especially with new customer prospects what’s on their mind. And there was one a few weeks ago that came -- we spent an hour with the head of a very large business unit in a global G2K company. This company had just had their first deployment use case in Anaplan and finance, and the CFO of that business unit wanted me to meet their General Manager. So we met early in the morning. We spent an hour and we articulated the connected planning platform, and we were able to address a host of his needs, his concerns in running his business and he was extremely engaging in understanding the story of connected planning. At the end of the meeting, he said to me that and this was about 8

[Brent Bracelin:]

Very helpful color and certainly encouraging to see that things come together here. A follow-up for Dave here on just the new land customer, net new customer cohort is over $250,000, I think we are up to 31 this quarter sequentially versus only 20 in the season strong Q4. So what drove that, was that just outperformance on the land side or was it just a balance of lands and expands?

[Dave Morton:]

Yeah. I think Frank has articulated it well. It’s been a fair amount of lands and expands equally balanced. I would tell you it’s within some of the framework that we have described before the 60-40 mix between land and expand. But it also goes back to the productivity that we have articulated as well, productivity within our partners, productivity within all the feet on the street, productivity within even some of our own models and how we are able to have deep levels of inspection and go after the biggest opportunities across the TAM as we have defined and rolled out. So I would tell you across all those different factors it’s kind of all come together.

[Brent Bracelin:]

Thank you. That’s all I had.

[Operator:]

Next question comes from Terry Tillman with SunTrust.

[Terry Tillman:]

Good morning. Thanks for fitting me in. The first question just and maybe this is for you, Frank, just the mix of business across crosses as you call them quadrants, whether it’s finance, sales, supply chain and HR. Have you noticed any changes -- any discernible changes in terms of the mix across those quadrants and then I had a follow-up.

[Frank Calderoni:]

So, Terry, the overall mix continues about the same, where it’s about 60% in finance and 40% outside of finance. But similar -- and I mentioned this in the past that I have to say in the last quarter alone it continues to accelerate which is supply chain. It was great to see the recognition by Gartner as the leader in the Magic Quadrant. I think that also solidify many of the great customers and the use cases that we have in supply chain and how Anaplan is uniquely positioned across supply chain not just in one specific area and really trying to connect the supply chain. But I have to say more and more, we have got it great at the Gartner Supply Chain Conference just a week or so ago. We got a strong interest in Anaplan and we continue to see that outreach. If I go back to what I mentioned in the prepared remarks, talking about spirits and also cosmetics, if you look at those companies and those are large companies on a global basis, pretty much all of them are either using or looking to use Anaplan in supply chain and it works extremely well for them to help digitize and streamline a lot of the metrics and the process by which they manage their demand and supply.

[Terry Tillman:]

Okay. Thank you. And then, Dave, maybe just a question for you, I totally understand that the billings can be volatile quarter in quarter out depending on different factors. But we have the June User Conference. I am assuming your sales reps have prospects there. You are going to be aggressively trying to sell them and talk about the new innovations. But is there any implications of when the User Conferences and thinking about maybe billings in the second quarter or third quarter from just activities around the conference? Thanks and nice job.

[Dave Morton:]

Look, at the end of day, we are really pleased with our Q1 results and momentum we saw, and having said that, we still have a very prudent approach to our guidance. And so with respect to the additional opportunities coming at us at this time and the pipeline coverage we see, we feel that our guidance reflects that level of prudence.

[Operator:]

Next question comes from Kirke Materne with Evercore.

[Peter Levine:]

Great. Thanks. This is Peter Levine in for Kirke. I will echo my congrats on the quarter. So just one for me, can you talk about your international performance during the quarter. Maybe talk about what regions are you outperforming in and why and on the partner side of that equation, I mean, how different do partner led deals look versus deals done here in the U.S. with partners? Thank you.

[Frank Calderoni:]

So, Peter, I’d say that if I look at the overall global performance, it was strong across the Board, in the Americas, in Europe, as well as in Asia-Pacific. We are seeing growth rates in all regions, but especially in Asia-Pacific, which has been a small unit for us but really expanding in a very rapid rate. Areas such as Japan is doing well, as well as Singapore and some of the Southeast Asian countries. We continue to invest in all regions, but we are as we have been very focused. So we select certain regions where we put the investment and then we establish a certain amount of metrics to determine what success we are looking for and the progress that we are making before we will take on another region. So we have not necessarily been in all regions of the Americas, in Europe, as well as in Asia-Pacific. So it does provide opportunity for us in the future, but we will be very disciplined on when and how we go into those markets. As far as the partner ecosystem, I would say that, the partner ecosystem in Asia-Pacific is probably the youngest. But we are starting to get some traction in those larger countries that I mentioned where many of our global partners are leaning in in some of those regions and we are developing some of the expertise or the consultants to help support that and I expect that to continue over the next several quarters as well. So good performance, I think many of our global partners are starting to realize the value that they are getting in the Americas and in Europe, and willing to expand that in Asia-Pacific, and we are seeing signs of it.

