ANAPLAN, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K for the year ended
Overview
Connected Planning represents a fundamental shift from the legacy approach to planning, which is typically confined to the finance department and uses a patchwork of outdated and disconnected tools and manual processes that are often overly complex, slow, inefficient, and static. Connected Planning enables dynamic, collaborative, and intelligent planning across all areas of an organization, including finance, sales, and supply chain, and other corporate functions such as marketing, human resources, and operations. It enables organizations to manage their people, products and customers with agility.
We sell subscriptions to our cloud-based planning platform primarily through our direct sales team. We also have strategic partnerships that provide us with a significant source of lead generation and implementation leverage. Our global partners, including global strategic consulting and advisory firms, global systems integrators and technology firms, often promote our platform as their clients examine how to plan more effectively or seek digital transformation through organizational change or improved business processes. We also partner with leading regional consulting firms and implementation partners. These highly skilled regional partners not only provide subject-matter expertise in the implementation of specific use cases, but they also act as an extension of our direct sales force by identifying and referring opportunities to us. We and our partners create templatized solution offerings to further accelerate the implementation, adoption and expansion of our platform.
We focus our selling efforts on executives of large enterprises,
We see a greenfield opportunity to help over 70 million knowledge workers around
the world plan more efficiently using
We derive the substantial majority of our revenue from subscriptions for users
on our platform. Our initial subscription term is typically two to three years,
although some customers commit for shorter periods. We generally bill our
customers annually in advance. We also offer professional services, including
consulting, implementation, and training, but are increasingly leveraging our
partners to provide these services. During the three months ended
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During the three months ended
We believe that our focus on customer success allows us to retain and expand the
subscription revenue generated from our existing customers, and is an indicator
of the long-term value of our customer relationships for
Our dollar-based net expansion rate equals the annual recurring revenue at the end of a period for a base set of customers from which we generated annual recurring revenue in the year prior to the date of calculation, divided by the annual recurring revenue one year prior to the date of the calculation for that same set of customers. Annual recurring revenue is calculated as subscription revenue already booked and in backlog that will be recorded over the next 12 months, assuming any contract expiring in those 12 months is renewed and continues on its existing terms and at its prevailing rate of utilization.
The number of customers with greater than
We regularly evaluate acquisitions or investment opportunities in complementary
businesses, services and technologies and intellectual property rights as a
means to expand our offerings through a disciplined and strategic acquisition
process. For example, on
COVID-19 Update
In
In response to the COVID-19 pandemic, we have taken several immediate steps
including shifting our training courses to an online only format, and moving our
global Connected Planning Xperience (CPX) to an online only format. To support
the health of our employees, in
While the broader implications of the COVID-19 pandemic on our employees, our results of operations, and overall financial performance remain uncertain, at least for the immediate future, we expect our financial performance to be impacted by the economic crisis arising from the COVID-19. We are starting to see certain of our customers and prospective customers deferring or delaying buying decisions and project implementations, prolonged sales cycles, and an increase in requests for extended payment terms due to uncertain economic conditions including those caused by the COVID-19 pandemic. We expect these deferrals and delays to impact our new business pipeline and large deals, including delays in deals arising out of our strategic relationships with our global partners. We may also experience a contraction in our existing customer base. These and other changes in customer demand for our solutions could materially and adversely impact our business, results of operations, and overall financial performance in future periods.
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While we have developed and continue to develop plans to help mitigate the negative impact of the pandemic on our business, these efforts may not be effective and any protracted economic downturn may limit the effectiveness of our mitigation efforts. In addition, even after the immediate impacts of the pandemic on the global economy and our business subside, the residual effects of the pandemic may present additional challenges to our business that are currently difficult to predict. Furthermore, we generally recognize subscription revenue from our customer contracts ratably over the term of the contract. Therefore, changes in our contracting activity in the near term may not be apparent as a change to our reported revenue until future periods. See the "Risk Factors" section for further discussion of the possible impact of the COVID-19 pandemic on our business.
Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. See the section titled "Risk Factors". If we are unable to address these challenges, our business and operating results could be adversely affected.
