Yesterday we covered the results from Anaplan’s First Quarter 2020 Earnings Report. Today in Part 2 we will cover management’s prepared remarks and the Q&A from the earnings call.

Prepared remarks

Frank Calderoni — Chief Executive Officer

I like to watch the verbiage and how management communicates to open calls. If we see changes in this tone, I’ll start to dig deeper.

We are very pleased with our first-quarter results as it marked a strong start to the year with solid financial and operational performance.

On the competitive landscape.

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 the result of the key role Anaplan plays in helping enterprises, regardless of industry, adapt faster to the increased business dynamics.

Land with a new customer.

 This quarter, one of our largest insurance companies in the world selected Anaplan as part of a large-scale effort to modernize their financial processes and functions. This customer has over 50,000 employees in almost 1,000 locations, so they needed a platform that could extend beyond finance. 

Expand with an existing customer.

A key customer expand this quarter was with one of our largest multinational technology companies through their digital transformation effort to focus on transforming user experience with their products. 

They were already using the Anaplan platform for financial planning and workforce planning, and we are now focusing on their global marketing operations. Previously, manual processes and limited visibility into spending across geographies led to millions of lost marketing campaign dollars.

Framework for Anaplan’s land/expand model; the honeycomb.

We have a new framework to visualize how Anaplan's many use cases typically expand and connect within our customers, which we call the honeycomb. Starting with one use case or a single hexagon within a honeycomb, we typically see that rapidly expands into additional use cases often in related or adjacent business areas.

On Gartner ratings. Note the movement from “niche player” to “leader”.

We are very proud of our recent achievements as Anaplan was recognized as a leader by Gartner in the 2019 Sales and Operations Planning Systems of Differentiation S&OP Market Magic Quadrant.

In Gartner's last version of this report, we were considered a niche player, and we have quickly moved to a leadership position. We believe the recognition in the elitist quadrant is because of the high customer satisfaction and impressive capabilities of our supply chain solution. It's important to note that we are one of the few included in six different Gartner categories for a single platform. Driving further adoption of our platform globally is an area of focus.

Dave Morton — Chief Financial Officer

For the first quarter of fiscal 2020, we exceeded our expectations across all of our key financial metrics. 

On remaining performance obligation (RPO).

Our remaining performance obligation or RPO consists of both billed and unbilled consideration for contracted business remaining to be performed that we expect to recognize as subscription revenue. We exited the first quarter with a total RPO of $473 million, up 53% over last year, which accelerated compared to last quarter's year-over-year growth rate of 44%. There are two key factors that can influence RPO. First is the timing of large enterprise renewals, and second is the weighted average contract term length.

Raised full-year 2020 guidance

For the full fiscal of 2020, we are raising our revenue

Our Position:

I had my eye on Anaplan (PLAN) before it IPO’d (became a public company) but chose not to invest because I was concerned with sales and marketing spend and wondered if the company would be able to grow.

So far, they have executed well, proven there is demand for their product, and the stock had increased around 80% since it IPO’d in October before I opened a position. Common investing “wisdom” would caution people from investing after a stock had increased that much in such a short period of time, but I love to see signs of strength from companies and believe this is an indication of more to come from Anaplan.

Shares Owned: 519Average Purchase Price: $44.67 (opened initial position May 30, 2019)Total Purchase Price: $23,200Current Share Price: $47.50Current Value: $24,700Unrealized Gain: +6.3%Position Size in Portfolio: 5.28% (small)

First Quarter 2020 Results

Total revenue: $75.8 million, up 47% year-over-year.

Subscription revenue: $65.1 million, up 45% year-over-year.

Billings $87.1 million, up 57% year-over-year

Dollar-based Net Expansion Rate 123%

Customers with Annual Recurring Revenue (ARR) >$250K = 279

GAAP operating loss: $37.1 million or 48.9% of total revenue, compared to $25.3 million in the first quarter of fiscal 2019 or 49.1% of total revenue.

