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Edited Transcript of PLAN.N earnings conference call or presentation 26-Aug-20 12:30pm GMT

Q2 2021 Anaplan Inc Earnings Call

SAN FRANCISCO Aug 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Anaplan Inc earnings conference call or presentation Wednesday, August 26, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David H. Morton

Anaplan, Inc. - Executive VP of Finance & CFO

* Edelita Tichepco

Anaplan, Inc. - VP of IR

* Frank A. Calderoni

Anaplan, Inc. - Chairman, President & CEO

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Conference Call Participants

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* Heather Anne Bellini

Goldman Sachs Group, Inc., Research Division - MD & Analyst

* Joseph Anthony Vafi

Canaccord Genuity Corp., Research Division - Analyst

* Josh J. Beck

KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst

* Michael James Turrin

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Raimo Lenschow

Barclays Bank PLC, Research Division - MD & Analyst

* Sarah Emily Hindlian-Bowler

Macquarie Research - Senior Analyst

* Scott Randolph Berg

Needham & Company, LLC, Research Division - Senior Analyst

* Stewart Kirk Materne

Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst

* Taylor Anne McGinnis

Deutsche Bank AG, Research Division - Research Associate

* Terrell Frederick Tillman

Truist Securities, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Anaplan Second Quarter Fiscal 2021 Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Edelita Tichepco. You may begin.

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Edelita Tichepco, Anaplan, Inc. - VP of IR [2]

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Good morning. Thank you for joining us on today's conference call to discuss Anaplan's second quarter fiscal year 2021 financial results. Joining me on the call are Frank Calderoni, our Chief Executive Officer; and Dave Morton, our Chief Financial Officer.

On this call, we will be making forward-looking statements, including financial guidance and expectations for third quarter and fiscal year 2021, anticipated future operating and financial performance, strategies, customer demand, product and technologies. These statements reflect our best judgment based on factors currently known to us, and actual events or results may differ materially. Please refer to documents we file with the SEC, including the Form 8-K filed today with today's press release. Those documents contain risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements.

These forward-looking statements are being made as of today, and we disclaim any obligation to update or revise these statements. If this call is reviewed after today, the information presented during this call may not be current or accurate.

We will also discuss non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles. Unless otherwise stated, during the call, all references to our gross margins, expenses and operating results are on a non-GAAP basis. For historical periods, a reconciliation of GAAP and non-GAAP results is provided in the press release and in supplemental financial information on our website.

And with that, I will turn the call over to Frank Calderoni.

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [3]

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Thank you, Edelita. Good morning, and thank you all for joining us today. I'd like to first start with our continued appreciation to those on the front lines who keep us safe and healthy during this pandemic.

With the ongoing challenges associated with COVID-19 globally, it is energizing to see the commitment and the impact our Anaplan team is having with our customers, partners and each other during these times. This was our first full quarter navigating COVID-19 as a global pandemic. As we mentioned last quarter, we focused on building a healthy pipeline and driving expansion opportunities with existing customers.

Despite the current economic challenges, digital transformation efforts remain a top priority for many companies. Disruptive secular trends only continue, fueling the need for businesses to invest in technology and capabilities that will help improve their competitive position. This is where we are focused on helping our customers navigate their operational response and digital transformation efforts through Connected Planning.

Moving on to our execution and performance. We continue to see stability in our go-to-market, making further progress on pipeline quality and sales enablement. Our remaining performance obligation or RPO balance exiting the quarter was $703 million, up 36% over last year. Billings grew 22% year-over-year, and subscription revenue was up 32% year-over-year.

With that, I'd like to provide insights into how we are managing our business through this period. As we mentioned last quarter, due to the challenging business environment and the impact it had on the timing and pace of customer decisions, we increased our focus on near-term opportunities within our existing customer base. This quarter, we shifted more of our pipeline mix toward expand opportunities as well as the mix of closed business. Approximately 60% of bookings this quarter came from existing customers, which is more in line with our historical average.

Most of our deals greater than $500,000 were partner-influenced. We are driving tighter collaboration in our joint account planning processes, leveraging our partners to connect Anaplan into their digital transformation efforts that they're driving with their largest customers. Our partners continue to invest in their Anaplan practice, adding nearly 600 new certified model builders, and 60% of these were with our GSI partners.

