Anaplan: A Closer Look

In this newsletter for paying members, I will cover the following:

  • Management

  • Anaplan's Business & Outlook

  • Catalyst & Valuation

  • Fiducia Thesis

 

Management Overview


Chief Executive Officer: Frank Calderoni


Frank has over 30 years of executive leadership, while he is not the founder of Anaplan he certainly treats the business like he was the founder in my eyes. Formerly EVP and CFO at Cisco Systems for seven years, he has been in Finance, and Worldwide sales as well. Extensive experience in both of those areas gives me confidence he is the right person for the job.


Chief Financial Officer: David H. Horton


Formerly the Chief Accounting Officer at Tesla (ha), he was at Seagate Technology for 20 years, so coming to Anaplan probably seems way more fun and active and up to date technology and software. He was actually a user of Anaplan at Seagate, and having the opportunity to scale to a higher degree to solve middle office issues of the CFO was very appealing to him. I like this type of mentality.


Chief Revenue Officer (New): Bill Schuh


This was a huge win for Anaplan to really drive global revenue growth. Bill was EVP Global Sales for Medallia, before that he was at SunRun in sales, channels, marketing and scaling the business to $500m revenue run rate. This win is huge, and if he can bring that kind of scale to Anaplan. Wow.

 


Business & Outlook


Anaplan carved the path for connected planning, deemed the "spreadsheet killer" because of the platforms ability to be on a centralized cloud based system, eating away at IBM, Oracle, and SAP market share. Anaplan's platform handles high volumes of data that is processed in real-time for real-time decision making, not only does it handle vast amounts of real-time data, but all users on the platform can access it at a centralized point. Following this, it allows the user to create detailed planning models which help make decisions for anyone from Finance, to Human Resources, to Supply Chain and Marketing. The essence of the platform to me, is to improve decision making at all levels of a business and in return making the business more efficient.


Most legacy platforms tend to be bias towards the finance department, Anaplan changes that ensuring that all departments are collaborating across the business. Ways Anaplan is used:

  • Inventory Management

  • IT Budgeting

  • Marketing Spend

  • Sales

  • Finance

Complex scenario planning and continuous forecasting are at the core of Anaplan's model, and this helps seize new opportunities and minimize risk for upper management. I think the Connected Planning ecosystem is something new, and here to stay. You can become a Certified Model Builder and Solution Architect, to Certified Master Anaplanners. I have seen job postings for it, even from Cloudflare!


Anaplan customers adopt the platform initially because of a specific business function for planning use cases, but since the platform can be used enterprise-wide, the platform expands through the enterprise for planning and forecasting as we enter the age of digital transformation. Anaplan follows the "land and expand" model and it has proved extremely lucrative. Customers see the benefits of Anaplan and their platform, and start to increase the number of users, cases, and additional lines of businesses/divisions/geographies. Anaplan as stated in the 10-K likes to call this the Honeycomb effect.


The business outlook is pretty sanguine. My personal view is top line will reaccelerate as we come out of COVID, as businesses can focus on digital transformation. We had such a shock to the economy transforming from in office to work from home, I can see why the sales slow down would happen so rapidly. The effect on revenue to me feels like it will take place over the next three to five years.


To fully understand how big of a deal the partner ecosystem is, 10 out of 20 top deals were sourced by partners. McKinsey has also announced Anaplan as their official partner for corporate performance management.


Here is a snippet from the Q4 call I liked:


Let us take a look at what Anaplan has guided for the Fiscal Year 2022 (yes you read that FY right):


Revenue: $550-555m vs Consensus of $552m, representing YoY growth of 23%, operating margins flat YoY roughly (8)-(9)%.


Below are analyst estimates off of Koyfin:

I am expecting further and more rapid adoption of the platform, so under the valuation headline you will see my personal estimates.


Let us continue to expand on Anaplan business, and compare it to a competitor Adaptive Insights (which is owned by Workday, who originally wanted to buy Anaplan!)


I came across a very good blog post you can read here, on Anaplan vs Adaptive Insights and to me the clear winner for scale is Anaplan. Enterprise software planning is here to satisfy long-term planning goals for the specific business legs, customers, and the whole organization. Adaptive Insights it the cheaper solution, and with cheaper solutions it obviously comes with a lack of superiority. The product offers limited functionality where Anaplan offers the broad range of customization that is tailored towards businesses needs.


With enterprise planning, you need robust modeling that offers flexibility. Anaplan has their Hyperblock technology that can withstand massive volumes of data and spit out real-time "what-if" models. This gives the team using it real-time insights to make decisions, whether it be to seize and opportunity or mitigate risk. Adaptive seems to struggle with large data volumes, which does not look attractive to larger enterprises. There are a few themes when understanding Anaplan:

  • Change

  • Complexity

  • Collaboration

  • Scale

These are important in understanding the business model, because this is what Anaplan stands for. You can connect numerous planning models together, where AI it struggles to adjust to dynamic business structures.


What is their growth strategy?


Through the 10-K, Anaplan has noted growth drivers, so lets dig into some of them.


Expanding Globally: The business is making large investments to build their global sales, marketing, and customer support for their global presence. Fiscal Year 2021, 46% of their revenue was derived outside of the United States. New partnerships will drive this growth with access to new geographies.