Non-GAAP operating loss: $20.1 million, or 26.5% of total revenue, compared to $23.3 million in the first quarter of fiscal 2019, or 45.2% of total revenue.

GAAP loss per share: $0.30, compared to $1.21 in the first quarter of fiscal 2019. Non-GAAP loss per share was $0.16, compared to $0.25 in the first quarter of fiscal 2019.

Cash and Cash Equivalents: $332.7 million as of April 30, 2019.

Key Slides/Graphs

Subscription revenue is continuing to grow steadily. We should see increased growth in Q2 and Q4 if last years’ trends continue

I’ll keep an eye on this number. If we see growth of customers spending >$250k ARR begin to slow, it will be a red flag for future growth potential.

I expect margins to stay relatively flat with potential increases as the company and their products become more well-known/established.

Billings growth longs very strong.

Updated Full-Year 2020 Guidance

I generally don’t pay too much attention to guidance. The companies I am invested in usually provide very conservative guidance that they’ll easily beat. However, I DO pay attention when companies warn about guidance, lower guidance, or raise guidance.

Anaplan raised it’s guidance for full-year 2020:

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%).

Recent Highlights

I don’t pay too much attention to these. Of course companies are going to highlight recent successes, but results are far more important than self-selected business highlights. I learned this lesson with a company called Nutanix that I was previously invested in. Management boasted about all kinds of highlights, they were/are a leader in Gartner’s Magic Quadrant, but the results we relatively week and confusing for multiple quarters. The stock has suffered tremendously over the last year +.

There is at least one important benefit from being identified as a leader according to Gartner. It makes it easier for customers to legitimize using a “new” solution like Anaplan because of the recognition of Gartner’s name/ratings.

Anaplan Positioned as a 

Salesforce Signs Definitive Agreement to Acquire Tableau

This seems like a smart acquisition for Salesforce (CRM) and I think Tableau (DATA) will benefit from it as well. Tableau shares are currently up 33% in pre-market trading which is a nice day for investors.

As regular readers know, my entire portfolio is made up of what can be called SaaS/software companies that operate in different markets. I expect this to mean our portfolio will have a great day and maybe even a great week. However, it’s important to stay humble and remember how volatile the market can be…and has been lately.

I’m not making any changes to my long-term holdings in my portfolio based off of this news. One quick thought on the possibility for our companies to get acquired, then I’ll share highlights from the acquisition press release.

We should never invest in a company because we hope they get acquired

Investors can enjoy really nice one day pops when companies are being acquired, but if we truly believe in the long-term prospects of our companies, we are far better off if they stay independent.

I hope none of the companies I currently own get acquired.

Here’s the overview provided in the article:

We are bringing together the world's #1 CRM with the #1 analytics platform. Tableau helps people see and understand data, and Salesforce helps people engage and understand customers. It's truly the best of both worlds for our customers--bringing together two critical platforms that every customer needs to understand their world," said Marc Benioff, Chairman and co-CEO, Salesforce. "I'm thrilled to welcome Adam and his team to Salesforce.

Salesforce's incredible success has always been based on anticipating the needs of our customers and providing them the solutions they need to grow their businesses," said Keith Block, co-CEO, Salesforce. "Data is the foundation of every digital transformation, and the addition of Tableau will accelerate our ability to deliver customer success by enabling a truly unified and powerful view across all of a customer's data.

Joining forces with Salesforce will enhance our ability to help people everywhere see and understand data," said Adam Selipsky, President and CEO of Tableau. "As part of the world's #1 CRM company, Tableau's intuitive and powerful analytics will enable millions more people to discover actionable insights across their entire organizations. I'm delighted that our companies share very similar cultures and a relentless focus on customer success. I look forward to working together in support of our customers and communities.

