Smartsheet and Samsara Report Strong Q2 FY2025 Results, Highlighting SaaS Sector Growth

Earnings call: Smartsheet Inc. maintains strong growth and updates FY 2025 guidance By Investing.com

Smartsheet Inc . (NYSE:SMAR), a leading cloud-based platform for work execution, has reported solid financial results for the second quarter of fiscal year 2025, including a 17% year-over-year (YoY) growth in revenue, reaching $276.4 million. The company's annualized recurring revenue (ARR) grew by 17% YoY to $1.093 billion, with significant expansion among enterprise customers. Smartsheet introduced a new pricing and packaging model that has attracted thousands of new customers and announced key partnerships and platform modernization efforts. Despite a slight increase in churn among smaller customers, the company expects a transformative year ahead with continued growth in profitability, cash flow, and customer satisfaction. Smartsheet's earnings call underscored its strong position in the enterprise sector and the positive market response to its strategic initiatives. The company's commitment to innovation and customer satisfaction, along with its updated financial guidance, indicate confidence in its growth trajectory for the remainder of the fiscal year 2025. Smartsheet Inc. (SMAR) has demonstrated robust financial growth with a notable 17% year-over-year increase in revenue for Q2 FY 2025. The company's strategic moves, including a new pricing model and platform enhancements, have been pivotal in attracting new enterprise customers and expanding its annualized recurring revenue (ARR). InvestingPro Data provides a deeper dive into the company's financial health and market performance. With a market capitalization of $6.83 billion, Smartsheet is a significant player in the cloud-based work execution platform space. Despite not being profitable over the last twelve months, the company's gross profit margin stands impressively at 81.61%, indicating strong operational efficiency in generating revenue from its services. Additionally, the company's revenue growth has been consistent, with a 20.16% increase over the last twelve months as of Q2 2025. InvestingPro Tips highlight several key factors that investors may find relevant when evaluating the company's prospects. Smartsheet holds more cash than debt, which is a positive sign of financial stability. Analysts predict that the company will be profitable this year, aligning with Smartsheet's own expectations of transformative growth in profitability. Moreover, the company's stock trades with low price volatility, which may appeal to investors looking for stable investments. For readers interested in more detailed analysis and additional insights, there are 8 more InvestingPro Tips available for Smartsheet at https://www.investing.com/pro/SMAR. These tips can provide a richer perspective on the company's financial position and future outlook, beyond what has been discussed in the article. Operator: Good afternoon, and welcome to the Smartsheet Inc. Second Quarter Fiscal 2025 Earnings Conference Call. Please note that this call is being recorded. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Mr. Aaron Turner, Head of Investor Relations. You may begin your conference. Aaron Turner: Great, thank you. Good afternoon, and welcome everyone to Smartsheet's second quarter of fiscal year 2025 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are Smartsheet's CEO, Mark Mader and our CFO, Pete Godbole. Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.smartsheet.com. There's a slide presentation that accompanies Pete's prepared remarks, which can be viewed in the Events section of our Investor Relations website. During this call, we will make forward-looking statements within the meaning of the federal securities laws. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends. These forward-looking statements are subject to a number of risks and other factors, including, but not limited to, those described in our SEC filings available on our Investor Relations website and on the SEC website at www.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially and or adversely. All forward-looking statements made during this call are based on information available to us as of today. And we do not assume any obligation to update these statements as a result of new information or future events except as required by law. In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. A reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can be found on our Investor Relations website. With that, let me turn the call over to Mark. Mark Mader: Thank you, Aaron, and good afternoon, everyone. Welcome to our second quarter earnings call for fiscal year 2025. Q2 was a strong quarter that further demonstrated our momentum in the enterprise. 75 customers expanded their Smartsheet ARR by more than $100,000 and we had three transactions over $1 million one of which was over $4 million. We now have 77 customers with ARR over $1 million up 50% from Q2 last year. And of those 77 customers, 5 of them are government agencies. We ended the quarter with annualized recurring revenue of $1.093 billion and more than 15.3 million Smartsheet users. In Q2, we expanded with customers, including Intuit (NASDAQ:INTU), Skechers and City National Bank, among others. In June, we launched our new pricing and packaging model. To date, we've seen thousands of new customers transact on the model, which is leading to high engagement and the addition of many provisional members across these plans. While only a small number of our customers have reached their first true-up period, we are encouraged by the positive early results. Building on the success with global system integrators mentioned on our last call, in Q2, we signed a large expansion with another Big 4 consulting firm, where Smartsheet is being used to streamline client engagement. Smartsheet enabled them to automate their processes through a standardized project delivery framework, which improved the quality of their work and led to significant savings. This customer was an early adopter of our new pricing model, and they estimate that deploying Smartsheet at scale saved the team 39,000 working hours in the last year, reducing their project delivery costs by nearly 12%. Demand for Smartsheet is growing across their organization with users at the company increasing by 120% year-over-year. They are now expanding their Smartsheet project delivery solution to support customers in the EU and U.S. Federal Government. They are also building new solutions to streamline other aspects of their client engagement life cycle. We also had a seven figure expansion with one of our largest enterprise customers during their annual renewal. With a total Smartsheet user population of over 150,000 users, our success in this account has been driven in part by our differentiated feature set and our enterprise grade security and administration. Smartsheet has corporate level IT and security approval, enabling any team across the company to adopt Smartsheet. As a result of increased self-discovery, we have seen a boost in demand of our premium capabilities and growth in this account. This has resulted in data shuttle workflows increasing nearly 200% and Dynamic View configurations growing by 450% over the past year. Also in Q2, we competitive deal with a prominent financial services company following an RFP process that included other CWM vendors. This new customer onboards thousands of clients a year, and they're executing increasingly complex projects. In order to scale with their customers, they needed to replace their in house solution with a more robust work management platform, and they chose Smartsheet because of our enterprise readiness and scale. We're partnering with them to develop an integrated project delivery solution that will streamline their processes, improve collaboration with clients and establish unified reporting. They expect this solution to increase customer satisfaction, while saving their employees thousands of hours per year, unlocking the capacity to work on additional projects and ultimately, grow revenue. As we move into the second half of FY '25, we are making good progress on the comprehensive modernization of the Smartsheet platform, a strategic investment that is ongoing. In just a few weeks, we'll be hosting our annual customer conference, ENGAGE Seattle. During this year's conference, we'll be showcasing the new Smartsheet, a new experience that is more beautiful, powerful and more integrated than ever before. It will empower our customers to manage their projects, programs and processes at even larger scale and sophistication. The new Smartsheet experience simplifies and streamlines getting started for users. It will be easier to create solutions and quickly initiate projects and processes with all the necessary tools for configuration and management, all accessible right from a highly visual AI driven home experience. We are also introducing significant enhancements in how users create, organize and share, whether they're building assets for marketing campaign or managing documentation for a service delivery program. One of the key improvements simplifies collaboration with stakeholders, making it easier to collect feedback and drive reviews on digital files, such as images, videos and PDFs. Over the past few months, I've personally seen the benefits of more accurate, actionable feedback and the substantial time savings for our teams. I believe our customers are going to love this new collaboration experience. The new and improved Smartsheet features, along with our new user subscription model and self-service access to premium capabilities, enables more customers to solve their most common as well as their more complex work management needs. Generative AI is proving to be a helpful differentiator for Smartsheet. Our AI-powered tools like formula generation and tech summaries are designed to simplify complex tasks, saving time and reducing errors. We're committed to expanding these capabilities to help our customers work more efficiently. In Q2, we saw nearly 50% sequential growth in the number of users utilizing our AI tools. Adoption is already showing significant benefits to our customers with approximately 47,000 users having already saved an estimated 1 million hours from AI automations and performance improvements. We also saw positive early results suggesting that AI generated formulas and conversational support are effectively acting as our first point of contact for customer support, reducing friction with the platform and lowering our customer support costs. We expect to see the customer impact of AI tools grow meaningfully as we expand them to support cross sheet formulas, provide portfolio insights and co-build solutions with users. Starting mid-September, in a push to enable customers to feel the impact of AI and to experience one benefit of our enterprise plan, Smartsheet will grant limited time access to our AI tools to all users through December 31, 2024. In closing, nearly two quarters since the hiring of Max Long and the appointment of Praerit Garg to their respective roles, investments in our go to market and deployment of our next-gen product experiences are well underway. Through a combination of a use case oriented value framework, a simplified licensing model, new user experiences and class leading scale, FY '25 will be a transformative year for our customers, our company and the Smartsheet platform. We are laying the foundation for the years ahead. Now, let me turn the call over to Pete. Pete Godbole: Thank you, Mark. As Mark mentioned, we've continued to see considerable strength in our enterprise segment highlighted by large deals, our largest quarterly expansion in our company's history and an enterprise NDRR that remains at 120%. Additionally, in Q2, we launched our share buyback program and repurchased 918,000 shares for a total of $40 million in the quarter. We have $110 million remaining on our existing share buyback authorization as of July 31. I will now go through our financial results for the second quarter. