Anaplan (PLAN) Q2 FY20 Earnings: Great Results, Leaving my Position as is at 6%

Q1 FY20 Review

Q1 FY20 Results:

  • First Quarter Subscription Revenue of $65.1million up 45% year-over-year

  • Dollar-Based Net Expansion Rate of 123%

  • Total Revenue was $75.8 million, up 47% yoy

  • GAAP loss 48.9% of total revenue compared to 49.1% last yr Non-GAAP loss 26.5% vs 45.2% last yr

  • Cash and cash equivalents $332.7million

Q2 FY20 Guidance:

  • Total revenue is expected to be between $77.5 and $78.5 million.

  • Non-GAAP operating margin is expected to be between negative 25.5% and 26.5%.

Full year fiscal 2020 guidance:

  • Total revenue is now expected to be between $326 and $331 million (was between $310 and $314 million).

  • Non-GAAP operating margin is now expected to be between negative 22.5% and 23.5% (was between negative 26% and 27%).

Q2 FY20 Results

Link to earnings release

  • Total revenue was $84.5 million, an increase of 46% year-over-year. Subscription revenue was $73.6 million, an increase of 48% year-over-year.

  • Remaining Performance Obligation of $516 million, up 56% Year-Over-Year

  • Dollar-Based Net Expansion of 121% Continues to Track Above 120%

  • GAAP operating loss $41.2 million or 48.7% of total revenue, compared to $19.9 million in the second quarter of fiscal 2019 or 34.5% of total revenue. Non-GAAP operating loss was $16.6 million, or 19.7% of total revenue, compared to $17.0 million in the second quarter of fiscal 2019, or 29.3% of total revenue.

Q3 FY20 Guidance

  • Total revenue is expected to be between $85.5 and $86.5 million.

  • Non-GAAP operating margin is expected to be between negative 19.0% and 20.0%.

Updated Full year fiscal 2020 guidance

  • Total revenue is now expected to be between $339 and $343 million (was between $326 and $331 million).

  • Non-GAAP operating margin is now expected to be between negative 19.5% and 20.5% (was between negative 22.5% and 23.5%).

My earnings take

This was a good but not outstanding quarter. The company beat total revenue, subscription revenue, and Non-GAAP operating margin. More notably, management raised full-year total revenue guidance by about 4% from the guidance provided after Q1. FY guidance is now roughly 9% higher than the guidance provided at the end of FY 2019.

The Good:

  • Beat subscription and total revenue growth guidance

  • Total revenue up 11.5% quarter-over-quarter (QoQ) and subscription revenue up 13% QoQ

  • Beat GAAP and Non-GAAP operating margin guidance

  • Raised FY 2020 revenue guidance ~4%

  • Improved Non-GAAP operating margin expectations from a midpoint of negative 23% to a midpoint of negative 20%

The Bad:

  • Dollar-Based Net Expansion Rate was down 2% from Q1FY20 to 121%. If it ticks below 120% I will be very tempted to sell. There are many great businesses with DBNER above 120% and it is trending down from the last 3 years (see below)

  • Anaplan’s annual dollar-based net expansion rate was 135%, 123%, 122%, and 123% as of the end of FY’16, FY’17, FY’18 and as of July 31, 2018, respectively.

Earnings Call Notes:

Because Anaplan has been public less than a year, the earnings call will be very important to help paint a complete picture. We will have to compare to numbers from their S-1. Here’s a link to a great review of their S-1 from Alex Clayton

DBNER would have been 125% if they could include people who upgrade within their first year of being a customer. Management expects DBNER to stay above 120%. As we saw with Alteryx, DBNER can trend lower as they target larger enterprises and larger initial deal sizes. This appears to be the case with Anaplan too.

RPO would have been 50% if not for some one-time FX effects. Management expects FX impacts to be minimal going forward and for revenue to track in line with RPO eventually.

I feel a lot better about the quarter after hearing the context which is exactly why I emphasize not making knee-jerk reactions unless something extraordinary happens. Especially with newly public companies.

Here is what happened immediately after earnings. The stock was down 10% and now is down just 2% which is higher than it was yesterday.

Here are some valuable slides from the investor presentation showing the results I highlighted above.

Conclusion

After listening to the call and reviewing the results, I believe this was a strong quarter. I am satisfied with my roughly 6% position and intend to leave it as is while I learn more about this company and the connected planning industry.

Thank You

Thank you all so much for reading and helping to support my goal of making investing accessible to anyone with an internet connection. If you enjoy this please hit the ❤️ at the top of the page (this helps others find us on substack.com), share with friends, and/or start a paid subscription for $5/month or $50/year.

Give a gift subscription