To summarize, the management teams from both companies believe that adding Tableau’s analytics and visualizations to Salesforce’s platform will give customers additional insight to help inform business decisions. I’m no expert in this stuff, but it makes sense that Salesforce should be able to leverage it’s existing user base to sell these capabilities as a new feature.

I’ve worked with several companies that use Salesforce and although it’s clearly a crucial platform for them, the most common complaint I have heard is how every additional add-on is so expensive. So I do wonder just how much more Salesforce can continue squeezing out of customers.

Alteryx (AYX) is currently my 4th largest position at 15% of my portfolio. It is the most similar to Tableau out of all the companies I own. It is currently trading up 5% in pre-market. I’m sure we will begin to hear talks of potential acquirers of Alteryx and I personally hope they don’t get acquired.

I will watch to see how this impacts AYX. Tableau and Alteryx do different things and commonly partner to work with customers on big projects. On their most recent earni

This is part 2 of my review of Zscaler (ZS) Third Quarter 2019 Earnings. Today we will cover the questions and answer portion of the earnings call. ZS is currently a 7.5% position in my portfolio.

We covered the results and prepared remarks in part 1 here.

Before we get back into the earnings let’s talk about the last few days in the market and our companies. There’s been a lot of panic and some big sell-offs. This is a completely normal and healthy aspect of investing. In fact, it’s required for building long-term wealth in the stock market.

Here’s a chart of the last 5-days - ranging from +.78% to down 10%

Here’s a chart of the last 1 year - ranging from up 92% to up 185%

I’m using this sell-off as an opportunity to assess my emotional response, test my discipline (if I’m panicking now, what will I do when a 20% or 30% drop happens?), and make sure I’m invested in what I believe are the world’s best Founder-led companies.

Zscaler Third Quarter 2019 Earnings Q&A

Question: Help us understand your differentiation vs some of the competitors that are leveraging public cloud partnerships to compete with Zscaler.

Answer:

Appliance vendors are having to compete for the cloud using technology that it wasn't meant from the cloud. So when they are spinning these virtual machines on public cloud and claiming to have presence in 100 locations or more is totally misleading. Let me walk through a little bit on how these public clouds work. Google, AWS, they're very large centralized data centers in about 100 locations around the world. They call them regions. That's where applications run, that's where storage and compute actually runs.

Now in addition they have 100 some locations, some of them call them points of presence, others call them natural edge locations and these are front doors that collect information so that the thing can be sent to the regions, which are about 20 or so. So these clouds are built to run applications as the destinations, not an in transit cloud. For example take AWS data center in Ohio. It is kind of staying away from Chicago, so the traffic goes there and comes back. Speed of light is speed of light, so the performance can't be good unless you build a cloud that's distributed to handle security to enforcement hence the response time architecturally can't be good.

Question: Can I ask you about when your competitors is having a lot of internal issues and just how Zscalar kind of react to that? Does it change your planning and you become more aggressive? Does it change the dialogue with customers? How are you guys reacting to your chief competitor being extremely weak at the moment?

Answer:

If we were selling a security box or a proxy box with the same channel looking for refresh opportunities, this will be a big impact. We have always said we have been selling top down transformation. Our need is driven by applications like Office365, projects like SD-WAN. So our whole business comes from securing new local breakouts, which is a greenfield opportunity. But in almost all cases where Zscaler is deployed we end up replacing secure web gateway or web proxy, just generally sitting in centralized locations. Weak competitors does it help us generally? Yes. Does it change our sales process? Not really.

Question: I was hoping you guys could talk a little bit about the degree to which you have any challenges in hiring of sales people, what the environment looks like and how how much of the spending is going into new hires to drive future growth? It seems like given the tense -- the difficult market out there that may be a challenge to continue to scale at that rate. Is that an issue that we should be concerned about?

Answer:

It is a competi

Hey everyone,

There will surely be a lot of headlines in the news today, many will probably negative because that’s what gets clicks but most of the headlines don’t matter.