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call. Turning now to our quarterly results. Second quarter revenue came in at $276.4 million up 17% year-over-year. Subscription revenue was $263.5 million representing year-over-year growth of 19%. Services revenue was $12.9 million. Revenue from capabilities made up 35% of subscription revenue. Annualized recurring revenue or ARR grew 17% year-over-year in the second quarter to $1.093 billion. Moving on to our reported metrics. The number of customers with ARR over $50,000, grew 17% year-over-year to 4,140 and the number of customers with ARR over $100,000, grew 23% year-over-year to 2,056. These customer segments now represent 69% and 55% respectively of total ARR. The percentage of our ARR coming from customers with ARR over $5,000 is at 92%. Next, our domain average ARR grew 16% year-over-year to $10,291. We ended the quarter with a dollar-based net retention rate inclusive of all our customers of 113%. The full churn rate increased slightly due to elevated churn rates in our smaller customer segments and is now around 4.5%. Now turning back to the financials. Our total gross margin was 84%. Our Q2 subscription gross margin was 87%. Overall, operating income in the quarter was $45.3 million or 16% of revenue. Free cash flow in the quarter was $57.2 million. On guidance, we are maintaining our previous FY 2025 revenue guidance of 16% to 17%. While we beat our Q2 revenue guidance, we have lowered our assumption for services revenue for the full year, due to a higher percentage of services delivered by partners. We now expect services revenue to be 4.5% of total revenue, down from 5% for FY '25. Absent the shift, our full year revenue guidance would have increased. Our Q3 revenue guidance also takes into account this change. For the third quarter of FY '25, we expect revenue to be in the range of $282 million to $285 million and non-GAAP operating income to be in the range of $42 million to $44 million. We expect non-GAAP net income per share to be $0.29 to $0.31, based on diluted weighted average shares outstanding of $142.5 million. For the full fiscal year '25, we expect revenue of $1.116 billion to $1.121 billion, representing growth of 16% to 17%. We expect services revenue to be around 4.5% of total revenue. We are raising our non-GAAP operating income to be in the range of $177 million to $182 million representing an operating margin of 16% and raising our non-GAAP net income per share to be $1.36 to $1.39 for the year, based on 141.9 million diluted weighted average shares outstanding. We are updating our FY '25 ARR guidance to be between $1.177 billion to $1.180 billion representing growth between 14.2% to 14.5%. Regarding seasonality, we expect our Q3 ARR growth rate to be between our Q2 ARR growth rate and our full year ARR growth rate guidance. We are raising our FY '25 free cash flow to be $240 million representing a free cash flow margin of 21%. To conclude, Q2 was highlighted by a continuation of our strong performance in the enterprise and progress on our key initiatives. We launched our new pricing and packaging model to new customers in June and are on track to migrate our existing customers over to the new model starting in January. We are looking forward to unveiling a comprehensive transformation of our platform at our upcoming ENGAGE conference in October. We remain well positioned to drive durable and profitable growth this year and beyond. Now, let me turn the call over to the operator. Operator? Operator: [Operator Instructions] Our first question comes from Terry Tillman with Truist Securities. Terry Tillman: Yeah. Hey, Mark, Pete and Aaron. It's good to see the ongoing progress on the enterprise side of the business. My first question just relates to I know that it's FY '26 when this is going to be instituted in terms of the new pricing and packaging for existing customers, but you've got a lot of new innovation, you've got a lot that you're going to announce at ENGAGE, new experience, etcetera. Have you thought about potentially some of these existing enterprise customers going ahead and starting to leverage the new pricing ahead of time just given you have a lot of reasons to be talking to them about capabilities and could that drive upside to ARR? And then the second question and less long winded than the first one is, with this kind of new provisioning model for the administrators, do you potentially see some sales leverage as they can really kind of turn this on themselves? Thank you. Pete Godbole: So, Terry, in terms of your first question. We do see expect some interest from our existing customers and that could translate into potential dollars for us this fiscal year. And as we've rolled it out to a larger majority of our customers, we expect that percent that number could increase in terms of customers expressing an interest in moving early and that contributing to increased bookings to that extent. So that's the first part of it. The second part of your question was around self-directed capabilities and improving the motion and efficiency of the sales model. Clearly, as people discover those capabilities, there will be efficiency in the model because there isn't as much selling to be done. And that will be a part of our process as we think about FY'26 going forward. Josh Baer: Thanks. Wanted to stick on this topic of the new pricing model. Just hoping you could provide a little bit more context on the initial customer behavior around the new model. Any rule of thumb for how much of what you typically expect would just be the free users, are now monetized? Any update on the assumptions around the benefit from pricing changes both this year or longer term from some of these initial usage here? And just wondering how the price per paid seat is evolving under this new model? Mark Mader: Yes, Josh. Last week was our first week where we saw those first of the thousands of customers, who are on the new model hit their true-up period. We were all waiting with bated breath to see what would happen. We're really pleased to see confirming data come out of that. So high level, more users, more value being realized by a greater number of people, these clients and more ARR. That approach of lower P/E with a conforming Q or a higher Q that is playing out to our expectations. And again, we have a whopping one week of data. So one week of data does not a durable trend make, but really pleased to see that first card out of the shoe look good. Operator: Our next question comes from Jackson Ader with KeyBanc Capital Markets. Jackson Ader: Great. Thanks for taking our questions, guys. So some reports out about the company possibly being in play for an acquisition. I'm just curious, if we can get your thoughts on those reports first. Mark Mader: Yes. We're not going to comment on that today, but happy to take any other questions on the quarter or outlook. Jackson Ader: Yes, that's fair. Have to ask. Okay. I guess, follow-up question is that, the share repurchase program, does the company still in the market acquire repurchasing shares in the, I guess this is now the third fiscal quarter? Pete Godbole: We have the share repurchase program continues and it continues all the way through the year. That's where the program has been set up for us to repurchase. Jackson Ader: And then I'm sorry if I can just squeeze one more in. On the AI capabilities, like giving people access, for the next couple of months, will there be will there be any gross margin impact to that where you're providing these capabilities? I assume that's going to draw on some compute resources, but not really recognizing any uplift in revenue? Mark Mader: No. We don't really expect that to be a major topic. Huge kudos to our product and engineering teams. They actually have moved a lot of that workload over to a new model, which is significantly more efficient. We feel very confident in our ability to serve a much larger population with really de minimis impact on the cost change side. Alex Zukin: Hi, guys. Thanks for taking the question and congrats on a solid quarter here. Maybe just the two for me. I wanted to ask about just bookings linearity trends in the quarter, how it progressed, how it kind of ended up and how that compares to the prior quarter? And then just any thoughts about NRR trends through the second half and any comments about. You made a couple of competition comments, winning some bake-offs against other work management vendors. Curious if you can dive a little deeper there as well. Pete Godbole: Yes. Your first question was on implied bookings, Alex. The implied bookings and sort of how they came out for the quarter, very similar between quarters. There was not a big difference in how this quarter looked versus the previous quarter. That was your first question. Your second question. Can you repeat what your second question was? Alex Zukin: Just retention NRR trends for the second half. Do you expect it to be stable or further decline expanding? Pete Godbole: So what we've said before has been that we expect NRR to track down consistent with our overall, ARR guidance. So that will follow in suit if you will. There's no change in how we think about that in that respect. Alex Zukin: Okay. And then just a competition. Yeah, just a competition question. Double clicking on that a little bit. What you saw in the quarter both in the higher end of the market and in the lower end? Mark Mader: Yeah. We really haven't seen any meaningful change, Alex. I mean, we continue to crank along in terms of new opportunities that we're winning. We had our largest ever expansion at one of our $1 million plus accounts. So that continues to go. I think what I'm really looking forward to as we hit the second half is as our experiences change improve and with compared with our new pricing model, I think that's going to resonate quite well with the people who are starting out. So I should see -- I should expect a little bit better conversion at that entry point. But again, at the high end of the enterprise, we continue to -- the team continues to perform really nicely. Operator: Our next question comes from John DiFucci with Guggenheim Securities. John DiFucci: Thank you. I have a question also on the new pricing. And the P-times-Q math works really nicely. But Mark, I think like we do expect the number of paid users to increase, which is logical. And I think you said they could double. Well, first of all is that true? And then Mark or Pete or both of you, I get that you're moving to industry standards for pricing. But if this math all works out like at least the simple math in my head, customers would be paying more. And I'm not sure why they'd be eager to switch and frankly, not maybe even resist it and perhaps even threaten to leave. So it's just sort of a logical question. And I just wonder how I should be thinking -- we should be thinking about this? Mark Mader: Yeah. I still feel very confident, John, in our ability to double our paid user base. I think when prices change and when models change, I think customers' expectation that value has to change too. So if you can clearly demonstrate more value, people are actually open to listening. People do not like it when prices change and value doesn't change. And that's part of what as we're working with our clients now and we're enrolling them on who gets to participate, they absolutely have a choice. The good news is we're moving to a model which is conforming to how other software is charged for. So there really aren't a lot of call them sanctuary cities that you can go to where you can get the free opportunity. So we're confident that the value we're layering into the platform does resonate with people. The early metrics in these thousands of customers who have signed on, I think, was indicative of how the existing base will respond to. And we've had not only example with the people starting out, as we mentioned in our remarks, the largest one of our largest global SIs is on the new model. They're spending very rapidly. They are doing so with this new backdrop and they are again seeing the value being they are experiencing that value being realized. So again, it's very early, but we are really pleased with the indications we are seeing so far. John DiFucci: And that makes sense, Mark. But what