As we have discussed before, one of our priorities over this past year has been increasing the number of certified Anaplan professionals with the long-term vision of making Anaplan the default planning standard for both companies and also for professionals. This quarter, we saw increases across all levels of our model builder certification. Certified model builders were up 63%, doubling in number in less than 6 months. And the next level above, level 3 model builders, were up 185% quarter-over-quarter.

When I take a step back and look at what has changed compared to a year ago and how the enterprise cloud planning landscape has evolved, what stands out to me is the rapid change that the global pandemic has forced upon businesses. This endless pace of change has become unrelenting, and the need for a connected platform is playing out. This was highlighted by Gartner in their 2020 Cloud Financial Planning and Analysis Solutions report, where they recommend companies execute an xP&A strategy that enables finance to lead company-wide continuous planning and performance management. Gartner defines this by using the term extended planning and analysis or xP&A. The x refers to the breaking down of silos between financial and operational planning processes. This concept describes the essence of our Connected Planning strategy as our platform was purpose built to extend planning processes across the organization to a broader range of business areas such as sales, workforce planning and supply chain planning.

To demonstrate the ways in which Connected Planning enables companies to achieve their performance goals that span the entire enterprise, let me share a few customer highlights. One of our new customers, a Fortune 500 company with over 20,000 employees globally, chose Anaplan for integrated planning, reporting, scenario modeling and the unique ability to connect plans across multiple business units, segments and functional areas. We also address their need for agility and speed by meeting their requirement for business self-service. With the ability for business users to change logic, hierarchies and update model assumptions, we're moving the burden and the barriers to speed that often comes with centralized administration required by the legacy products.

A large expand this quarter was with a technology company with over $50 billion in revenue. This company has undergone significant change and is transforming its current finance, product demand, marketing, annual, quarterly and monthly planning into an integrated cross-company collaborative process with a focus on demand planning accuracy and people efficiency. Anaplan was able to meet their key requirements for agility as well as becoming the single source for all planning insights across multiple functional areas. This customer's investment in Anaplan is expected to generate ROI from an anticipated reduction in inventory, logistics and other operating costs.

Another key expand in supply chain was with a leading high-growth apparel retailer. This customer needed support with their strategic growth plans on a global scale and a fundamentally different way to operationalize the management of in-season demand planning and item management. Our platform provided a flexible, business-owned solution that would meet their current and evolving needs. Our in-memory calculation functionality allows for quick decision-making with the planners and allocators. They also understood the power of connecting to the rest of their supply chain and working with industry partners. This customer expects to see returns from better inventory management and product margins while also protecting brand loyalty.

In addition to these customer highlights, we continue to receive industry recognition. Anaplan was showcased in an IDC study highlighting the market share of the largest vendors in the worldwide big data and analytics software market for 2019.

In a few weeks, we will be hosting our annual user conference, Connected Planning Xperience, virtually. We will announce some new product expansion related to predictive AI and intelligence techniques, extending and building on the strength of our Connected Planning platform. We look forward to sharing the details at CPX.

In summary, we have made good progress this quarter, and our teams have demonstrated better execution. Looking ahead, we remain cautious due to the broader economic environment and the uncertainty caused by the ongoing pandemic. During this time, we are focused on continued improvement in execution and we acknowledge we have more to do. However, we are confident we are on the right track.

I'd like to take a moment to thank all the employees at Anaplan for being tenacious and resilient. Our customers' needs for better daily insights across their business has become the norm, and there is a lot more we can accomplish together as a Connected Planning community.

Now let me turn over the call to Dave who will discuss our second quarter financials and outlook. Dave?

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David H. Morton, Anaplan, Inc. - Executive VP of Finance & CFO [4]

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Thank you, Frank, and good morning, everyone. Anaplan's second quarter results reflect stronger sequential execution in an uncertain economic environment. Total revenue for the second quarter was $107 million, up 26% year-over-year. Within this, subscription revenues grew 32% and comprised 91% of total revenue. Service revenues were $9 million, down from $11 million in the second quarter last year as we continue to deemphasize services as a percentage of total revenue.

Second quarter billings growth rate improved sequentially. Calculated billings for the second quarter were $109 million, up 22% year-over-year. This represents an improvement compared to last quarter's year-over-year growth rate of 10%. RPO exiting the second quarter was $703 million, up 36% over last year. The current portion of RPO that is expected to be recognized as revenue over the next 12 months is $358 million, up 32% year-over-year and consistent with last quarter's year-over-year growth rate.