Market adoption of our platform. Even though we believe Connected Planning is a strategic imperative for enterprises and that enables them to plan and execute digital transformations in today's rapidly changing business environment, it is at an early stage of adoption. Our long-term success will depend on widespread adoption of Connected Planning by enterprises for numerous planning applications with broad use of those applications within their organizations. While we believe that we are still in the early stages of penetrating our addressable market, we have benefited from rapid customer growth.
Customer First strategy. We put the success of our customers at the center of our culture, strategy, and investments. We view our Customer First strategy as core to capturing our Connected Planning vision and driving the continued adoption and expansion in the use of our platform. By aligning our thought leadership, worldwide development and delivery capabilities, and local sales and service resources, our Customer First strategy drives exceptional value throughout our customers' Connected Planning and digital transformation journeys. Our continued success depends in part on our ability to continue to put customers at the center of our strategy.
Expansion of existing customers. We employ a "land and expand" approach, with many of our customers initially deploying our product for a specific use case and group of users, and, once they realize the benefits and wide applicability of our platform, subsequently renewing subscriptions and expanding the number of users or use cases within and across lines of business and geographies as they continue unlocking the agile enterprise planning and operating model across functional boundaries. As a result, we are able to generate a significant increase in revenue from the expanded use of our platform across the enterprise. Going forward we are focused on our large customers where the opportunity for expansion and need for our planning solutions are greatest. Our future revenue growth and our ability to achieve and maintain profitability is dependent upon our ability to maintain existing customer relationships and to continue to expand our customers' use of our platform.
Scaling our sales team. Our ability to achieve significant growth in revenue in the future will depend, in large part, upon the effectiveness of our sales leadership and sales efforts, both domestically and internationally. We have invested and intend to continue to strategically invest in expanding and retaining our sales leadership, direct sales force, particularly in attracting and retaining sales personnel with experience selling to larger enterprises. Our ability to increase our revenue will depend on the new members of our sales force becoming fully productive and executing expeditiously and effective sales leadership. In the enterprise market, a customer's decision to use our platform may be an enterprise-wide decision. These types of sales require us to provide greater levels of education regarding the use and benefits of our platform, which involves substantial time, effort, and costs.
International sales. Our total revenue generated outside of
Partner ecosystem. Our partner ecosystem extends our geographic coverage, accelerates the usage and adoption of our platform, and enables more efficient delivery of service solutions. We intend to augment and deepen our partnerships with global and regional partners, including strategic and advisory consulting, systems integration, and technology firms. We believe our partners' scale and route to market can significantly contribute to our ability to penetrate our addressable market, extend our geographic coverage, and extend usage and adoption of our platform.
Product velocity. We have invested and intend to continue to invest significantly in research and development in an effort to enhance and expand the functionality of our platform, to attract and retain development personnel, and to
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protect our market-leading technology advantage. We have a well-defined technology roadmap to introduce new features and functionality to our platform that we believe will improve our ability to generate revenue by broadening the appeal of our platform to potential new customers as well as increasing the opportunities for further expanding the use of our platform by existing customers. We are also investing to further enhance the user interface, functionality, and usability of our platform, including in machine learning and other artificial intelligence technologies, to further enhance the predictive capabilities of our platform. We will need to continue to focus on bringing cutting-edge technology to market in order to remain competitive.
Components of Results of Operations
Revenue
We offer subscriptions to our cloud-based planning platform. We derive our revenue primarily from subscription fees and, to a lesser degree, from professional services fees. Subscription revenue consists primarily of fees to provide our customers access to our cloud-based platform. Professional services revenue includes fees from assisting customers in implementing and optimizing the use of our cloud-based platform. These services include implementation, consulting, and training.
Subscription Revenue
Subscription revenue accounted for 90% and 86% of our total revenue for the
three months ended
Subscription fees are recognized ratably as revenue over the contract term beginning on the date the platform is made available to the customer. Our new business subscriptions typically have a term of two to three years. We generally invoice our customers in annual installments at the beginning of each year within the subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period.
Most of our contracts are non-cancellable over the contract term. We had
remaining performance obligations, or backlog, in the amount of
Because we recognize revenue from subscription fees ratably over the term of the contract, changes in our contracting activity in the near term, including as a result of the COVID-19 pandemic, may not impact our reported revenue until future periods.