exactly is that value? Are there new features and functionality? Are these things on the come, relative to the old pricing? Or I mean, it's not just the pricing model, right? Mark Mader: Yeah. In the in the old world, John, all you could do as a free collaborator is like comment on something and edit on something. You couldn't use AI, you couldn't construct anything, you couldn't create a dashboard, you couldn't do any reporting. It feels like you're pretty handcuffed. So what we heard from a lot of our customers was they didn't like that friction of the haves and the have nots. So this is a huge unlock for these populations, in some cases 100,000 plus people, where they no longer need to navigate this uncomfortable difference. And, yes, again, fortunately, the early reaction to this has been net positive. John DiFucci: Got it. Okay. So the actual level of usage has gone up in a more sophisticated way. Got it. Okay. Thank you. Michael Berg: Hi. Thanks for taking my question. I just had a quick one on the increase in churn. You mentioned some smaller customers, but want to get some clarity if there's any other dynamics to point to in other segments of the market, whether mid-market, enterprise or any verticals in particular? Pete Godbole: We didn't see anything particular. It's exactly as we said in our smaller segments, we saw some slight tick up in churn. That's what we called out. Michael Berg: Thank you. And then, one quick follow-up, anything new to point to in terms of paid users on the P-times-Q math with the new pricing model? Mark Mader: No further details at this time. Again, we're a week through -- one week past our first group trueing up. Pleased to see it, but we're not reporting out on any dip between the old model and the new. Operator: Our next question comes from Pinjalim Bora with JPMorgan (NYSE:JPM). Unidentified Analyst: This is Jaden on for Pinjalim. Thanks for the question. Are you giving customers the ability to renew earlier than 2025 to lock in the prior pricing model one last time? One of your partners noted something similar and we were wondering if this is a broad-based thing or maybe limited to a small subset of customers? Thanks. Pete Godbole: Jim, what we're finding in conversations with customers is, we're not giving them an option to renew under the old model, for long durations. The preference is to convert them to the new model early with an ability to sort of experience the value the new model provides. So that's been the trend. We're not on the early renewal of the old model approach. Operator: Our next question comes from Michael Funk with Bank of America (NYSE:BAC). Michael Funk: Yes. Thank you for the questions tonight. I think you mentioned it earlier, but can you reiterate what you're seeing like-for-like customer spend on the new model versus the previous model? Mark Mader: We're not giving specifics to that. I will say that, as we look at the P and the Q, we are seeing higher ARR contributions from people who have reached that first step of that first phase of maturity, that first true up motion. So the thesis, which was bring down the P, have connect more people connect to value resulting in a net benefit, the early indications, one week in, are positive and confirmatory. Michael Funk: Okay. Very helpful. And the free trial, if you will, of AI through the end of December, what is the plan after that? How do you plan to engage with customers to move them forward with the AI functionality, the monetization plan there? Mark Mader: Yes. Our engineering team has done a great job of getting more of our capabilities into people's hands in a trial basis. So I do expect a future in which all of our capabilities, including AI would be discoverable and something that you could trial. We don't have that wired up yet for AI. So we decided to do a full activation for the entire population for these number of months. But I would expect that to be part of someone's trial experience in the future. George Kurosawa: Hi, thanks for taking the questions. This is George on for Steve. First one on the revenue guidance. Pete, you gave some helpful color in the services shifting over to partners about 0.5 point of revenue change there, which, by my quick math is like a $5 million to $6 million headwind. So is it right to think about your revenue guide, excluding that, would have been up somewhere in that ballpark? Pete Godbole: Our revenue guide would have been up by some part of it for what we've done. So I would describe it as it probably wouldn't have enough for the whole amount that have been up by some amount for what we booked to date and then the rest of it implies our confidence in the business that we've raised by. George Kurosawa: Okay. That's helpful. And then you guys continue to find really great leverage in the middle and cash generation. Maybe just a little more color on kind of like where you're finding those efficiencies? Are there any OpEx areas you're pulling back from and how we should think about margin going forward? Pete Godbole: Yeah. I think our plan has always been to continue to invest in high-growth areas, but compare that with an absolute focus on driving operational efficiency. And that starts with reducing spans and layers in the organization, scrutinizing head count additions, leveraging near shore locations, streamlining processes. All of those are part of it. And the place we found it has been in sort of many functions. We found it in not quota-carrying roles but in functions that support sales, the sales support functions, we found it in G&A, we found it in real estate. So we've hit all those areas and finding it. And the last part of your question is, I don't view this as a destination. I view this as a journey. So you should think of operational efficiencies continuing as we continue to strive to be more and more efficient. It could be in future years finding ways to do sales and marketing more efficiently by self-discovery and those sorts of elements, which are completely different than what we've done today. Unidentified Analyst: Hi, this is [Indiscernible] on for Scott Berg. Thanks for taking the question. Congrats on the quarter. I feel as though the outlook on the economy has dampened a bit over the past couple of months. Did you notice any sort of change in buying behaviors throughout the quarter where things pretty linear and stable throughout? Pete Godbole: I think our buying behavior, as we went through the quarter, we saw essentially a good progression through the quarter. We saw momentum build up as we went through the first month to the second and the third. So we saw that build happen quite nicely for us. That was the only trend we saw in the behavior. Unidentified Analyst: Got it. Appreciate the color. And then excited to get more updates on the new views and customer experiences at the conference. I believe board view was released in mid-July. So a bit early, but any sort of insight you've got from customers, any feedbacks or anecdotes would be helpful. Mark Mader: Yeah. Customers are giving overwhelming feedback that they are excited to see the new experiences come in, and it's beyond the views. I think a few days ago, we just shipped our new home experience. It's much more visual, just easier. And what I love about customers and software is that with every release, there's a fresh batch of new feedback, right? So we made the home experience much more visual, moved away from more of a traditional list-oriented view. And people have ideas, and we welcome those ideas. And I think as a software company, you never want to shut the door on that. And much like we had with our old interfaces, the new ones are prompting just as much curiosity and feedback. I think people will be very pleased to see, what we show at ENGAGE next month, some really neat stuff coming out. Brent Thill: Thanks. Mark, there's been a lot of questions about the health of the enterprise spend environment. I'm curious if you could give us your view. I know growth is slowly decelerating. It doesn't look like, there's a massive inflection, but what you're seeing between enterprise, SMB, anything notable that you could highlight from a 40,000 foot view? Mark Mader: I think what's consistent, Brent, is people want to understand what they're getting for their investment. And the difference at the enterprise is the scale is simply much larger. When you're talking about a multimillion dollar investment, whether you're doing that at a megalith or you're working and serving an SMB customer, everyone wants to know what that return is. Starting years ago, we started talking about that expectation growing. One of the things that's, I think, really helping us perform well there is this use case oriented framework, where we have a number of really key plays that are really getting dialed in where we can articulate this value. I think the degree to which a company can present its software offerings in that light enables you to transact. I think if you struggle in that articulation, people are less willing to sort of invest on hope. So really pleased with how the team has progressed in that camp. But I think that pressure will continue to remain very high, Brent. Brent Thill: And did you have any differences between SMB and enterprise? Was there a difference in growth or adoption, or what was the sense downstream versus upstream? Mark Mader: Well, enterprise continues to be a huge strength of the business. And I think as we offer some of that down at the lower end of the market, I think there's probably more performance coming out of packaging and interfaces and experience. So when you do engage if a customer who's SMB does engage, I think you need to articulate value. But I think there's a higher number of deals that get done at the low end that are not grounded in that. And I think that's where the product and the packaging can be more of a lead suitor. Takeaway there is, almost every deal at the high end involves this. And as you go down, I would say, it's not 100%. Operator: [Operator Instructions] Our next question comes from Keith Bachman with BMO Capital Markets. Keith Bachman: Hi, thank you. Mark, in the introductory remarks, you commented that you thought next year would be a transformative year and I'm really focusing on the word transformative. Maybe you want to talk a little bit about what you mean there? And we as shareholders, how do you think we'll note it? Mark Mader: We've been on a really, I think, good progression over the last couple of years, around becoming a company with margin expansion, while still growing. I think when you have these transformative opportunities is when you have a number of things converge, I see maturity in our model, I see maturity in our go-to-market motion, I see maturity in our product offerings. And you just don't get that many opportunities in your career or your company's life, where those things converge. A lot of that work is being laid this year. It's never perfect in the convergence, but I think it's really good as it's approaching next year. So I think it will manifest itself in growth in profitability, in cash flow, customer sat. And we'll do our best to report out on those different dimensions. Keith Bachman: Right. Interesting. Okay. My follow-up question, one of the previous questions was asking about a press release or rumors in the market, and I understand you can't answer that question. What I want to pose is more philosophical question. You remember, you are on the board and you used the word transformative next year. But how would you sort of as a board member, depict pros and cons or the friction, if you will, on selling the company at this juncture? Mark Mader: Yeah, I think that question is a close cousin to the first one that was asked, and we're not in a position to comment on that today. Keith Bachman: Okay. Well see you looking forward to engage in a month or so. Thank you. Operator: There are no further questions at this time. I will now turn the call back over to Aaron Turner for closing remarks. Aaron Turner: Great. Thank you all for joining us today, and we'll speak with you again soon. Operator: This concludes today's conference call. Thank you all for your participation. You may now disconnect.