Partner Ecosystem: This is one part I want to highlight, because like BlackLine, the partner ecosystem is very valuable to a business like this. Driving adoption of the platform and more efficient delivery of their service solutions, new partnerships should help accelerate growth. They have strong partnerships with strategic consulting firms, system integrations, and other technology firms. They are critical to the go-to market strategy.


Competition: There are no other businesses that have the broad range of services they do in a centralized place, but there are individual businesses that have products that compete such as Oracle, SAP AG, Workday, and IBM, which offer on-premise applications. (All legacy vendors.. Anaplan is disrupting them).


I would like to highlight that "Our top 25 customers by average annual recurring revenue as of January 31, 2021, had average annual recurring revenue of approximately $4.2 million, compared to the average annual recurring revenue represented by their initial purchase of approximately $0.4 million."


"The number of customers with greater than $250,000 of annual recurring revenue was 453, 353, and 248 as of the end of fiscal 2021, 2020, and 2019, respectively. We monitor this metric, and believe it is a useful tool to investors, as an indicator of the scale of customer adoption and expansion of our platform."


This is impressive to me, as it proves the land and expand model is working for them over time and can retain their customers.

 

Catalysts & Valuation


Valuation has, and probably never will look "cheap" depending on how you want to look at it. I mean, valuing a company on EV/Sales never really makes sense, but we can plug in the Rule of 40 for SaaS names and that is a better barometer for success. We can look at a bunch of different metrics. First, let us look at the EV/Sales over time since IPO:

Down below you can see the current analyst estimates, which are forecasting 23.61% growth and 24.41% growth for FY22 and FY23, while analyst do have them slightly accelerating top line I do not think it is enough. Nor would it be enough to support the multiple they trade at.

In the chart below, you can see my estimates:


I am more aggressive on the estimates, especially given Bill Schuh is now there and should help deliver faster top line growth. The company is not focused on profitability, so for me this is a much longer-term hold to let the connected planning thesis play out. It is not for everyone. Losses have been widening over the years, rather than becoming smaller like BlackLine, Cloudflare, and SharpSpring.


This puts the EV/Sales multiple (if that is what you want to use) at:

  • FY22: 13.7x

  • FY23: 10.2x

Does not seem too bad when top line is growing at my 30-35% estimates and increasing your 75% gross margins.


In 2019 and 2020 the business grew top line 42.94% and 44.64% respectively, and in their 2021 fiscal year they grew 28.66%. Smells like COVID hurt them to be honest, and that is why I believe in the re-acceleration in top line growth. I truly think the digital transformation will take much longer to play out than we think, lifting legacy software programs and replacing with newer software programs is not just an over night job... it takes time and money.


Now back to pre-covid levels, I think the risk vs reward is worth it here. Customers hit a pause button on spending, for obvious reasons, and I fully anticipate for that to pick back up at a handsome rate.


The company has no plans of profitability as stated in the 10-K, increasing their net losses over the past three years by spending on investments to acquire new customers and developing the platform. Operating expenses are expected to increase for the foreseeable future as they grow the business, so with this, I now fully expect top line to accelerate further.


Liquidity and Capital Resources are solid, the cash and cash equivalents are comprised of mostly money market funds and bank deposits, they are sufficient enough to meet projected operating requirements for the next twelve months.


Catalysts for Anaplan are vast, but lets narrow it down to a few core ones. To start, I believe coming out of COVID-19 is a major tailwind for SaaS in general as businesses can now focus on their migration to cloud as we adjust to working from home, and transitioning software platforms. I think Anaplan is the Salesforce of Connected Planning, and they will continue to dominate and eat market share at their top three competitors. The valuation is not as whack as some of these cloud names out there either, while their is no path to profitability yet, neither did Salesforce in their early days. Even numerous wall street analysts agree with me, which makes me think maybe I am wrong... but Alan Zlotsky at Morgan Stanley has a $100 price target, which would put them at a $14.4b Market Cap utilizing the guidance on the 2022 fiscal year outstanding shares, implying roughly 66% upside from here.


Management execution, demand, should drive growth further into this fiscal year and next. You can read the other analyst price targets here.


Biggest catalyst in my eyes is partnership ecosystem thriving as well as demand improving.

 

Fiducia Thesis


How did I even come across this business? Well, I try to look where others are not. I screened for software businesses that had 30%+ top-line growth, but lagged the broader indexes. Try to find out why, and I think I have. It is a bit boring of a company, it is no Cloudflare that is for sure. This truly feels like a potential Salesforce in the making, I hate using the "it is the next..." saying, but they are carving their path nicely.


From a chart perspective, I think we have a lot of room to run as well. The share price was slaughtered during the tech / software sell-off and I view it as a long-term buying opportunity. In the near term, I can see the equity coming back between $65-70 per share which is why I have the current trade on that I do in my active account.

You can see the MACD finally crossing over, showing me there is a change in the trend and I think we slowly inch higher the next few weeks. I believe they are a long-term hold, per my long-term portfolio weighting.


Thank you.





Reference Links:


https://www.ft.com/content/123a05c0-168c-11e5-8095-00144feabdc0


https://www.allitix.com/blog/anaplan-vs-adaptive-insights-enterprise-planning-in-2020


https://www.appsruntheworld.com/top-10-epm-software-vendors-and-market-forecast/



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