We’re focused on one story today: Zscaler’s Third Quarter 2019 Earnings.

Zscaler (ZS) reported earnings on May 30th and they were pretty good. Today we’re going to focus on the prepared remarks to keep this under five minutes, tomorrow I’ll cover Q&A.

Our position

Number of shares: 439Average purchase price: $51.85Cost basis: $22,800Position size: 7.43% (medium)Current share price: $68.31Current value: $30,100Unrealized gain: $7,310 | +32%

Results

Revenue grows 61% year-over-year to $79.1 million

Calculated billings grow 55% year-over-year to $84.7 million

Deferred revenue grows 69%year-over-year to $211.5 million

GAAP net loss of $12.2 million compared to GAAP net loss of $8.8 million on a year-over-year basis

Non-GAAP net income of $7.4 million compared to non-GAAP net loss of $2.6 million on a year-over-year basis

Prepared Remarks

Customer Story from Jay Chaudhry -- President, Chief Executive Officer and Chairman of the Board

Let me highlight several new customer deals in the quarter. I will start with a deal that shows how large enterprises are buying the ZIA and ZPA platform. One of the world's largest pharmaceutical companies with its headquarters in Europe purchased our transformation bundle for 100,000 users aims the ZPA for over 17,000 users. Moving from a decentralized IT business units to a centralized IT model. This customer had a strategy to transform to the cloud, for their network and for their applications. To achieve this, the IT team identified two initiatives, one increase use of cloud including a move to Office365, Zoom and AWS.

And number two network and security transformation. They adopted a strategy to create secure local Internet breakouts for 200 offices around the globe. Our cloud security platform allowed them to realize the vision, a perimeter less enterprise with direct access to any service or application from anywhere, on any device without back hauling traffic through regional hubs. The results reduced business risk, faster user experience and significant cost savings. They will no longer need either a site to site VPN to AWS, or remote access VPN. ZPA also enables the customer to rapidly integrate mergers and manage divestitures, while increasing the level of security with a zero trust network access approach.

Comments on the competitive landscape

As organizations increasingly make the shift to the cloud, traditional firewall and VPN vendors are finally acknowledging that the legacy security appliances can secure the new digital enterprise and are attempting to build a security cloud using single tenant software designed for on-premise appliances just like you can't create a Netflix service by stacking thousands of DVD players in the cloud. You can't offer an inline high performance security cloud by spinning up a bunch of virtual machines in a public cloud. This is a defensive strategy of cloud imitators, which in our view serves the self-preservation of the vendor not the needs of the customers.

We believe, we have a significant competitive advantage as a result of the technology, architecture and maturity of cloud security platform including one, we were born in the cloud, for the cloud just like Salesforce and Workday. Two, we have a purpose built globally distributed multi-tenant cloud for fast user experience, unlike imitation cloud, Zscaler requires no back hauling from front doors to a central compute data center of a public cloud. Three, we perform SSL inspection at scale as a purpose built proxy for better security. Four, we deliver zero trust network access that provides application access without network access reducing business risk unlike firew

Twilio Launches $750M Stock Offering

This doesn’t alarm me at all. The stock seems to be down a few percent after hours. Maybe because of this news.. who knows.

Intends to use the net proceeds for general corporate purposes, which may include the acquisition of other companies or businesses, the refinancing or repayment of debt, capital expenditures, working capital, and share repurchases.

MongoDB is Running Out of Space

This is such a bad article that I had to share it. Mongo Database is my third largest holding. I have no idea what will happen to the stock over the next year. I do believe it is one of the most innovative companies around with great products and great management. I would never ever ever short it. Again..terrible article

MongoDB's stock is up 475% since its IPO.

Competition in the DBaaS and SaaS market is increasing.

At a $7.6B valuation, MongoDB looks like a good short opportunity.