Smartsheet (SMAR) Q2 2025 Earnings Call Transcript | The Motley Fool

Good afternoon, and welcome to the Smartsheet Inc. second quarter fiscal 2025 earnings conference call. Please note that this call is being recorded. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator instructions] I will now turn the call over to Mr. Aaron Turner, head of investor relations. You may begin your conference. Aaron Turner -- Head of Investor Relations Great. Thank you. Good afternoon, and welcome, everyone, to Smartsheet's second quarter of fiscal year 2025 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are Smartsheet's CEO, Mark Mader; and our CFO, Pete Godbole. Today's call is being webcast and will also be available for replay on our investor relations website at investors.smartsheet.com. There's a slide presentation that accompanies Pete's prepared remarks, which can be viewed in the events section of our investor relations website. During this call, we will make forward-looking statements within the meaning of the federal securities laws. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends. These forward-looking statements are subject to a number of risks and other factors, including, but not limited to, those described in our SEC filings available on our investor relations website and on the SEC website at www.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially and/or adversely. All forward-looking statements made during this call are based on information available to us as of today, and we do not assume any obligation to update these statements as a result of new information or future events, except as required by law. In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. A reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can be found on our investor relations website. Thank you, Aaron, and good afternoon, everyone. Welcome to our second quarter earnings call for fiscal year 2025. Q2 was a strong quarter that further demonstrated our momentum in the enterprise. 75 customers expanded their Smartsheet ARR by more than $100,000, and we have three transactions over $1 million, one of which was over $4 million. We now have 77 customers with ARR over $1 million, up 50% from Q2 last year. And of those 77 customers, five of them are government agencies. We ended the quarter with annualized recurring revenue of $1.093 billion and more than 15.3 million Smartsheet users. In Q2, we expanded with customers, including Intuit, SKECHERS, and City National Bank, among others. In June, we launched our new pricing and packaging model. To date, we've seen thousands of new customers transact on the model, which is leading to high engagement and the addition of many provisional members across these plans. While only a small number of our customers have reached their first true-up period, we are encouraged by the positive early results. Building on the success with global system integrators mentioned on our last call, in Q2, we signed a large expansion with another Big 4 consulting firm, where Smartsheet is being used to streamline client engagement. Smartsheet enabled them to automate their processes through a standardized project delivery framework, which improved the quality of their work and led to significant savings. This customer was an early adopter of our new pricing model, and they estimate that deploying Smartsheet at scale saved the team 39,000 working hours in the last year, reducing their project delivery costs by nearly 12%. Demand for Smartsheet is growing across the organization with users at the company increasing by 120% year over year. They are now expanding their Smartsheet project delivery solution to support customers in the EU and U.S. federal government. They are also building new solutions to streamline other aspects of their client engagement life cycle. We also had a seven-figure expansion with one of our largest enterprise customers during their annual renewal. With the total Smartsheet user population of over 150,000 users, our success in this account has been driven in part by our differentiated feature set and our enterprise-grade security and administration. Smartsheet has corporate-level IT and security approval, enabling any team across the company to adopt Smartsheet. As a result of increased self-discovery, we have seen a boost in demand of our premium capabilities and growth in this account. This has resulted in Data Shuttle workflows increasing nearly 200% and Dynamic View configurations growing by 450% over the past year. Also, in Q2, we closed a competitive deal with a prominent financial services company following an RFP process that included other CWM vendors. This new customer onboards thousands of clients a year, and they're executing increasingly complex projects. In order to scale with their customers, they needed to replace their in-house solution with a more robust work management platform, and they chose Smartsheet because of our enterprise readiness and scale. We're partnering with them to develop an integrated project delivery solution that will streamline their processes, improve collaboration with clients, and establish unified reporting. They expect this solution to increase customer satisfaction while saving their employees thousands of hours per year, unlocking the capacity to work on additional projects and ultimately grow revenue. As we move into the second half of FY '25, we are making good progress on the comprehensive modernization of the Smartsheet platform, a strategic investment that is ongoing. In just a few weeks, we'll be hosting our annual customer conference, ENGAGE Seattle. During this year's conference, we'll be showcasing the new Smartsheet, a new experience that is more beautiful, powerful, and more integrated than ever before. It will empower our customers to manage their projects, programs, and processes at even larger scale and sophistication. The new Smartsheet experience simplifies and streamlines getting started for users. It will be easier to create solutions and quickly initiate projects and processes with all the necessary tools for configuration and management, all accessible right from a highly visual AI-driven home experience. We are also introducing significant enhancements in how users create, organize, and share, whether they're building assets for a marketing campaign or managing documentation for a service delivery program. One of the key improvements simplifies collaboration with stakeholders, making it easier to collect feedback and drive reviews on digital files such as images, videos and PDFs. Over the past few months, I've personally seen the benefits of more accurate, actionable feedback and the substantial time savings for our teams. I believe our customers are going to love this new collaboration experience. The new and improved Smartsheet features, along with our new user subscription model and self-service access to premium capabilities, enable more customers to solve their most common as well as their more complex work management needs. Generative AI is proving to be a helpful differentiator for Smartsheet. Our AI-powered tools like formula generation and text summaries are designed to simplify complex tasks, saving time and reducing errors. We're committed to expanding these capabilities to help our customers work more efficiently. In Q2, we saw a nearly 50% sequential growth in the number of users utilizing our AI tools. Adoption is already showing significant benefits to our customers with approximately 47,000 users having already saved an estimated 1 million hours from AI automations and performance improvements. We also saw positive early results, suggesting that AI-generated formulas and conversational support are effectively acting as our first point of contact for customer support, reducing friction with the platform and lowering our customer support costs. We expect to see the customer impact of AI tools grow meaningfully as we expand them to support cross-sheet formulas, provide portfolio insights, and co-build solutions with users. Starting mid-September, in a push to enable customers to feel the impact of AI and to experience one benefit of our enterprise plan, Smartsheet will grant limited-time access to our AI tools to all users through December 31st, 2024. In closing, nearly two quarters since the hiring of Max Long and the appointment of Praerit Garg to their respective roles, investments in our go-to-market, and deployment of our next-gen product experiences are well underway. Through a combination of a use case-oriented value framework, a simplified licensing model, new user experiences, and a class-leading scale, FY '25 will be a transformative year for our customers, our company, and the Smartsheet platform. We are laying the foundation for the years ahead. Now let me turn the call over to Pete. Peter Godbole -- Chief Financial Officer Thank you, Mark. As Mark mentioned, we continue to see considerable strength in our enterprise segment highlighted by large deals, our largest quarterly expansion in our company's history, and an enterprise NDRR that remains at 120%. Additionally, in Q2, we launched our share buyback program and repurchased 918,000 shares for a total of $40 million in the quarter. We have $110 million remaining on our existing share buyback authorization as of July 31st. I will now go through our financial results for the second quarter. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call. Turning now to our quarterly results. Second quarter revenue came in at $276.4 million, up 17% year over year. Subscription revenue was $263.5 million, representing year-over-year growth of 19%. Services revenue was $12.9 million. Revenue from capabilities made up 35% of subscription revenue. Annualized recurring revenue, or ARR, grew 17% year over year in the second quarter to $1.093 billion. Moving on to our reported metrics. The number of customers with ARR over $50,000 grew 17% year over year to 4,140. And the number of customers with ARR over $100,000 grew 23% year over year to 2,056. These customer segments now represent 69% and 55%, respectively, of total ARR. The percentage of our ARR coming from customers with ARR over $5,000 is at 92%. Next, our domain average ARR grew 16% year over year to $10,291. We ended the quarter with a dollar-based net retention rate inclusive of all our customers of 113%. The full churn rate increased slightly due to elevated churn rates in our smaller customer segments and is now around 4.5%. Now turning back to the financials. Our total gross margin was 84%. Our Q2 subscription gross margin was 87%. Overall, operating income in the quarter was $45.3 million or 16% of revenue. Free cash flow in the quarter was $57.2 million. On guidance, we are maintaining our previous FY '25 revenue guidance of 16% to 17%. While we beat our Q2 revenue guidance, we have lowered our assumption for services revenue for the full year due to a higher percentage of services delivered by partners. We now expect services revenue to be 4.5% of total revenue, down from 5% for FY '25. Absent this shift, our full year revenue guidance would have increased. Our Q3 revenue guidance also takes into account this change. For the third quarter of FY '25, we expect revenue to be in the range of $282 million to $285 million and non-GAAP operating income to be in the range of $42 million to $44 million. We expect non-GAAP net income per share to be $0.29 to $0.31 based on diluted weighted average shares outstanding of 142.5 million. For the full fiscal year '25, we expect revenue of $1.116 billion to $1.121 billion, representing growth of 16% to 17%. We expect services revenue to be around 4.5% of total revenue. We are raising our non-GAAP operating income to be in the range of $177 million to $182 million, representing an operating margin of 16%, and raising our non-GAAP net income per share to be $1.36 to $1.39 for the year based on 141.9 million diluted weighted average shares outstanding. We are updating our FY '25 ARR guidance to be between $1.177 billion to $1.180 billion, representing growth between 14.2% to 14.5%. Regarding seasonality, we expect our Q3 ARR growth rate to be between our Q2 ARR growth rate and our full year ARR growth rate guidance. We are raising our FY '25 free cash flow to be $240 million, representing a free cash flow margin of 21%. To conclude, Q2 was highlighted by a continuation of our strong performance in the enterprise and progress on our key initiatives. We launched our new pricing and packaging model to new customers in June and are on track to migrate our existing customers over to the new model starting in January. We are looking forward to unveiling a comprehensive transformation of our platform at our upcoming ENGAGE conference in October. We remain well-positioned to drive durable and profitable growth this year and beyond. Now, let me turn the call over to the operator. Operator? Operator Thank you. We will now open the line for questions. [Operator instructions] We kindly ask that you limit yourself to one question and one follow-up. Our first question comes from Terry Tillman with Truist Securities. Terry Tillman -- Analyst Yeah. Hey, Mark, Pete, and Aaron, it's good to see the ongoing progress on the enterprise side of the business. My first question just relates to -- I know that it's FY '26 when this is going to be instituted in terms of the new pricing and packaging for existing customers, but you've got a lot of new innovation. You've got a lot that you're going to announce at ENGAGE, new experience, etc. Have you thought about potentially some of these existing enterprise customers going ahead and starting to leverage the new pricing ahead of time just given you have a lot of reasons to be talking to them about capabilities? And could that drive upside to ARR? And then the second question and less long-winded than the first one is, with this kind of new provisioning model for the administrators, do you potentially see some sales leverage as they can really kind of turn this on themselves? Thank