Professional Services Revenue
Professional services revenue is generally recognized as the services are rendered for time and material contracts, or on a proportional performance basis for fixed price contracts. The substantial majority of our professional service contracts are on a time and materials basis. Implementations generally take one to six months to complete depending upon the scope of engagement with the customer. Our professional services revenue fluctuates from quarter to quarter as a result of the requirements, complexity, and timing of our customers' implementation projects.
Cost of Revenue Cost of Subscription Revenue
Cost of subscription revenue primarily consists of costs related to providing cloud applications, compensation and other employee-related expenses for data center staff, payments to outside service providers, customer service, data center and networking expenses, depreciation expenses, and amortization of capitalized software development costs.
Cost of Professional Services Revenue
Cost of professional services revenue primarily consists of costs related to providing implementation and configuration services, optimization services and training services, personnel-related costs directly associated with our professional services and training departments, including salaries and bonuses, benefits, and stock-based compensation, the costs of contracted third-party vendors, and travel.
Professional services associated with the implementation and configuration of our subscription platform are performed directly by our services team, as well as by contracted third-party vendors. When third-party vendors invoice us for services performed for our customers, those fees are recognized as expense over the requisite service period.
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Table of Contents Operating Expenses Research and Development
Research and development expenses consist primarily of personnel-related costs for our development team, including salaries and bonuses, benefits, stock-based compensation expense, and allocated overhead costs. We have invested, and intend to continue to invest, in developing technology to support our growth. We capitalize certain software development costs that are attributable to developing new features and adding incremental functionality to our platform, and amortize such costs as costs of subscription revenue over the estimated life of the new incremental functionality, which is generally two to three years. We plan to increase our investment in research and development for the foreseeable future as we focus on further developing our platform and enhancing its use cases. However, we expect our research and development expenses to decrease as a percentage of our total revenue over time, although they may fluctuate as a percentage of our total revenue from period to period.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs directly associated with our sales and marketing staff, including salaries and bonuses, benefits, commissions, and stock-based compensation. Other sales and marketing costs include promotional events to promote our brand, including our Anaplan Connected Planning Xperience (CPX) user conferences, advertising, and allocated overhead. We plan to increase our investment in sales and marketing over the foreseeable future, primarily stemming from increased headcount in sales and marketing, and investment in brand- and product-marketing efforts. However, we expect our sales and marketing expenses to decrease as a percentage of our total revenue over time, although they may fluctuate as a percentage of our total revenue from period to period.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs
associated with our executive, finance, legal, and human resources personnel,
including salaries and bonuses, benefits, and stock-based compensation expense,
professional fees for external legal, accounting and other consulting services,
and allocated overhead costs. We expect to strategically increase the size of
our general and administrative function to support the growth of our business
and to take advantage of the large opportunity we see in front of us. We
continue to incur additional expenses as a result of operating as a public
company, including costs to comply with the rules and regulations applicable to
companies listed on a
Interest Income, Net
Interest income, net consists primarily of interest income earned on our cash and cash equivalents.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign exchange gains and losses.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes related to foreign
and state jurisdictions in which we conduct business. We maintain a full
valuation allowance on our federal, state,
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Results of Operations
The following tables set forth selected condensed consolidated statements of operations data for each of the periods indicated:
Three Months Ended April 30,
2020 2019
(In thousands)
Revenue:
Subscription revenue $ 93,824 $ 65,085
Professional services revenue 10,020 10,745
Total revenue 103,844 75,830
Cost of revenue:
Cost of subscription revenue (1) 15,185 11,091
Cost of professional services revenue (1) 9,555 10,486
Total cost of revenue 24,740 21,577
Gross profit 79,104 54,253
Operating expenses:
Research and development (1) 23,762 15,059
Sales and marketing (1) 71,674 56,290
General and administrative (1) 22,428 20,013
Total operating expenses 117,864 91,362
Loss from operations (38,760 ) (37,109 )
Interest income, net 511 1,251
Other income (expense), net (331 ) (246 )
Loss before income taxes (38,580 ) (36,104 )
Provision for income taxes (1,022 ) (1,087 )
Net loss $ (39,602 ) $ (37,191 ) (1) Includes stock-based compensation expense as follows: Cost of subscription revenue
$ 708 $ 491
Cost of professional services revenue 508 492
Research and development 3,646 1,836
Sales and marketing 10,031 6,617
General and administrative 7,600 6,866
Total stock-based compensation expense
Three Months Ended April 30, 2020 and 2019
Revenue
Three Months Ended April 30,
2020 2019 % Change
(In thousands, except percentage data)
Subscription revenue $ 93,824 $ 65,085 44 %
Professional services revenue 10,020 10,745 (7 )
Total revenue $ 103,844 $ 75,830 37
Total revenue was
Subscription revenue was
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platform, which accounted for 64% of the increase, and acquisition of new customers, which accounted for approximately 36% of the increase.