Turning to key metrics. We ended the quarter with almost 1,500 customers. In addition, our mix of bookings from expand deals within existing customers improved sequentially. The number of customers with over $250,000 in annual recurring revenue was 391, up 31% year-over-year.

Our dollar-based net expansion rate or NRR is 116% this quarter. This reflects a lower volume of expand deals as compared to this time last year primarily due to the impact of COVID-19 on the timing and velocity of deals.

There was no change in churn this quarter. Our overall customer retention rate is in line with historical levels.

On a sequential basis, the overall volume of expand deals did improve. As discussed last quarter, exiting Q1, we focused on increasing the level of expand business with our existing customers, and as a result, we saw improvement during the second quarter. While NRR is still below our historical level of 120%, we remain focused on driving continued sequential improvement in the volume of expand business into the back half of the fiscal year.

Turning to our profitability metrics. Total non-GAAP gross margin was 78%, up 3 percentage points year-over-year. Within this, subscription gross margins were 85%, approximately flat year-over-year. And services gross margin were approximately 9%, down 3 percentage points year-over-year.

For the second quarter, total non-GAAP operating expenses were $93 million, up from $80 million in the prior year primarily due to increases in go-to-market investments. We continue to drive leverage in Anaplan's financial model, and second quarter operating margins were negative 9%, an improvement of approximately 11 percentage points compared to negative 20% in the same period last year.

As a reminder, Anaplan's first half spend is traditionally seasonally heavier with events, including our annual sales kickoff meeting and our annual user conference. With COVID-19, we subsequently pushed our user conference to late September this year, and the event is a virtual format. While the format and timing change for this event yielded favorable operating leverage in the second quarter, we do not expect this rate and pace in the back half of the year as we move forward investing in our go-to-market and product and engineering organizations for continued sustainable growth.

Net loss per share in the second quarter was negative $0.04 based on 138 million weighted average shares. Free cash flow for the second quarter was negative $12.9 million. We demonstrated good working capital management, and we experienced minimal deal exception requests for extended payment turns and split billings. We exited the quarter with $305 million in cash and cash equivalents.

While we remain highly confident in the long-term digital transformation trend and the relevancy of our platform across all industries, given the near-term economic uncertainty from the ongoing pandemic, we remain cautious on the broader demand environment for the second half of the year and how these conditions may impact overall timing for deals. For our third quarter guidance, we anticipate revenue in the range of $109 million to $110 million. Within this, we expect services revenue to be in the range of $8 million to $9 million.

In order to provide more visibility during this time of uncertainty, we'll provide a baseline for third quarter billings, which we expect to be in the range of $133 million to $135 million. This implies a year-over-year growth rate in the range of 16% to 18%. As a reminder, we have higher year-over-year compares as the billings growth rate for F Q3 last year was 59%. Non-GAAP operating margin for the third quarter is expected to be in the range of negative 12.5% to negative 13.5%. Weighted average share count is expected to be approximately 141 million shares.

We have made sequential progress this quarter, both in the mix of new and expand business and our pipeline build. As a result, we are reinstating our annual guidance. For the full fiscal year, we expect revenue to be in the range of $437 million to $439 million. Weighted average share count is expected to be approximately 140 million shares. Non-GAAP operating margin for the full year is expected to be in the range of negative 11% to negative 12%, representing a 470 basis point year-over-year improvement at the midpoint.

Longer term, our runway for growth and large market opportunity remain the same. We will continue to make investments to extend our leadership in this market whilst improving execution and profitable growth.

I'll now turn it over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Michael Turrin from Wells Fargo.

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Michael James Turrin, Wells Fargo Securities, LLC, Research Division - Senior Analyst [2]

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Looks like top line results came in ahead of the guidance you provided last quarter and ahead of where many investors were expecting. Could you just -- it sounds like some of the expansion activity anticipated came through this quarter, but can we just spend a bit more time on what the drivers of upside versus what you previously forecast looked like? And then were there any impacts from FX on either revenue or billings this quarter we should be aware of as well?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [3]

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Michael, thanks for your question. So as we mentioned, the focus this quarter, and this was kind of carrying over from Q1, was really to help build our pipeline and really work with our partners, which -- especially with expand opportunities with many of our current customers. And a lot of the trends that we thought we'd see as it relates to digital transformation, working through some finance reengineering projects which were put on hold started to really start to show some traction. So we continue to build the pipeline throughout the quarter, and we had good close rates as the quarter progressed throughout the quarter. And that led us to the increase as we saw in billings and also with our ability to kind of think through how things will play out for the rest of the year.