you. Peter Godbole -- Chief Financial Officer So, Terry, in terms of your first question, we do expect some interest from our existing customers, and that could translate into potential dollars for us this fiscal year. And as we've rolled it out to a larger majority of our customers, we expect that number could increase in terms of customers expressing an interest in moving early and that contributing to increased bookings to that extent. So, that's the first part of it. The second part of your question was around self-directed capabilities and improving the motion and efficiency of the sales model. Clearly, as people discover those capabilities, there will be efficiency in the model because there isn't as much selling to be done, and that will be a part of our process as we think about FY '26 going forward. Operator Our next question comes from Josh Baer with Morgan Stanley. Josh Baer -- Analyst Thanks. Wanted to stick on this topic of the new pricing model. Just hoping you could provide a little bit more context on the initial customer behavior around the new model. Any rule of thumb for how much of what you would typically expect would just be the free users are now monetized? Any update on the assumptions around the benefit from pricing changes both this year or longer term from some of these initial usage here? And just wondering how the price per paid seat is evolving under this new model. Yeah, Josh. Last week was our first week where we saw those first of the thousands of customers who are on the new model hit their true-up period. And we were all waiting with bated breath to see what would happen. We're really pleased to see confirming data come out of that. So, high level, more users, more value being realized by a greater number of people, these clients, and more ARR. So, that approach of lower P with a conforming Q or a higher Q, that is playing out to our expectations. And again, we have a whopping one week of data. So, one week of data does not a durable trend make, but really pleased to see that first card out of the shoe looks good. Our next question comes from Jackson Ader with KeyBanc Capital Markets. Jackson Ader -- Analyst Great. Thanks for taking our questions, guys. So, some reports out about the company possibly being in play for an acquisition. I'm just curious if we can get your thoughts on those reports first. Yeah. We're not going to comment on that today, but happy to take any other questions on the quarter or outlook. Jackson Ader -- Analyst Yes, that's fair. I had to ask. OK. So, I guess a follow-up question is about the share repurchase program. Is the company still in the market acquiring repurchasing shares in the -- I guess this is now the third fiscal quarter? Thanks. Peter Godbole -- Chief Financial Officer The share repurchase program continues, and it continues all the way through the year. That's the way the program has been set up for us to repurchase. Jackson Ader -- Analyst All right. And then I'm sorry, if I can just squeeze one more in. On the AI capabilities like giving people access for the next couple of months, will there be any like gross margin impact to that where you're providing these capabilities? I assume that's going to draw on some compute resources but not really recognizing any uplift in revenue. Mark Patrick Mader -- President and Chief Executive Officer No. We don't really expect that to be a major topic. Huge kudos to our product and engineering teams. They actually have moved a lot of that workload over to a new model, which is significantly more efficient. So, we feel very confident in our ability to serve a much larger population with really de minimis impact on the cost change side. Our next question comes from Alex Zukin with Wolfe Research. Alex Zukin -- Analyst Yeah, hey, guys, thanks for taking the question and congrats on a solid quarter here. Maybe just the two for me. I wanted to ask about just bookings linearity trends in the quarter and how it progressed, how it kind of ended up and how that compares to the prior quarter. And then just any thoughts about NRR trends through the second half and any comments about -- you made a couple of competition comments, winning some bake-offs against other work management vendors. Curious if you could dive a little deeper there as well. Peter Godbole -- Chief Financial Officer Yeah. So, your first question was on implied bookings, Alex. So, the implied bookings and sort of how they came out for the quarter, very similar between quarters. There was not a big difference in how this quarter looked versus the previous quarter. So, that was your first question. Your second question, can you repeat what your second question was? Alex Zukin -- Analyst Just NRR trends for the second half. Do you expect it to be stable or further decline, expanding? Peter Godbole -- Chief Financial Officer So, what we've said before has been that we expect NRR to track down, consistent with our overall ARR guidance, so that will follow suit, if you will. There's no change in how we think about that in that respect. Alex Zukin -- Analyst OK. And then the third. Competition -- yeah, just a competition question. Double-clicking on that a little bit and what you saw in the quarter, both in the higher end of the market and in the lower end. Mark Patrick Mader -- President and Chief Executive Officer Yeah. We really haven't seen any meaningful change, Alex. I mean we continue to crank along in terms of new opportunities that we're winning. We had our largest-ever expansion at one of our $1 million-plus accounts. So, that continues to go. I think what I'm really looking forward to as we hit the second half is, as our experiences change/improve and compared with our new pricing model, I think that's going to resonate quite well with the people who are starting out. So, I should see -- I should expect a little bit better conversion at that entry point. But again, at the high end of the enterprise, we continue to -- the team continues to perform really nicely. Our next question comes from John DiFucci with Guggenheim Securities. John Difucci -- Analyst I have a question also on the new pricing. And the P times Q math works really nicely. But Mark, I think like we, you expect the number of paid users to increase, which is logical. And I think you've said that they could double. Well, first of all, is that true? And then Mark or Pete, or both of you. I get that you're moving to industry standards for pricing. But if this math all works out, like at least a simple math in my head, customers would be paying more. And I'm not sure why they'd be eager to switch, and frankly, not maybe even resist it and perhaps even threaten to leave. So, is this sort of a logical question? And I just wonder how I should be thinking -- we should be thinking about this. Mark Patrick Mader -- President and Chief Executive Officer Yes. So, I still feel very confident, John, in our ability to double our paid user base. I think when prices change and when models change, I think customers' expectation is that value has to change, too. So, if you can clearly demonstrate more value, people are actually open to listening. People do not like it when prices change and value doesn't change. And that's part of what -- as we're working with our clients now and we're enrolling them on who gets to participate, they absolutely have a choice. The good news is we're moving to a model which is conforming to how other software is charged for. So, there really aren't a lot of, I'll call them, sanctuary cities that you can go to where you can get the free opportunity. So, we're confident that the value we're layering into the platform does resonate with people. The early metrics in the thousands of customers who have signed on, I think, were indicative of how the existing base will respond, too. And we've had not only an example with the people starting out. As we mentioned in our remarks, one of our largest global SIs is on the new model. They're expanding very rapidly. They're doing so with this new backdrop. And they're, again, seeing the value being, they're experiencing that value being realized. So, again, it's very early. But we're really pleased with the indications we're seeing so far. John Difucci -- Analyst And that makes sense, Mark. But what exactly is that value? Are there new features and functionality? Are these things on the come relative to the old pricing? Or I mean it's not just the pricing model, right? Mark Patrick Mader -- President and Chief Executive Officer Yeah. In the old world, John, all you could do as a free collaborator is like comment on something and edit on something. You couldn't use AI. You couldn't construct anything. You couldn't create a dashboard. You couldn't do any reporting. It's like you're pretty handcuffed. So, what we heard from a lot of our customers was they didn't like that friction of the haves and the have-nots. So, this is a huge unlock for these populations, in some cases, 100,000-plus people where they no longer need to navigate this uncomfortable difference. And yes, again, fortunately, the early reaction to this has been net positive. John Difucci -- Analyst Got it. OK. So, the actual level of usage has gone up in a more sophisticated way. Got it. Our next question comes from Michael Berg with Wells Fargo Securities. Michael Berg -- Wells Fargo Securities -- Analyst Hi. Thanks for taking my question. I just had a quick one on the increase in churn. You mentioned from smaller customers, but I want to get some clarity if there are any other dynamics to point to in other segments of the market, whether it's mid-market, enterprise or any verticals in particular. We didn't see anything in particular. It's exactly as we said in our smaller segments. We saw some slight tick-up in churn. That's what we called out. Michael Berg -- Wells Fargo Securities -- Analyst And then one quick follow-up. Anything new to point to in terms of paid users on the P times Q math with the new pricing model? Mark Patrick Mader -- President and Chief Executive Officer No further details at this time. Again, we're a week through -- one week past our first group truing up. Pleased to see, but we're not reporting out on any dip between the old model and the new. Thank you. Operator Our next question comes from Pinjalim Bora with JPMorgan. Unknown speaker -- -- Analyst Great. This is Jaiden on for Pinjalim. Thanks for the question. Are you giving customers the ability to renew earlier than 2025 to lock in the prior pricing model one last time? One of your partners noted something similar. And we were wondering if this is a broad-based thing or may be limited to a small subset of customers. Thanks. Peter Godbole -- Chief Financial Officer Jim, you know, what we're finding in conversations with customers is we're not giving them an option to renew under the old model for long durations. The preference is to convert them to the new model early with the ability to sort of experience the value the new model provides. So, that's been the trend. We're not on the early renewal of the old model approach. Our next question comes from Michael Funk with Bank of America. Michael Funk -- Analyst Yeah, thank you for the questions tonight. I think you mentioned it earlier, but can you reiterate what you're seeing like-for-like customer spend under the new model versus the previous model? Mark Patrick Mader -- President and Chief Executive Officer We're not giving specifics of it. I will say that as we look at the P and the Q, we are seeing higher ARR contributions from people who have reached that first step of -- that first phase of maturity, that first true-up motion. So, the thesis, which was bring down the P, have more people connect to value, resulting in a net benefit. The early indications one week in are positive and confirmatory. Michael Funk -- Analyst OK. Very helpful. And then the free trial, if you will, of AI through the end of December, what is the plan after that? How do you plan to engage with customers to move them forward with AI functionality, the monetization plan there? Mark Patrick Mader -- President and Chief Executive Officer Yeah. Our engineering team has done a great job of getting more of our capabilities into people's hands in a trial basis. So, I do expect a future in which all of our capabilities, including AI, would be discoverable and something that you could trial. We don't have that wired up yet for AI. So, we decided to do a full activation for the entire population for this number of months. But I would expect that to be part of someone's trial experience in the future. Our next question comes from Steve Enders with Citi. Unknown speaker -- -- Analyst Hi, thanks for taking the question. This is George on for Steve. First one on the revenue guidance. Pete, you gave some helpful color in the services shifting over to partners, about 0.5 point of revenue change there, which, by my quick math, is like a $5 million to $6 million headwind. So, is it right to think that your revenue guide, excluding that, would have been up somewhere in that ballpark? Peter Godbole -- Chief Financial Officer Our revenue guide would have been up by some part of it for what we've done. So, I would describe it as it probably wouldn't have been up for the whole amount, but it would have been up by some amount for what we booked to date. And then the rest of it implies our confidence in the business that we've raised by. Unknown speaker -- -- Analyst OK. That's helpful. And then you guys continue to find really great leverage in the model and cash generation. Maybe just a little more color on kind of like where you're finding those efficiencies? Are there any opex areas you're pulling back from and how we should think about margin going forward? Thank you. Peter Godbole -- Chief Financial Officer Yeah. I think our plan has always been to continue to invest in high-growth areas but pair that with an absolute focus on driving operational efficiency. And that starts with reducing spans and layers in the