Simon Erickson, one of my favorite investors talks Zoom $ZM on Twitter. Incredible that we can interact and community source investing like this. Also makes me a bigger fan of Zoom. I currently have exposure to Zoom through some puts I sold. That’s probably a waste of time and effort and I should probably just own shares of this awesome company.Follow Simon on Twitter!

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Okta Chief Customer Officer, Krista Anderson-Copperman named one of the Bay Area’s Most Influential Women in Business.

I don’t know the criteria for making this list, but I found this important because Okta chose to highlight it on their company blog. I believe the best companies are focused on diversity and inclusion. Here’s a quote from Krista in the article:

As the Chief Customer Officer, I ensure that we are constantly living our core value “Love Our Customers” by providing a world-class post sales experience where customers solve real identity challenges and gain tangible value from the products Okta delivers. This includes professional services, education, support, the CSM function, and, of course, renewals because that is the ultimate measure of how successful our customers are with us.

Twilio announces general availability of PCI compliant payments over the phone

Twilio announced at their SIGNAL user conference last year. Now it’s generally available to the public. I doubt this product itself will make a meaningful impact on Twilio’s numbers, but it shows they are continuing to innovate. That’s what we like to see in our companies.

allows you to accept PCI compliant payments over the phone with a single line of code.

Before , businesses needed to build their own PCI compliant payment systems with custom voice payment prompts, build a system for validation, and integrate with a third party for payment processing. After building, you would be subjected to yearly auditing for compliance.

removes the need to jump through these hoops, allowing you to focus on building a secure voice payment experience that enables your customers to pay over the phone, anytime of day.

Inbox Health, an early adopter of , is committed to improving the patient billing process; making the experience more transparent and personalized for providers and patients. They have found that embedding in their Twilio-powered IVR has helped them drive efficiency and save on costs.

Before , Inbox Health would have been required to “invest a lot more in PCI compliance than we otherwise had to,” says CEO Blake Walker.  “ allows patients to pay their medical bills over the phone when it works for them. In fact, 53% of patients are able to pay over the phone without needing to speak to an agent at all.”

5 Reasons to Buy The Trade Desk and Hold for the Long Term - by Danny Vena from The Motley Fool

Danny is one of my favorite writers. I love it when authors have what is called “skin in the game”. Danny owns shares of The Trade Desk which gives him skin in the game.

On a conference call late last year, The Trade Desk's CEO explained the company's significant advantage. "Because The Trade Desk does not transact indirectly identifiable consumer data and because we don't own a search engine, we can provide a Unified Open ID that enables advertisers to compare every destination on their media plan to every other destination objectively," Green said. "Our data and the data of our third-party partners cannot be directly associated with an individual. Data in The Trade Desk platform does not include names, phone numbers, or Social Security numbers, for example."

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Jeff Green the Founder and CEO of The Trade Desk was on Mad Money with Jim Cramer on Tuesday May 14th. Here are my very rough notes:

Cramer Intro:Stock down over last 2 weeks -- is it a buy?!? Cramer said the company reported very strong earnings, management guided conservatively as usual.Cramer: How much would investors have made if they bought IPO?Green: IPO priced at $18 and was in mid 20s at end of day — up 1,000% in 3 yearsCramer: How does platform work?Green: If you want to buy google or facebook, you go there. But they don't do the rest of the internet. What we do is help companies figure out...should I buy ads on NYT.com, CNBC, HULU, etc? We help them use data to figure out where to advertise.Cramer: What is the Rule of 40Green: Rule of 40 — trying to figure out the right multiple of profit and growth  Cramer commented TTD’s ratio is number 1 of any software company, apparently clocking in around 80 (I did not confirm)

Rule of 40 explained: The rule of 40% The rule of 40% is nothing more than a rule of thumb to analyze the health of a software/SaaS business. It takes into consideration two of the most important metrics for a subscription company: growth and profit. Which means that your growth rate plus your profit should add up to 40%