As far as anything different, we did have a couple of points of benefit in our billings number from an FX perspective this quarter. But everything else in billings, no major pull forwards, no changes in billing terms, so it was pretty standard.

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Michael James Turrin, Wells Fargo Securities, LLC, Research Division - Senior Analyst [4]

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Great. Dave, the decision to bring guidance back, what gave the confidence to resume here? Is there anything you can add just around the trends you saw throughout the quarter that are pointing to the stabilization throughout the rest of the year?

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David H. Morton, Anaplan, Inc. - Executive VP of Finance & CFO [5]

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Yes, real fast, Michael. As Frank had variated on to some of the deal work, overall, the quarter was about really good linear progression. And so with that continued momentum as well as some of the pipeline build that we experienced for the back half of the year, just enabled us to -- give us the confidence heading into the back half of the year, which then we reinstated our full year guide.

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Operator [6]

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Your next question comes from the line of Scott Berg from Needham.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [7]

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Frank and Dave, congrats on a great quarter. Frank, I wanted to...

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [8]

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Thank you.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [9]

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Yes. I wanted to start with the partner execution in the quarter. It's something that we heard about in multiple aspects of our checks. You seem to be pretty pleased with what partners were doing in the quarter. But anything that you noticed that was maybe different around the execution or maybe quantity or velocity of deals that led to some of the optimism in execution?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [10]

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Yes. So one of the -- and we mentioned this again at the end of last quarter. The key focus especially in difficult times is to really hunker down and work even more closely with partners. They have a lot of visibility with their clients to actually look through and understand where their clients are and how they're working through any kind of transformation, dealing with any issues they may have based on the business environment around COVID.

So we got closer to the partners over the past couple of months. We focused with them on building pipeline. And we also focused with them on really going in specifically with current customers and looking at different opportunities to help them through COVID. And we worked on, even more so, building joint solutions for those particular customers with those partners, and that helps us. I think it's going to help us not only for this quarter but it's going to help us going forward.

The other thing, which we did mention a few minutes ago, is we continue to see good traction as far as the investment that partners are making in the ecosystem. As you recall, last quarter, we mentioned that our partner ecosystem added about 500 new Anaplanner model builders. This quarter, they added 600, with a substantial number in the large partners. So that shows that they see the opportunity working with Anaplan, again forming a much tighter relationship with us. And not only does it help us now, I think it's going to continue to help us going forward.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [11]

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Got it. That's very helpful. And then from a follow-up perspective, upsells were more -- I think the word was normal in the quarter in terms of the mix of contributions from new bookings. But in this post-COVID type of environment, have you seen your customers purchase anything different within those upsells? Or is it a similar mix between what you see for finance, supply chain, operations, sales and maybe HR?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [12]

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I would say 2 things. One, as COVID continues to play out, there've been a couple of areas that have been high focus, especially in finance organizations, around financial health, balancing some of the disruption with having some plans for recovery for their business, being more predictable about how they can look at different scenarios. And then the other thing I would say is supply chain resiliency. So those seem to be the 4 key themes.

But on the other side, I was just talking with a CFO yesterday. We were getting ready for our CPX conference coming up. We're going to do a roundtable. And I asked them a couple of questions to prepare for that. And he said that we've always known -- like 5 years ago, we've always known that we've had to make some changes. And we delayed, we delayed and we delayed. And now even more so, we're seeing the need. And I think -- that resonated with me yesterday, and I think that's starting to come out.

I mean it's still early. I don't want to get too far away, but it's starting to come out with organizations, especially finance organizations, are realizing that they can make some changes and pivot now, especially with this challenging environment and start to see some of the benefits associated with that. So they're starting to bring some of these projects back in for consideration. I think that's helping us as it relates to pipeline.

But again, these projects, they take some time. They require funding. But not only funding, they also require some of the skill. And that's been one of the challenges, too, with limited skill going through COVID, how do we -- how do they build those skills to be able to kind of make sure they can work on these projects along with Anaplan as well as with our partners. So we're trying to help them through that.

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Operator [13]

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Your next question comes from the line of Kirk Materne from Evercore.