organization, scrutinizing headcount additions, leveraging nearshore locations, streamlining processes. All of those are part of it. And the place we found it has been in sort of many functions. We found it in not quota-carrying roles but in functions that support sales, the sales support functions. We found it in G&A. We found it in real estate. So, we've hit all those areas and finding it. And the last part of your question is, I don't view this as a destination. I view this as a journey. So, you should think of operational efficiencies continuing as we continue to strive to be more and more efficient. It could be in future years finding ways to do sales and marketing more efficiently by self-discovery and those sorts of elements, which are completely different than what we've done today. Our next question comes from Scott Berg with Needham and Company. Rob Morelli -- Needham and Company -- Analyst Hi. This is Rob Morelli on for Scott Berg. Thanks for taking the question and congrats on the quarter. It feels as though the outlook on the economy has dampened a bit over the past couple of months. Did you notice any sort of change in buying behaviors throughout the quarter where things are pretty linear and stable throughout? Peter Godbole -- Chief Financial Officer I think our buying behavior, as we went through the quarter, we saw essentially a good progression through the quarter. We saw momentum build up as we went through the first month to the second and the third. So, we saw that build happen quite nicely for us. That was the only trend we saw in the behavior. Rob Morelli -- Needham and Company -- Analyst Got it. Thanks for the color. And then excited to get more updates on the new views and customer experiences at the conference. I believe board view was released in mid-July. So, a bit early, but any sort of insight you've gathered from customers, any feedback or anecdotes would be helpful. Thanks. Mark Patrick Mader -- President and Chief Executive Officer Yeah. Customers are giving overwhelming feedback that they are excited to see the new experiences come in, and it's beyond the views. I think a few days ago, we just shipped our new home experience. It's much more visual, just easier. And what I love about customers and software is that with every release, there's a fresh batch of new feedback, right? So, we made the home experience much more visual, moved away from more of a traditional list-oriented view. And people have ideas, and we welcome those ideas. And I think as a software company, you never want to shut the door on that. And much like we had with our old interfaces, the new ones are prompting just as much curiosity and feedback. I think people will be very pleased to see what we show at ENGAGE next month. Some really neat stuff coming out. Rob Morelli -- Needham and Company -- Analyst Awesome, looking forward to it. Thanks for taking the questions. Operator Our next question comes from Brent Thill with Jefferies. Brent Thill -- Analyst Mark, there's been a lot of questions about the health of the enterprise spend environment. I'm curious if you could give us your view. I know growth is slowly decelerating. It doesn't look like there's a massive inflection, but what you're seeing between enterprise, SMB, anything notable that you could highlight from a 40,000-foot view. Mark Patrick Mader -- President and Chief Executive Officer I think what's consistent, Brent, is people want to understand what they're getting for their investment. And the difference at the enterprise is the scale is simply much larger. So, when you're talking about a multimillion-dollar investment, whether you're doing that at a mega lift or you're working and serving an SMB customer, everyone wants to know what that return is. So, starting years ago, we started talking about that expectation growing. And one of the things that's, I think, really helping us perform well there is this use case-oriented framework, where we have a number of really key plays that are really getting dialed in where we can articulate this value. And I think the degree to which a company can present its software offerings in that light enables you to transact. I think if you struggle in that articulation, people are less willing to sort of invest in hope. So, really pleased with how the team has progressed in that camp. But I think that pressure will continue to remain very high, Brent. Brent Thill -- Analyst And did you have any differences between SMB and enterprise? Was there a difference in growth or adoption? Or what was the sense downstream versus upstream? Mark Patrick Mader -- President and Chief Executive Officer Well, enterprise continues to be a huge strength of the business. And I think as we offer some of that down at the lower end of the market, I think there's probably more performance coming out of packaging and interfaces and experience. So, when you do engage -- if a customer whose SMB does engage, I think you need to articulate value, but I think there's a higher number of deals that get done at the low end that are not grounded in that. And I think that's where the product and the packaging can be more of a lead suitor. So, the takeaway there is almost every deal at the high end involves this. And as you go down, I would say it's not 100%. [Operator instructions] Our next question comes from Keith Bachman with BMO Capital Markets. Keith Bachman -- Analyst Hi. Thank you. Mark, in the introductory remarks, you commented that you thought next year would be a transformative year, and I'm really focusing on the word transformative. Maybe you want to talk a little bit about what you mean there? And we, as shareholders, how do you think we'll note it? Mark Patrick Mader -- President and Chief Executive Officer Well, we've been on a really, I think, good progression over the last couple of years around becoming a company with margin expansion while still growing. And I think when you have these transformative opportunities, you have a number of things converged. I see maturity in our model. I see maturity in our go-to-market motion. I see maturity in our product offerings. And you just don't get that many opportunities in your career or your company's life where those things converge. A lot of that work is being laid this year. It's never perfect in the convergence, but I think it's really good as it's approaching next year. So, I think it will manifest itself in growth in profitability, in cash flow, customer sat. And we'll do our best to report out on those different dimensions. Keith Bachman -- Analyst Right, right, right. Interesting. OK. My follow-up question, one of the previous questions was asking about a press release or rumors in the market, and I understand you can't answer that question. What I want to pose is more philosophical question. You remember, you are on the board and you used the word transformative next year. But how would you sort of, as a board member, depict pros and cons or the friction, if you will, on selling the company at this juncture? Mark Patrick Mader -- President and Chief Executive Officer Yeah, Keith, I think that question is a close cousin to the first one that was asked, and we're not in a position to comment on that today. Keith Bachman -- Analyst OK. I will see the floor. I'm looking forward to ENGAGE in a month or so. Thank you. There are no further questions at this time. I will now turn the call back over to Aaron Turner for closing remarks. Aaron Turner -- Head of Investor Relations Great. Thank you all for joining us today, and we'll speak with you again soon.

Earnings call: Samsara's Q2 FY2025 results show robust growth and ARR surge By Investing.com

Samsara Inc (NYSE:IOT). (Ticker: IoT), a leader in the Internet of Things (IoT) industry, has reported a significant increase in its second-quarter financial results for fiscal year 2025. With a 36% year-over-year growth in annual recurring revenue (ARR), reaching $1.264 billion, the company has surpassed expectations. The growth has been attributed to the addition of 169 new customers with over $100,000 in ARR and a record 14 customers contributing over $1 million each. The quarter also saw the launch of new products, such as Asset Tag, and partnerships that bolstered Samsara's market position. The company's focus on large enterprise customers and multiproduct adoption, alongside its expansion in international markets, particularly in Europe, has been key to its strong performance. Samsara's financial results for Q2 FY2025 have demonstrated the company's ability to sustain growth and capitalize on market opportunities. With a strategic focus on large enterprise customers, product innovation, and international market expansion, Samsara is positioning itself for continued success in the IoT industry. The company's robust growth in ARR and revenue, along with the positive reception of new products like Asset Tag, Connected Workflows, and Connected Training, underscore its commitment to meeting the evolving needs of its diverse customer base. As Samsara continues to invest in research and development, its future in the IoT space looks promising, despite the cautious stance on macroeconomic factors. Samsara Inc. (IOT) has been making waves with its impressive second-quarter results, showcasing a robust 36% year-over-year growth. To complement the article's insights, let's delve into some key InvestingPro metrics and tips that shed light on the company's financial health and market position. InvestingPro Data shows Samsara's market capitalization stands at $21.34 billion, a testament to its significant presence in the IoT industry. Despite not being profitable over the last twelve months, the company has maintained a strong revenue growth of over 40% during the same period, indicating a solid expansion trajectory. Moreover, the Gross Profit Margin remains high at 75.1%, suggesting that Samsara is effective in managing its cost of goods sold and maintaining profitability at the gross level. InvestingPro Tips highlight that analysts have recently revised their earnings estimates downwards for the upcoming period, which investors may want to consider in light of the company's future earnings potential. Samsara operates with a moderate level of debt, which can be a double-edged sword, providing leverage for growth while also necessitating prudent financial management. It is noteworthy that analysts predict Samsara will turn profitable this year, a crucial milestone that could bolster investor confidence. However, the company is currently trading at a high revenue valuation multiple and a high Price/Book multiple, which suggests that its stock price is relatively expensive compared to its book value and revenue. For investors seeking a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/IOT. These tips could provide deeper insights into Samsara's financials and market prospects, helping to inform investment decisions in the dynamic IoT sector. Mike Chang: Good afternoon and welcome to Samsara's Second Quarter Fiscal 2025 Earnings Call. I'm Mike Chang, Samsara's Vice President of Corporate Development and Investor Relations. Joining me today are Samsara's Chief Executive Officer and Co-Founder, Sanjit Biswas; and our Chief Financial Officer, Dominic Phillips. In addition to our prepared remarks on this call, additional information can be found in our shareholder letter, press release, investor presentation and SEC filings on our Investor Relations website at investors.samsara.com. The matters we'll discuss today include forward-looking statements. Actual results may differ materially from those contained in the forward-looking statements and are subject to risks and uncertainties described more fully in our SEC filings. Any forward-looking statements that we make on this call are based on assumptions as of today, September 5, 2024, and we undertake no obligation to update these statements as a result of new information or future events unless required by law. During today's call, we will discuss our second quarter fiscal 2025 financial results. We'd like to point out that the company reports non-GAAP results in addition to and not as a substitute for or superior to financial measures calculated in accordance with GAAP. Reconciliations of GAAP to non-GAAP financial measures are provided in our press release and investor presentation. We'll make opening remarks, dive into highlights for the quarter and then open the call up for Q&A. And with that, I'll hand over the call to Sanjit. Sanjit Biswas: Thanks, Mike, and thank you, everyone, for joining us today. Samsara delivered another strong quarter of durable and efficient growth at greater scale. We ended Q2 with $1.26 billion in ARR, growing 36% year-over-year. We also achieved a quarterly record for non-GAAP operating margin. We are the strategic partner to the world's leading and most complex physical operations organizations. Large customer momentum continues to fuel our growth. We added 169 customers with more than $100,000 in ARR. We also added a quarterly record of 14 customers with more than $1 million in ARR. In Q2, we had wins with the State of Maine, one of the largest supermarket chains in the US and one of the largest retail owned hardware cooperatives globally. As we grow our customer base, our data asset scales too. We're proud to announce that we achieved an important company milestone. We now collect more than 10 trillion data points annually on the Samsara platform. In addition to scale, our unique IoT data set has incredible breadth and spans a broad and diverse group of assets. Our growing dataset unlocks unique insights that help our customers tackle their toughest challenges. In June, we hosted Samsara Beyond to discuss the impact of data and AI on the future of Connected Operations. Nearly 2,000 attendees across the world of physical operations came together for the event. At Beyond, we learned more about our customers' challenges and how they're looking to solve them with data and AI. They told us their top priorities include creating