Professional services revenue was
Cost of Revenue
Three Months Ended April 30,
2020 2019 % Change
(In thousands, except percentage data)
Cost of subscription revenue $ 15,185 $ 11,091 37 %
Cost of professional services
revenue 9,555 10,486 (9 ) Total cost of revenue$ 24,740 $ 21,577 15
Total cost of revenue was
Cost of subscription revenue was
Cost of professional services revenue was
Gross Profit and Gross Margin
Three Months Ended April 30,
2020 2019 % Change
(In thousands, except percentage data)
Subscription gross profit $ 78,639 $ 53,994 46 %
Professional services
gross profit 465 259 80
Total gross profit $ 79,104 $ 54,253 46
Subscription gross margin 84 % 83 %
Professional services
gross margin 5 % 2 %
Total gross margin 76 % 72 %
Gross profit was
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Gross margin was 76% in the three months ended
Operating Expenses
Three Months Ended April 30,
2020 2019 % Change
(In thousands, except percentage data)
Operating expense:
Research and development $ 23,762 $ 15,059 58 %
Sales and marketing 71,674 56,290 27
General and administrative 22,428 20,013 12
Total operating expenses $ 117,864 $ 91,362 29
Research and Development
Research and development expenses were
Sales and Marketing
Sales and marketing expenses were
General and Administrative
General and administrative expenses were
Other Income (Expense), Net
Three Months Ended April 30,
2020 2019 % Change
(In thousands, except percentage data)
Interest income, net $ 511 $ 1,251 (59 ) %
Other income (expense), net (331 ) (246 ) 35
Interest Income, net
Interest income, net decreased by
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Table of Contents Other Income (Expense), net
Other income (expense), net was a loss of
Provision for Income Taxes
Three Months Ended April 30,
2020 2019 % Change
(In thousands, except percentage data)
Provision for income taxes $ 1,022 $ 1,087 (6 ) %
The provision for income taxes was
Liquidity and Capital Resources
As of
Cash from operations could be affected by various risks and uncertainties, including but not limited to, the effects of the COVID-19 pandemic, such as timing of cash collections from our customers and other risks detailed in "Risk Factors". We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our pace of growth, subscription renewal activity, the timing and extent of spend to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced platform offerings, and the continuing market acceptance of the platform. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, and intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected.
Loan and Credit Facility Agreements
In
As part of the Credit Agreement, we granted Wells Fargo a first priority lien in
our accounts receivable, all of the issued shares of capital stock and equity
interests in certain of our subsidiaries, and other corporate assets and agreed
not to pledge our intellectual property to other parties. The Credit Agreement,
as amended by the Third Amendment, includes affirmative and negative covenants,
including financial covenants requiring the maintenance of: (1) minimum tangible
net worth (defined as assets, excluding intangible assets, less liabilities) as
of the last day of any fiscal quarter of not less than
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Table of Contents Cash Flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended April 30,
2020 2019
(In thousands)
Net cash used in operating activities
(4,463 ) (3,083 )
Net cash provided by financing activities 2,064 11,196
Operating Activities
Net cash used in operating activities of
Net cash used in operating activities of
Investing Activities
Net cash used in investing activities for the three months ended
Net cash used in investing activities for the three months ended
Financing Activities
Net cash provided by financing activities for the three months ended
Net cash provided by financing activities for the three months ended
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Commitments and Contractual Obligations
There were no material changes outside of the ordinary course of business in our
contractual obligations and commitments during the three months ended
Off-Balance Sheet Arrangements
Through
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements have been prepared in accordance
with
During the three months ended
Recent Accounting Pronouncements
See "Summary of Business and Significant Accounting Policies" in Note 1 of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
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