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Stewart Kirk Materne, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [14]

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I'll echo the congrats on a good quarter. Frank, I was wondering if you could just talk a little bit about sort of the verticals that you're seeing success in and if there's any particular reason for that. Meaning -- I think we all understand there are verticals are more impacted by COVID. But given where the economy is right now, are you having more success in some areas where budgets maybe are a little bit more open? Just curious if there's any sort of vertical aspect to this quarter or how you see the pipeline shaping up into the end of the year?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [15]

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Sure. Good question. Last quarter, we realized, especially with the large amount of new business that we had coming into the quarter, that COVID had a dramatic impact in certain verticals. And so throughout the latter part of last quarter and then going into this quarter, I think we did a fairly good job of kind of scrubbing our pipeline really to make sure that we were identifying the areas where we saw customers did have the resources, did have the funds and they have the capability to start to move some of these projects forward.

Among those, I would say that had been, let's say, more active with us over the past couple of months, first, I would say, health care, which is fairly obvious. We've been doing quite a bit of work with health care companies. We've had some small, medium and large transactions with health care. The health care opportunities have been within finance, but it also extended into work with clinical trials. As you know, that's a big area right now, especially with work on the vaccine and things like that, but organizations, health care companies that are looking to find better ways of planning around some of these clinical trials, and so that's been a help for us.

The other vertical, I would say, is technology. We've had quite a bit of activity within the technology sector in finance but also in supply chain. If you recall, last quarter, we mentioned a technology company that was actually working through a supply chain transaction to help them get better visibility into various components. We've seen more of that activity this quarter with technology.

The other one I would say -- the third one I would highlight is some segments of retail. And I think the retail piece is a mixed story. You've got some retail that have been very strong through COVID, and I think they're investing primarily to make sure that they have the agility and resilience in dealing with some of the changes, especially tying finance into supply chain. Those are the 3 I would highlight that come to mind. There's probably a few others, but those are the top 3.

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Stewart Kirk Materne, Evercore ISI Institutional Equities, Research Division - Senior MD & Fundamental Research Analyst [16]

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That's helpful. And then, Dave, just one quick one for you on dollar-based net expansion, 116%. I think that was better than some were obviously fearing, given the uncertainty going this quarter. Do you feel like that sort of mid-100-teens range is probably an area which you guys maybe are going to bottom out at? I know there's a lot of uncertainty still, so I'm not trying to peg you down too much. But do you feel better about that metric continuing to improve? I think you mentioned that sequentially in your comments. But just wonder if you could just talk about that a little bit.

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David H. Morton, Anaplan, Inc. - Executive VP of Finance & CFO [17]

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Yes. It continues to be an area of focus of ours, not only the velocity but also the expand motion when you think about it in the overall context of just cost of acquisition. But to your point, last quarter, we narrated on ranges that could have been as low as 110% from a downside perspective. We're a little bit more confident on that.

And so I think your conversation point in and around the mid-teens kind of is the trough. If things don't go our way, we'd kind of be at the low end of the range. But as we continue on with the stabilization, our execution, our linear progression, that's something that we continue to be very mindful of.

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Operator [18]

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Your next question comes from the line of Terry Tillman from Truist Securities.

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Terrell Frederick Tillman, Truist Securities, Inc., Research Division - Research Analyst [19]

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I echo the congrats on the improving results. I guess I just had one question, and I don't know if this is for Frank or Dave. But it does sound like incrementally new deal pipeline, it is starting to come back. You're reinstating the full year guidance. What I'm curious about is if we could kind of probe more on new deal pipeline.

What are you seeing there in terms of the size and scope of some of these newer logos that are showing up again in the pipeline? Do they tend to be Global 2000 or more mid-market? And just how do you see that starting to then monetize and actually start closing again the new deals?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [20]

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So Terry, the -- as we said, the focus this quarter was on expand. And I think it worked well for us, but we continue to support new customers. I would say that the -- from a new customer perspective, it's kind of a mix. I would say we have low end, medium and also some larger transactions with some new customers as they start to think about working, especially in some of the verticals I mentioned before.

We talked about one on the call today with a technology company that's actually working through a finance transformation. That's a new customer that has been starting to move down a path, let's say, over the past 2, 3 quarters of digitizing a lot of their processes. And so it was time for them also now to think about the planning side of that. And so we were able to kind of work with them. I like that one because I would say it's a medium-sized deal, but it has a lot of potential for further expansion, not only in finance because it's considered to be a platform transaction over a longer period of time, but we also have the capability, similar to what we've seen with other technology companies, of tying that back into supply chain as well. So those are the types of new business.