a system of record for their operations, standardizing their data and using more AI for insights. These conversations are critical as they shape where we prioritize our R&D efforts to maximize customer impact. During Beyond, we also hosted our Connected Operations Award ceremony. We honored 15 global customers who had an outsized impact on our platform as well as our Ecosystem Partner Of the Year. I'd like to share the impact we've been driving with a few of our winners. Home Depot (NYSE:HD) was our Safest Operator winner in the Americas. They're the world's largest home improvement retailer with over 2,300 stores and 475,000 employees. Together with their appliance delivery and installation company, Temco Logistics, they achieved an 80% reduction in auto instance by leveraging Samsara's video-based safety application. Next, let's turn to Sterling Crane (NYSE:CR), our Excellence in Efficiency winner. They're one of the world's largest crane rental supply companies with over 625 cranes in their fleet. They saved $1.2 million using Samsara from improved driver productivity and compliance. They also expect to save $2.5 million for major maintenance costs. We are proud to partner with our customers to make a real-world impact on their operations. To help meet the needs of our customers, we've been accelerating our flywheel of innovation. Our growing dataset and AI-powered insights drive our flywheel. As it spins faster, we deliver more value from our platform and build more products and features for our customers. All of this innovation helps our customers take more action to improve the safety, efficiency and sustainability of their operations. At Beyond, we launched a new product, our Asset Tag. The Asset Tag is the industry's first industrial-grade Bluetooth tag to help our customers track and manage their small high-value assets. It can be used for a range of assets from toolboxes and chemicals totes to engines and handcarts. We expect, over time, this will help our customers save millions of dollars a year through increasing asset utilization, preventing asset loss and improving worker efficiency by reducing the time needed to locate stolen or lost assets. In Q2, our first quarter of selling Asset Tags, we reached approximately $1 million in net new ACV. It's an exciting start and customer feedback has been strong. We are seeing demand from our customers across industries and geographies and learning about new use cases every week. A good example of this is TransCore, the leader in innovative tolling solutions. TransCore purchased a large amount of Asset Tags to help with inventory management, loss prevention and hardware functionality. They use this for technology hardware, field support assets, critical inventory and more. This technology is only possible because of the massive network we built at Samsara. We have millions of devices around the globe that are connected to the Internet. The Asset Tag uses industrial-grade Bluetooth to connect to the Samsara network. With the density of our network, organizations can get near real-time visibility and that will only improve as our network scales. At Beyond, we announced two new products to further digitize the worker experience, Connected Workflows And Connected Training. Our customers are using technology to transform the worker experience. Samsara is their trusted partner to make these jobs better and safer. Last year, we introduced Connected Forms to digitize paper processes for physical operations. Connected Workflows takes this to the next level and goes beyond digitization to orchestrating multistep workflows. Connected Workflows can automatically assign forms, manage approvals and create tasks based on contextual insights. Now every department can easily automate workflows to make work safer and easier from the frontlines to the back office. An example is DeSilva Gates, a leading construction company in California. DeSilva Gates is now automating truck inspections with Connected Workflows. Drivers are prompted to complete inspections on time. Any reported issues are submitted and addressed right away. And this has saved them about $45,000 a week or more than $2 million on an annualized basis. The second worker experience product we launched was Connected Training. Connected Training helps our customers reduce risk by giving them a way to train workers anytime and anywhere. It does this by giving customers remote access to courses on the Samsara mobile app. Now our customers can build customized learning itineraries to address each worker's largest risk areas. They can also streamline all their training requirements across the organization. Customers who use Connected Training are already seeing significant benefits. For example, Emery Sapp & Sons, a leading heavy civil construction contractor in the Midwest, saw a 40% reduction in safety events with Connected Training. After launching new products, we continue to run our customer feedback loop to make our products better and more impactful for our customers. At Beyond, we announced new features and partnerships for our platform. To help our customers improve -- to help improve our customer' safety programs, we launched new AI detections and shared updates to Smart Trailers. To help our customers improve the sustainability of their operations, we launched Charge Insights. This is part of our broader EV management offering. We also announced a new partnership with FirstNet, Built with AT&T, the only nationwide communications network created with and for public safety. Samsara is now FirstNet Trusted. So public safety customers can use Samsara in emergency response situations. It was another successful Beyond and I'm happy to share we're hosting the next event next summer in San Diego. We look forward to bringing together even more of our customers, partners and leaders across the world of physical operations. Digitizing physical operations will be a multi-decade journey. As we build for the long-term, we continue to invest in our leadership and our culture. First, I'm excited to welcome Alyssa Henry to our Board of Directors. Alyssa brings over 25 years of experience as a product and technical leader at some of the world's most influential technology companies. This includes her role as CEO of Square at Block and senior leadership positions at Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT). She has a proven track record of driving innovation and significant growth in the tech sector. Second, we are also happy to welcome Meagen Eisenberg as our Chief Marketing Officer. Meagen is joining us from Lacework, where she was their CMO through their recent acquisition by Fortinet (NASDAQ:FTNT). Before that, she was the CMO at both TripActions and MongoDB (NASDAQ:MDB). She has great experience engaging customers, driving growth and building brands at many successful companies. We are thrilled to have Alyssa and Meagen join our team. And lastly, Samsara continues to be a destination for some of the world's top talent. This is important as we scale to meet customer demand. This quarter, Samsara was recognized by Great Place to Work for development, well-being and women. We are proud of the impact we're making on our customers. We are operating at scale with our customers generating more than 10 trillion data points, 85 billion API calls and 70 billion miles driven across our platform annually. Our growing data asset drives more AI-powered insights so our customers can get clear and fast ROI. Every year, the impact we make with our customers continues to compound. We're excited for the decades-long opportunity ahead. Thank you to our customers, partners, investors and Samsarians across the globe for joining us on this journey. I'll now hand it over to Dominic to go over the financial highlights for the quarter. Dominic Phillips: Thank you, Sanjit. Q2 was another quarter of sustained high growth at scale and continued operating leverage. In particular, the quarter was highlighted by maintaining the same year-over-year revenue growth rate for the third consecutive quarter at a larger scale, surpassing 2,000 large customers, including adding a quarterly record number of $1 million plus ARR customers, adding approximately $1 million of Asset Tags net new ACV in our first quarter of selling and achieving a quarterly record operating margin while sustaining a quarterly record gross margin. Q2 ending ARR was $1.264 billion growing 36% year-over-year. Within this, we added $88 million of net new ARR, representing 20% year-over-year growth. And Q2 revenue was $300 million, growing 37% year-over-year, which is the same year-over-year growth rate for the third consecutive quarter at a larger scale. Several factors drove our strong top line performance in Q2. First, we continue to focus on serving large enterprise customers to drive durable and efficient growth at scale. We now have 2,133 $100,000 plus ARR customers, representing 41% year-over-year growth, including a quarterly increase of 169, which is our second highest quarter ever. And within that, we also added a quarterly record 14 $1 million plus ARR customers in the quarter. In addition to adding more large customers, we also grew our average ARR per large customer to $318,000 up from $306,000 one year ago. The combination of more large customers added and a higher average ARR per large customer increased our ARR mix for $100,000 plus ARR customers to 54% in Q2, up from 50% one year ago and 46% two years ago. Second, our customers increasingly utilize Samsara as a system of record for physical operations by subscribing to multiple applications, all on one unified platform. 94% of our $100,000 plus ARR customers subscribed to multiple products and 59% subscribed to three or more. We're also seeing multiproduct adoption at scale. Our two vehicle-based applications, Video-Based Safety and Vehicle Telematics, each represent more than $500 million of ARR, while Equipment Monitoring and other emerging products combined for more than $150 million of ARR. In addition to large scale, each of these three product categories continued to grow more than 30% year-over-year. We also saw a number of large multiproduct transactions in Q2. Nine of the top 10 new logos in Q2 included two or more products and six included three or more. Notably, one of our largest Q2 new logos, Cassens Transport Company, one of the largest auto haulers in the US landed with four different products. In addition to licensing our two vehicle-based applications, Cassens also purchased Equipment Monitoring and one of our newer software-only SKUs Connected Training in their initial transaction. Additionally, all of our top 10 expansions included two-or-more products and five included three or more. This expansion strength allowed us to achieve our target dollar-based net retention rate of 115% and 120% for core and large customers, respectively. And third, we demonstrated strong execution across several frontier markets. 16% of net new ACV came from international geographies in Q2, driven by strength in Europe, which had its fourth consecutive quarter of accelerating year-over-year ARR growth at a larger scale. Construction drove the highest net new ACV mix of all industries for the fourth consecutive quarter and field services had the second highest mix for the second consecutive quarter. In total, 87% of Q2 net new ACV came from nontransportation verticals, an increase from 83% in Q2 last year. And lastly, we also saw strength in emerging products. We achieved roughly $1 million of Asset Tags net new ACV in our first quarter of selling including a more than $300,000 expansion with a top 100 customer in the construction industry. We also added roughly $1 million of Connected Workflows net new ACV in Q2, including four separate $100,000 plus ARR transactions. And we signed an approximately $250,000 Connected Training expansion in our first quarter of selling the product with a top 30 customer in the logistics industry. In addition to driving strong top line growth, we continue to deliver operating leverage across our business as we scale. Non-GAAP gross margin was 77% in Q2, which was tied for a quarterly record, non-GAAP operating margin was a quarterly record 6% or nine percentage points higher year-over-year, and adjusted free cash flow margin was 4% in what is our seasonally weakest free cash flow quarter. Okay. Now turning to guidance. We're raising our guidance across all key metrics because of our Q2 performance and outlook for the rest of FY'25. For Q3, we expect total revenue to be between $309 million and $311 million, representing year-over-year growth between 30% and 31%. Non-GAAP operating margin to be approximately 4% and non-GAAP EPS to be between $0.03 and $0.04. For full year FY'25, we expect revenue to be between $1.224 billion and $1.228 billion, representing year-over-year adjusted revenue growth between 33% and 34%, non-GAAP operating margin to be approximately 5% and non-GAAP EPS to be between $0.16 and $0.18. And finally, please see additional modeling notes in our shareholder letter. So to wrap up, we are pleased with our first half performance and our improved outlook for FY'25. In Q2, we sustained our revenue growth rate at a larger scale while also delivering more operating leverage. And looking forward, we believe we're well positioned to continue delivering durable and efficient growth because we're digitizing the world of physical operations, which is a very large and underserved market opportunity and that's driving strong customer demand. Our products offer real ROI and a fast payback period to our customers and we're targeting a very different operations budget. We're proud to partner with our customers and are excited to continue helping them operate more safely, efficiently and sustainably. And with that, I'll hand it over to Mike to moderate Q&A. A - Mike Chang: Thanks, Dominic. We will now open the line for questions. When it's your turn, please limit your questions to one main question and one follow-up question. The first