Cramer: You are willing to try China when everyone is running from China. Why is that smart?Green: What we have done well is being able to partner with anyone because we don't own any media. We're the only company in the world that can partner with everyone. We did something unique which most companies don't do in China. We brought money into China vs out of China. It made it easy for us to go into China when everyone else is running out.China: 2nd largest ad market in the world, growing twice as fast as US. We're hoping to go into every other country tooCramer: Comcast gave HULU to Disney. How do you feel about that?Green: CTV is one of the greatest transitions we will ever see. Most consumers can't afford another subscription. So ad-funded model is the way to goGreen: TAM is growing from $725B to $1T in 7 years, growing at 1.5x GDPLink:The Trade Desk Founder and CEO Jeff Green on Mad Money with Jim Cramer

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Hey everyone,

This newsletter is hosted by Substack.com which makes it super easy for non-tech oriented folks like myself. They have recently introduced a podcast function so I’m going to give a quick daily podcast a shot. I’d love to know what you think about that. You have the ability to hit unsubscribe from these podcast episodes which will allow you to continue getting the regular emails you’re used to, but not the podcasts.

Podcast format..

I’m going to call these “Founders Five”. They’ll be a quick five minute daily podcast covering anything I think is meaningful for our little collection of founder-led companies.

There is a lot of noise out there so even though this is going to be a daily podcast, I hope to bring some valuable high-quality content in little bite-sized pieces.

This may change, but for now, I’ll probably type out my own transcript below so if you’re reading via email you can stay up to date without hearing my DJ voice.

First up - China Trade Talk Fears:

Yes, they are happening, they have been for about a year and a half. The market has been hit pretty hard these last few days on news that we didn’t have a deal by our already extended deadline. I have no idea what is going to happen or when. I think eventually, we will get past this like we have gotten past so many other world events over the last 100+ years

What I do know is that we have to control what we can control. For me, that’s living below our means, only investing money I don’t need for more than three years, and staying invested in what I believe are the world’s best founder-led companies.

Second Story - Zoom Hits 98% Satisfaction at The University of Sydney

I don’t own shares of Zoom but I really want to. There’s no way on Earth to justify the current share price, but I just have this feeling we are under appreciating the quality of their team and product as well as their growth potential. I will probably start a small position (again) and look to add to it overtime.

Third Story - The Year of the Tech IPO: Exploring App Growth in the Okta Integration Network

Okta is a pretty awesome company with a very important product for their customers. It also gives them some deep insight into the inner-workings and app usage of their customers. This is great for Okta to develop their own future products, but also lets them do cool reports like this.

Takeaway from this article — Zoom is the clear winner for 2019 with Slack close behind. I don’t think I’ll invest in Slack at it’s IPO. At least not if it has anywhere near the price to sales ratio of Zoom. Slack’s revenue growth is around 60% year over year where as Zoom’s is over 100% growing off of a much larger base. Pager Duty which we also own is also featured as is another company, CloudFlare which is not public yet, but plans to IPO during the first half of 2019. We will have to keep a close watch on it.

Here’s how the four companies’ YOY customer growth looks (graph in the email)

Image Source: Okta

That’s all for today. If you’re listening to this podcast and you want to help support us or subscribe to receive our free investing newsletter head over to austin.substack.com. Note, there is an option to pay $5 a month or $50 a year if you want to help support us. This is totally optional and the free vs paid content is the same.

Thanks and see you tomorrow!

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This week’s podcast was incredible. I had the opportunity to interview Meagen Eisenberg, the Chief Marketing Officer (CMO) at TripActions. Prior to joining TripActions, Meagen was CMO at Mongo Database (MDB), a company we have owned in our portfolio for more than a year, and before that, Vice President of Marketing and Customer Acquisition at Docusign (DOCU). These are three incredible companies, and in my opinion, Meagen was a big part of what made each of them successful.

Become a supporter of this podcast:

https://anchor.fm/founderstockinvesting/support

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