Anaplan: PLAN

Updated: Apr 27, 2021


Let us talk about the business, because in order to invest in a company, we have to understand what the business does, and where their revenue comes from. Anaplan is in the category of Connected Planning, giving organizations a platform to make better decisions, plan them, and execute their digital transformation. Sounds like every other software company, huh? What Anaplan offers, is complex scenario modeling, machine learning, and predictive and advanced analytical capabilities that helps organizations drive their growth. Anaplan has their proprietary "Hyperblock" technology, that enables thousands of concurrent users access a centralized single source of information. Hyperblock is at the core of the platform, and was purpose-built for Connected Planning. The company used the word "ecosystem" in their 10-K, so immediately has my attention. Sticky ecosystems are at the center of what I like to invest in. Anaplan Academy, this is focused on delivering more learning courses and more Master Anaplanner certifications. Hold up, I have actually seen this on job descriptions before when applying to jobs, have this credential could get you a job.. actually, it literally is on Cloudflare's website to apply for a finance position. I love when my companies intertwine. This creates a sticky value-add to businesses when hiring, creating more demand for this certification.

Focus is selling to large enterprises, especially executives. This is the "land and expand" model, which I like. The platform is normally adopted WITHIN a specific business function of the enterprise, such as finance, sales, supply chain, marketing, human resources, etc. Anaplan then calls the expansion the "Honeycomb effect", essentially the customer sees the value add in the product and increases the number of users, new use cases, advancing into different lines of business and geographies. As they expand through the enterprise, a greater amount of data is incorporated into the Hyperblock. This is amazing. The company primarily sells the cloud platform through their direct sales team. Anaplan puts the customer at the center of their culture, strategy, and investments.

Customer Background:

Anaplan has customers from numerous industries, including financial services, technology, energy, consumer goods, manufacturing, healthcare, media, retail, and many more. This is yet another diverse set of industries that we can gain insights into (Zebra...). As of January 31, 2020, the company has 1,400 customers in 50 countries (massive room for upside potential..). We will have updated numbers in further reading.

Most Recent Earnings Report

The company is in their 2021 Fiscal year, the most recent quarter was their third quarter FY2021. Highlights from the press release:

  • Subscription Revenue up 31% YoY

  • RPO (Remaining Performance Obligation) of $740m, up 25% YoY

  • DBNE of 113%

  • Delivered strong Q as companies prioritize investments towards initiatives that drive incremental business value

  • TOTAL Revenue was $114.9, up 28% YoY

  • GAAP Operating losses were $35.9m, 31.2% of total revenue, compared to $32.5m of 3Q2020 or 36.4% of revenue.

  • NON-GAAP operating loss was $6.1m, or 5.3% of total revenue, compared to $8.8m in 3Q2020 of 9.9% of total revenue

  • Cash & Cash equivalents were $296.8m as of October 31, 2020

  • non-GAAP Gross Marginns were 76% Flat YoY, subscription Gross Margins were 83%

These are relatively solid, steady numbers. Now lets move onto their Q4 guidance and FY21 Guidance.

Fourth Quarter guidance for revenue between $118.5 and $119.5m, non-GAAP operating margin to be between -10.5 and -11.5%, billings to be in the range of $152 to 153m. Total Revenue for FY21 expected to be $444m and 445m (was 437-439m) so that is a raise.

After reading the earnings call, these are the important areas I dissected. So, you all know I repeat myself when I say I like being DYNAMIC. Well, so does this company. Right off the bat, Frank Calderoni starts talking about how they are working closely with companies to understand that effective planning is very critical to managing their (the customers) business in a DYNAMIC environment. BOOM! I love that already. Anaplan has that huge database remember, that can link strategy to execution and operations, to financial metrics! Anaplan now has 417 customers, with ARR (Annual Recurring Revenue). 60% of bookings in the recent quarter came from existing customers, so that is a testament to their product and platform. Focused on building market leadership, they are building a world-class ecosystem of talent and Master Anaplanners. This is excellent, excellent news that investors (me) want to hear. Focusing on people is so critical in this day and age, you want to retain talent and treat them well (learned this from experience).. Anaplan literally says they are building a community of Certified Master Anaplanners (is this not what Fiducia is doing? Building a community of investors though). The number of certified planners is up 50% YoY.

A new strategic partnership, with Google Cloud, enables expanded reach of Anaplans platform. (I am increasingly seeing more smaller businesses increase their partnerships with Google Cloud.....Fastly, Cloudflare..etc). Leveraging the public cloud, Anaplan aims to expand their market penetration. Executive sponsorships with Accenture and EY are impressive to me, 2/3 of their top 20 deals had partner influence in the last Q. So now, when we see analysts and news flow on partnerships, we will understand why the stock moves the way it moves. This is why i focus on 5 stocks MAX at a time, I want to understand everything that is going on, I only have so many hours in my day and they have to be used wisely.

Vaccine means economic stability, I think this could actually be an economic recovery play as well.

Valuation: Below are a few snippets from my "At a Glance" spreadsheet

To me, and the froth we have seen in the market, I think paying 11x sales 3 years out is not too bad given they have shown the ability to beat by decent margins quarter to quarter and raise guidance, so this chart could be pretty conservative. Companies like this are not focused on earnings right now, so valuing them based off earnings growth is pointless. There are various metrics we can use to value growth names, right now I mainly like to use Enterprise Value / Sales. Enterprise value is the total value of the company, The formula is MC + Total Debt - C = EV. Enterprise value gives me a better idea where the company is in terms of cash and debt, a lot of software companies seem to have way less debt, high margins, and cash. My belief, is that in the future 10+ years, these companies are going to be absolute cash cows and maybe the next type of "dividend stock". That is my thought process.

Last quarters presentation, what stood out to me the most is the amount of customers with +$250k ARR and growing steadily. What I did not like is the DBNE at 113%, but we can say this may be due to COVID, would like to see this re accelerate into their next fiscal year.

Summary & Allocation:

My overall thoughts on the company: Excellent. I think this will be a real winner coming out of COVID and an economic recovery, this is a name I want exposure to that is not frothy in valuation. This company has no long-term debt, and $297m in cash and cash equivalents. I dont think everyone has caught on yet. Do you want to own this company? Because I do. I added shares a few days ago to the Growth Fund.

This is a brief introduction to the name, I will continue to monitor and analyze this name.

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