[Peter Levine:]

Great. Thank you.

[Operator:]

Next question comes from Scott Berg with Needham.

[Scott Berg:]

Hi, Frank and Dave. Congrats on the quarter and I apologize for the airport background noise. I guess just one question from me, Frank, is as you mentioned the G2K customer that will have 30 use cases once it’s fully ramped next year. That’s a pretty impressive scale. You talked about that this is going to be your largest customer to-date or how large is your platform to-date?

[Frank Calderoni:]

Scott, it is not necessarily our largest customer. I think it’s just one that probably has come the fastest in a short amount of time. And they have really been able to -- I look at that Honeycomb that I talked about before. Their Honeycomb continues to expand very aggressively, because I think they are seeing the value. They recently came to us this past quarter and asked us to work with them jointly on creating a video that they distributed internally within their G2K organization to get the word out even further about what they are doing with Anaplan, the value that they are getting from Anaplan, so they can even accelerate this even more so and I think that’s helping to drive the expansion. That’s not the only example. We have other examples and we have also customers that are larger than that one in addition. Like I said before, when you think about the top 25 being on average about $3 million ACV or ARR, I should say, that’s -- I’d say a pretty impressive. And I think as we continue to update those going forward we will see that increase.

[Operator:]

Your last question comes from Shelby Seyrafi with FBN Securities. Your line is open.

[Shelby Seyrafi:]

Thank you very much. Nice quarter. So you said that the RPO was up 44% in the prior quarter. Do you have a number -- I don’t believe you gave a number for the RPO in Q4? And secondly, you are guiding for a mid-30s revenue growth in Q2, but you have been growing in the high-40s. So I am just wondering why the deceleration in the growth rate?

[Dave Morton:]

So, Shelby, this is Dave Morton. We can get you offline the exact number, and obviously, will be disclosed in our Q4 so that you can get the right sequential quarter Q3 over Q3. But more importantly, it’s really in Q4 over Q4 respectively. But more importantly what we just ended the last quarter at and the acceleration that we saw in our remaining performance obligations just speaks to the strength that that we saw. Again, in regards to our guidance, it’s just a matter of practicality and prudence that we have put out there. And so we have done a bottoms-up with our respective sales team. Frank spoke about the RVP dashboard and cockpit and so with deep level of inspection, that’s our prudent levels that we have provided at this time, so.

[Shelby Seyrafi:]

Okay. I was impressed by your land ASP up 60% year-to-year. How does that compare to your prior quarters that growth rate?

[Dave Morton:]

Well, obviously, over this past quarter, the year-over-year approximately 60%, and so you can assume even from a sequential value that is increased as well. And again, the overall narrative isn’t about the exact percentage per se other than our lands are becoming bigger and bigger as we continue to connect at a higher level within organizations. And speaking to the multitude of quadrants we get recognized in, and so from that level, we are able to sell at the platform level across so many different use cases. And so it’s just not about one point specific land, which would be nominal in dollars, it’s the multitude that were able to sell across, which yields a larger ASP, and so that motion on our lands continues to accelerate.

[Frank Calderoni:]

Yeah. Dave and I were talking about this yesterday as far as looking at some of the metrics and what we liked about it is, it really solidifies, as I mentioned earlier, the strategy. Selling high in the organization at the C-Suite on some type of transformation, most likely digital transformation, working with a partner, allowing us to get a larger land in this case, which is what’s driving the higher average and then moving fast to get to expand and see that expand road map or journey be over multiple years which is great.

[Shelby Seyrafi:]

Okay. Thanks.

[Frank Calderoni:]

So, I want to thank everyone for joining our call today. I wanted to also thank our customers, our partners and our shareholders, as well as our team members for your continued support and we look forward to talking with you again next quarter. As we mentioned, June 10th to the 12th in San Francisco is our Connected Planning Xperience Conference. So, please join us and look forward to next quarter. Thanks again.

[Operator:]

This concludes today’s conference call. You may now disconnect.