Shares of enterprise resource planning (ERP) software outfit Anaplan (NYSE:PLAN) have reversed course after a rough start to 2020 and are flying high once again. After reporting results for the three months ended Oct. 31, the stock is up nearly 30% year to date. This software vendor could have a lot going for it in 2021, too, especially as effects of the pandemic start to wear off, an increasingly likely possibility given the positive news about vaccines for COVID-19.

Growth inching toward pre-pandemic levels

Anaplan's third-quarter revenue increased 28% year over year to $115 million. This figure topped management's outlook from a few months ago for revenue to be as much as $110 million. Customers and prospective customers are still being affected by the pandemic, but Anaplan continues to make progress getting itself back to pre-crisis growth rates. Revenue increased 45% last year, its first full year as a public company after a late-2018 IPO.

Within the quarterly total, subscription revenue to the company's cloud-based ERP software, which an organization uses to plan everything from finances to inventory management to a marketing campaign, grew 31% from a year ago and made up over 91% of total sales. CEO Frank Calderoni said that some 60% of new bookings came from existing customers, reflecting the challenging environment for large organizations trying to free up enough budget to execute on their digital transformation.

It looks like those companies that have already embarked on their new digital journey remain in the best position to engage with Anaplan. But new deal activity is still unthawing after the freeze in the spring during the worst of the economic lockdowns. Calderoni said customers paying Anaplan at least $250,000 a year increased to 417, a 29% increase from a year ago.

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In total, Anaplan had over 1,500 customers at the end of Q3. This is still a small firm that competes in a large ERP software space worth tens of billions in global spending every year, with tech giants like Oracle, SAP, and Workday dominating the space. The market could be seeing better times soon as COVID-19 vaccines and treatments could lead to gradual normalization of the economy.

Positive progress in a new digital era

In spite of current challenges, Anaplan is making progress and setting itself up for years of growth in a post-pandemic world. Calderoni and his team said they talk to many executives a week, and end-to-end operational changes to adapt to the new digital era are top of mind for these executives. Anaplan figures to be part of those changes -- both current and future. Its software helps connect data throughout an organization to help planning teams make better decisions and predictions and untether them from reliance on past results in lieu of more timely cloud-based information.

To continue executing on its growth potential, partnering and integrating with public cloud vendors will be key. In the last quarter, Anaplan announced its first public cloud sales partnership with Alphabet's Google Cloud, as well as new software integrations with Amazon's AWS and Microsoft's Azure. That should help Anaplan increase the number of new customers in the near future as migration to cloud computing continues at a torrid pace.

It hasn't been only existing customers propelling Anaplan's recent acceleration in growth, though. The company said one of the top 50 largest companies in the U.S. recently tapped Anaplan's ERP software to manage a more than 10,000-member salesforce, with everything from new-hire onboarding to sales forecasting getting plugged into the planning software. A healthcare distribution company with over $15 billion in annual revenue also signed up to update its processes for the new digital era. Besides replacing some of its legacy ERP rivals, Anaplan said some of these new deals are retiring decades-old software developed by IT teams in-house.  

However, as it focuses on serving large organizations, Anaplan's rebound is still tied to a greater economic recovery. Management had positive news on that front, though. Fourth-quarter revenue is forecast to be as much as 22% higher than last year, but preliminary fiscal 2022 guidance (for the 12 months ended Jan. 31, 2022) was also provided. At $550 million in sales, it implies a nearly 24% increase over this year's forecast results. Again, this is a preliminary estimate for next year subject to change, but it certainly looks like Calderoni and team are upbeat as progress on a vaccine is being made.

With a market cap currently at $9.5 billion, Anaplan stock trades for 21 times current-year expected sales and 17 times the preliminary forecast for next year. Given management's expected growth, shares look like a fair value to me. And if a vaccine means more economic normalization, I think Anaplan's actual results could be even better than projected. The company's balance sheet shows $297 million in cash and equivalents and no debt, a respectable war chest for the company to continue executing on its growth strategy. I remain optimistic on this cloud software vendor's prospects.

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