As Dave mentioned, we've got close to about 1,500 as far as customers. So we did see some new customers join Anaplan, about 40% of our business with new customers in some of the verticals I mentioned before as well as mostly, I would say, on the finance side with some in supply chain.

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Operator [21]

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Your next question comes from the line of Heather Bellini from Goldman Sachs.

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Heather Anne Bellini, Goldman Sachs Group, Inc., Research Division - MD & Analyst [22]

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Most of mine have been answered, but just Frank, wanted to go back to the sales force changes that you announced a couple of quarters ago. And given kind of how the pace of your comments about focusing more on the installed base, I'm just wondering if there -- if you made any pivot back that are going to be long term in nature? Or are you going to kind of keep going down the path that you initiated at the start of this fiscal year in terms of sales force orientation?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [23]

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Thanks, Heather. We're continuing the plans that we put in place at the beginning of the year. As I mentioned last quarter, putting those plans in place and then dealing with a COVID situation 30 days later was not the best timing, but I think we stayed and worked through it.

If I look at where we are now, like a full 6 months into the first half of the year, we have a very -- I'd say, a very stable go-to-market organization around the world in all regions. The leadership positions in the various regions are filled. We've got good leaders. They're focused despite a lot of the distractions that we've had the last few months with COVID. It's been really kind of working through having our go-to-market teams spend their time where they do have the time to work with our partners and then very much with customers.

I think we've done a lot this quarter with our Anaplan Helps, really being empathetic to what our customer is experiencing, offering assistance where we could. And I think that buys a lot of goodwill, but it also allows us to get even closer to some of these customers. And that's the approach.

We've enhanced our sales enablement as far as some of the new people that joined the team, making sure that they get trained pretty quickly on the platform and on the go-to-market and again, jointly with our partners, kind of working through that. I think it's developing nicely. And I feel good about where we are, and I think we're positioned, as I said, to continue that in the back half of the year.

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Operator [24]

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Your next question comes from the line of Sarah Hindlian from Macquarie.

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Sarah Emily Hindlian-Bowler, Macquarie Research - Senior Analyst [25]

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Great. And it's nice to see you accelerate off of last quarter in this difficult environment. I was hoping you could give us a mix of what you're seeing today in terms of customers who are using Anaplan for traditional finance roles versus the more diverse supply chain and front office offerings that many customers are using you for today?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [26]

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Yes. So our mix, which has been pretty steady, is around 60% of our business, if I look at even current business, which is infinite. And we have -- being that our platform is an enterprise platform, we focus most of our efforts on what we call around the office of finance or the office of the CFO because we think -- I mean I firmly believe, having spent my career in finance and in different planning roles, that any type of planning, although it is planning across the enterprise, it really starts and ends in the finance organization. And the challenges that companies have had over the years has been the disconnect. Finance tends to work in a silo, and then everyone else plans in their own specific functions. So allowing a connecting point or at least a strategy to get that connecting point has been very helpful.

But we try to emphasize finance as our significant, let's say, foothold into an organization to make sure that even if we are working in other parts initially, we've got the finance team and the CFO engaged and aware and supportive of what we're doing because, ultimately, again, it's going to tie back in. So that's kind of where that plays out.

Even though we've seen good growth rates in sales, performance measurement as well as in supply chain, but a lot of those -- like one -- we had a deal this quarter in Europe which was a sales performance management transaction. This is a very large customer that is looking to align a lot of their sales teams, specifically in Europe, but also thinking about it more globally over time, tying back into a lot of the performance into the finance organization. And so that was a great example of really selling into sales performance but actually connecting back into the finance organization.

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Operator [27]

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Your next question comes from the line of Joseph Vafi from Canaccord.

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Joseph Anthony Vafi, Canaccord Genuity Corp., Research Division - Analyst [28]

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Congrats on the good results. I know that with the reinstatement of guidance, that's encouraging. But just wondering, with kind of continued focus on expand deals perhaps versus new, how you feel about continuing to kind of mine that opportunity if the pandemic continues here for a while. Do you think there's enough in there to kind of continue to execute on this kind of more expansion-centric growth strategy for a couple of quarters? And then I have a quick follow-up.

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [29]

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Sure. So given an opportunity to kind of mention, as we talked about earlier, the COVID situation is still with us. It looks like it's going to be with us for some period of time. That does provide a tremendous amount of uncertainty, and things, of course, could always change. So I just want to put that out there.

But if I think about the customers that we have right now, the focus -- when you have around 1,500 customers that have started on their journey with Anaplan, and their journey was not really -- I would have to say a majority of our customers didn't come to Anaplan to do a single-use case. They came to Anaplan with an objective to really drive a more extensive use of our platform. And so that provides us with good opportunity.

I've said this before, I'll say it now. I do believe, with many of our customers, we're in the early stages of working with them. If I look at some of the ones we highlighted last quarter, we highlighted a pharmaceutical company, we highlighted a technology company. This quarter, we talked about another technology company. All the ones that we've highlighted on this call, these are platform transactions that have ongoing road map, working with Anaplan and working with partners.

So I think, again, it's early stages in some of these. And our objectives, similar to what we did this quarter, right now is to continue to keep focused with our customers, again staying close to them, how can we help them, leveraging the strong relationship that we have with them and seeing what more we can do to offer. And I think that provides us with a good foundation.

Again, I caveat that with the environment. The spending is still challenged. As I said before, getting the right resources to do some of the work continues to be a challenge and then how does it prioritize with some of the other things that are going on. But we're trying to work through that balance with many of our expand opportunities that we've had this quarter and that we see coming up.

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Operator [30]

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Your next question comes from the line of Taylor McGinnis from Deutsche Bank.

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Taylor Anne McGinnis, Deutsche Bank AG, Research Division - Research Associate [31]

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Congrats on a really solid quarter. So I wanted to press on the billing side, 18% growth at the high end because I thought that, that was really solid, especially given the tougher compare in 3Q. So can you talk about what you're seeing in the pipeline that gives you comfort with this level of growth and maybe offer some assumptions around new business or net retention or churn that's embedded into this guide? And then lastly, just curious if you think this is representative of an inflection in the demand environment or sales execution or not just yet.

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [32]

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So I'll start, and I'll let -- Dave, I'll let you jump in as well. Again, when we think about the guidance that we provided, we did see linear progression in the top line results this quarter, billings, calculated bookings. That helps -- that pace of business starts to help give us better insight. Secondly, the pipeline that we've been working with, with ourselves as well as our partners gives -- improves, and so that provides more visibility into opportunities.

Third, similar to what I just mentioned, the expansion, understanding and appreciating where our customers are, what they need to do is important as well. And just -- again, just watching the last few months and the deal velocity as far as the activity and having been able to close those transactions, again, I put that out there. We try -- as we gave the guidance, yes, it is a tough compare, but we also want to make sure that we're balanced in what we're seeing, though we don't get ourselves too far ahead. And that's why we gave the guidance that we did from a billings perspective.

Dave, do you want to add anything to that?

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David H. Morton, Anaplan, Inc. - Executive VP of Finance & CFO [33]

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Yes. The only thing I'd add is we've got nominal ranges on low single-digit churn. We're not seeing anything evolve there. We continue to put our customers first on that with good customer retention. And so that obviously plays into the modeling of NRR, specifically with our refocused motions on expands. And so even if you play -- low end of the case of 114% and then upside case is above the 116%.

And so to Frank's point, we're really prudent on providing this sequential guide, and we're confident in the numbers we've put forward.

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [34]

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And again, the whole caution I put out there, right, because of the unknown with the environment and try to keep that balance with some of the things that we've experienced as it relates to the pipeline. So trying to keep that balance is going to be important for us as well as for all of you that are interested in Anaplan.

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Operator [35]

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Your next question comes from the line of Josh Beck from KeyBanc.

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Josh J. Beck, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [36]

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I wanted to follow up on some of the partner commentary. It seems like you're in a really strong endorsement. I think you mentioned 600 new builders this quarter, which was actually up from last quarter. So I don't know if you could maybe just help us understand maybe what is in their mindset.

Obviously, they -- some large system integrated partners, they have other pressures, and it seems like they're investing in this more. So is it the category of planning they're excited about? Is it digital transformation? Just any other color you can provide on this kind of increased investment from partners?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [37]

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So I think it's all that. I mean if you think about partners are going to make investments where they can see opportunity, their business is driving not only building out Anaplan models as part of the platform but providing consultancy around what they're doing. So as they work with their clients, their focus is going to be on digital transformation, finance reengineering projects that are going to -- for them, not only just give them an initial engagement but perhaps a longer-term engagement. And so they're working through that.

I think with a lot of -- I'll go back to what I mentioned earlier about the Gartner study and the xP&A, the extended finance and planning. If you go into that study that came out a few months ago, you'll see that they made some fairly bold predictions over the next 4 years as far as specifically around what finance organizations will be doing and some of the projects that they feel are likely to occur as finance organizations modernize. And it's similar to what I mentioned a few minutes ago when I talked about the CFO that I spent some time with yesterday.

I've lived it for a couple of decades, some of the challenges that have been out there and that have been delayed, delayed, delayed. So I think the partners are seeing that whether -- they can't really say is it this quarter, next quarter, the next few quarters. COVID does play a role, but they are seeing that shift in that trend over the next several years, which is why I think they've been getting closer to Anaplan and also why they've been making the investment. They wouldn't be investing 500 last quarter, 600 this quarter if they didn't see the ability to get the return. So I think that's a good indication.

I'll just say, this quarter, I spent quite a bit of time with the partners. We do QBRs with them. And just -- and this was in the early July, mid-July time frame really at the -- at senior levels, really thinking through some of the investments, how we're doing and some good indications from them as far as the interest and the focus around planning and specifically, the engagement with Anaplan.

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Operator [38]

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Your last question comes from the line of Raimo Lenschow from Barclays.

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Raimo Lenschow, Barclays Bank PLC, Research Division - MD & Analyst [39]

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Congrats from me as well. Two quick questions. Frank, over the -- we obviously had 2 things going on for you. We had the sales execution changes that -- or issues that started in Q4 and that you've been working on, and then you had COVID. Talking where we are on -- and then kind of fixing sales execution usually takes a couple of quarters. And so we saw that in Q1, you got a little bit better. Q2, you got a little bit better. Where are you on, on that journey? Are we kind of pretty much done now and now we're just battling the COVID effect? Or are we still kind of at the tail end of that one?

And then one last word on -- what are you seeing in terms of competition? Because, obviously, your area is greenfield, very interesting, and other guys are kind of obviously seeing that as well. What are you seeing in terms of competitive dynamics?

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Frank A. Calderoni, Anaplan, Inc. - Chairman, President & CEO [40]

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So as far as COVID, COVID, COVID, I think we're all working through that and trying to figure out that landscape and how it will continue to evolve. And as I said before, I think it's going to be with us for some time, and I think we're all getting to accept that and trying to make the necessary plans to work through it.

As I said, we've tried to adjust pretty quickly to the work-from-home environment and continue to make the necessary investments to ensure that our employees are doing the best that they can in that environment. And that's an ongoing -- that's really ongoing even as of this week, last week in dealing with some of that. So we'll continue to work through that.

As far as the sales, it's a continued evolution. As you said, made progress in Q1, further progress in Q2. As I said, we're going to continue to make progress. It's a constant evolution. We're a growing company. And we want to make sure the people that we add we're quickly enabling with the right type of information and training and the alignment with partners. We make -- we want to make sure our positions are filled.

I feel good about where we are right now from a staffing perspective. We've had low attrition, which is also a good sign of the energy and morale of the team in comparison to what others and also been historical for us. So we're going to continue to stay focused. I mean -- and then continue to build the right type of culture. That's always evolving from that perspective.

As far as competition, we really haven't had any change with competition. Customers are choosing us because of the value that they see in the platform. And as I've been saying the last -- in response to the last couple of questions, the platform approach that we have, which is enterprise-wide, is unique. And even though there's others that are out there providing a financial or supply chain or sales performance management, they tend to be more narrow, and more of the opportunity, if I go back to Gartner, is on extended FP&A.

So I think we are, I believe, in a leadership position from that perspective. And our objective is to continue to invest and stay there. And we'll talk more about some of the things that we're doing as we continue to add to the platform as we get to next couple of weeks in CPX.

So I want to thank everyone for joining the call today. I just also want to thank our customers, partners and also our shareholders, all of you, and our team within Anaplan for the continued support. We look forward to talking to you again next quarter, and we invite you to participate in our CPX -- virtual CPX, which will be in mid-September. Thank you all.

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Operator [41]

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