question today comes from Kash Rangan with Goldman Sachs (NYSE:GS), followed by Alek Zukin with Wolfe Research. Kash Rangan: Thank you guys. What a phenomenal quarter. It looks like the tone of new business seems to have picked up, if I can tell from the net new ACV growth rate you've experienced in the quarter and also the $1 million ACV contracts you landed at the quarter. Can you talk about any potential changes to the buying environment you've noticed in the past month or so? And also Sanjit, curious to get your take on the impact of the tremendous new product innovation that you've layed forth here. How could that translate into better pricing power for the company and also better retention rates as your products like the Workflow, which we had a lot of fun talking about at our conferences. Those things start to take hold, how do you envision the stickiness, renewal and pricing for the company? Thank you so much. Sanjit Biswas: Sure. Kash, this is Sanjit. So first of all, I think the adoption of the platform has been really strong. This really is a continued pattern we've seen for a couple of quarters now. So I wouldn't say that this was especially different in terms of buying environment other than customers are really seeing clear and fast ROI with the platform and they want to do more. So not just safety and telematics, but monitor equipment, track those assets like you said, connect their workflows into the system. So the impact of new products, I think it strengthens our platform story for our customer. They're already in the system. They have lots of frontline and back office employees using Samsara and ultimately that helps us deliver more value for them. In terms of pricing power, I think, really it's about delivering great value for our customers. We're seeing strong renewal rates, and that's what I focus on is making sure our customers are happy that they're getting tons of value from the product. And if we do that, they're going to keep coming back. Alex Zukin: Perfect. Thanks for taking the question and congrats on another great quarter. I guess maybe just two for me. The first one, if you think about the Asset Tag product, the industrial Asset Tag, it's pretty remarkable to hear about a multi-hundred thousand dollar deal in like basically the first weeks of availability. So just if you can give us your sense, Sanjit, like the trajectory of how to ballpark the TAM for this product relative to telematics, video-based safety and others. Where does this kind of fit in that gain and how fast relative to those other products can this ramp over the course of the coming years and then I've got a quick follow-up. Sanjit Biswas: Sure. So Alex it's hard to do a compare versus safety and telematics because when we released those products, we were a much smaller company. We weren't as well known in the market. And so we're very pleased with how Asset Tags has kind of jumped off the line. There was a lot of excitement at the customer conference when we released it. And I think it's because it got our customers thinking about all the other assets they have in their operations, They go well beyond vehicles and even trailers like all the smaller assets, fiber splicers, tools, things that get left beyond the job sites. So overall it feels very strong. There's a lot of strong customer pull and interest in it. But again it's hard to kind of compare it to products that we launched many years ago as a smaller company. Alex Zukin: Okay. Understood. And then maybe Dom might not like this question, but the Federal Motor Carrier Safety Administration seems to be planning to revisit the ELD mandate in June of '25. Is there any tailwind that you can kind of see or have visibility on? Because it seems like that would expand your telematics ARR like if it ends up being applicable to fleets that have free 2,000 engines, how applicable would like how much more coverage do you feel like that could unlock within your existing large customers? Dominic Phillips: Yes, I think the way that we're going to continue to drive growth out of the business is really being more on offense, meaning customers are buying Samsara and really using us as a system of record across multiple products because they're getting ROI. They're finding ways to operate more safely and more efficiently and reduce their costs, improve their asset utilization and worker productivity. There may be other regulatory compliance things that ultimately kind of pop up, but we're not necessarily tracking that or relying on that to kind of drive future growth. It's really more about kind of being on offense and providing ROI for customers. And we'll take those things as they kind of come up, but none of that's kind of on our radar right now. Mike Chang: The next question comes from Keith Weiss with Morgan Stanley followed by Kirk Materne with Evercore. Chris Quintero: Hey, guys. This is Chris Quintero on for Keith. Thanks for taking the questions here. I wanted to go back to an interesting slide you had at Analyst Day where more than half of the market does not use a telematics solution and even higher percentage not use a video safety solution. So curious to hear your thoughts on why these companies are not using a provider today? And are there any potential challenges around getting these customers to adopt the solution or is it really just a timing thing and eventually everyone will? Dominic Phillips: Yes. So the dynamics are obviously different in on the telematics side. Again, it's an industry, it's a product set that's been around for multiple decades. And as you said, more than half or roughly 50% of commercial vehicles in North America are not using solution today. And so most of our customers are multiproduct. And so it's often the case that they're subscribing to multiple products, which ultimately helps convince them to maybe adopt telematics technology when they weren't using it previously. On the other side, safety, it's really tied more to recent technology tailwinds. So going to 4G or HD videos has really kind of unlocked the ability to sell a solution and safety, and we're seeing that market rapidly start to adopt new technology. And so maybe at the time of the IPO, only 5% of commercial vehicles had a solution, now we're up to 10 and a lot of our safety ARR and growth is coming from new use cases for customers. Sanjit Biswas: And Chris, if I can just add one more point there. If you zoom way out, historically, telematics have been viewed as something that was prevalent in the transportation industry, so kind of long-haul trucking. As we described earlier in the prepared remarks, 87% of our business came from industries outside of that, field services, construction were very strong. And so what we're seeing is even for applications like telematics, new industries that had not previously adopted GPS tracking are adopting it. And then to Dominic's point around video based safety. That's enabled by new technologies, the connection, the quality of the cameras, but also AI being able to go sift through all the safety events and deliver value for the customer. Chris Quintero: Got it. That's super helpful. And then my second question is for both of you. Clearly, things are firing on all cylinders at Samsara and the results clearly back that up. But just at a high level, we all can always improve. So I'm curious from both your perspectives, what are some areas at Samsara that you're looking to improve on or get better at today? Dominic Phillips: There's a lot that obviously that we can improve on. I think it's just about execution. Can we make sure that we're hiring the right people and retaining the right people and creating the right kind of company culture and ultimately improving sales capacity and productivity. Can we make sure that we're making the right capital allocation decisions around R&D and building the right products, not only focused on kind of near-term growth, but as we've demonstrated over recent product announcements, making sure that we're planting seeds for medium and longer-term growth to drive that durability. Make sure that we're constantly taking customer feedback and making improvements. And so there's just a lot of execution that's required, obviously, as we continue to scale, and we're very focused on that. Sanjit Biswas: Yes, I think I would echo Dominic's points around you know there's a lot that we can do. And one of our operating principles that our company is to build for the long-term, I feel like we can always do a better job spending time with customers in the field, hearing what else they want us to build and put on the platform. So if I had more hours in the day, that's what I would go do is go spend even more time with the customers. Mike Chang: All right. So the next question comes from Kirk Materne with Evercore followed by Matt Hedberg with RBC. Kirk Materne: Great. Thanks guys and I'll echo the congrats on a great quarter. Sanjit, I was wondering, I realized Asset Tags are incredibly early on for you all. But one of the things that's kind of interesting about is that these tags can be used for incredibly high value assets as well as maybe lower value assets. I'm just kind of curious if customers are leaning one way or the other. I think you guys gave the example of everything from a toolbox to a train car full of potash. So I was just kind of curious, are they going after the high asset value and assets at all? And does that inform your thought process on pricing longer term? Again I realize it's like the first quarter end, but I'm just kind of curious what you're seeing out there. Sanjit Biswas: Sure. As you said, it's very early, but it's exciting to see all the different use cases. And I think we mentioned earlier, we're seeing basically a new use case every week. It's hard to see a specific pattern related to asset value. A lot of what we are hearing about are assets that are left behind that were historically untracked. And these are ones that often don't have power, so they're not connected to a vehicle or they don't have fuel source or battery in them. So that's a lot of it, and that encompasses tools, but there's all kinds of accessories in the world of physical operations. If you think about an excavator, for example, the little bucket at the end gets left behind at a job site. Those can cost thousands of dollars. We've heard same thing about crane parts and so on. So I would say a lot of different kinds of assets is the pattern if there is one. But we should see a little more of kind of the high value versus low value over the next couple of quarters. Now stepping back, we have a portfolio strategy when it comes to equipment. We offer powered equipment trackers. We have unpowered, whole family, really. And so we kind of view it as a portfolio and we can kind of mix and match within a customer's deployment to meet their needs. Kirk Materne: Okay. That's super helpful. And then Dom just a really quick follow-up. Obviously, great to see the leverage flowing through the cash flow numbers and the operating margins. Given the strength in demand, how are you thinking about hiring heading into calendar '25 or I realize it's early, but I assume you're starting to think about that now. I was just kind of trying to think about how that might impact sort of your thought process over the next couple of quarters. Dominic Phillips: It's still really too early to kind of get into calendar '25. I think we're just kind of kicking off our annual operating plan kind of review process. And so we'll have more details on that in a couple of quarters. But the hiring has continued to be robust. We obviously had a kind of an accelerated hiring year last year. We've continued to hire aggressively this year and we're kind of on track with our plans and we'll work through our annual operating plan review process and figure out what we're going to do for next year. Mike Chang: The next question comes from Matt Hedberg with RBC followed by Jim Fish with Piper Sandler. Matthew Hedberg: Great. Thanks, guys, for the questions. Congrats again. I really do appreciate the sizing the asset size just in the first quarter that was helpful. I'm curious, and I know, again, it's early, but looking at that customer where you saw a $300,000 uplift, do you get a sense like that's like an initial purchase? Did they think about scoping that like that's going to keep -- get them going for the next year. I was just sort of curious on because that's a big number. Any perspective on where that order would be in their Asset Tag journey? Dominic Phillips: I think for that customer and for other customers that are at least in the pipeline, there's really more of a kind of a phased rollout approach of we're going to go after one use case upfront, and then we're going to find other things that we ultimately want to want to track and bring into the Samsara cloud. And so I think this kind of quarter will be indicative of future quarters where it's more of a land and expand over time. Sanjit Biswas: And if I can add to that a little bit. Some of our customers, they once they try the Asset Tag, they're discovering new use cases within their operations. One of the examples we shared in the remarks, I met the customer, and they ordered a few thousand tags. One of the departments had a project in mind and another department swooped in and said, wow, this is super useful. We'd like half of those. And so they had to come back and order some more. And it's exciting because that means we're providing value for these customers. Matthew Hedberg: That's great. Great color. Congrats on that launch. And then maybe reflecting back on your user event, which I thought was a well-done event. There's a lot of buzz about generative AI and I think trying to find that killer use case that your customer base is looking for. Can you give any perspective on sort of like where we're at in that journey? I mean, is that something that we're thinking about in the next year or so? Because I have to mention there's a lot of opportunities to leverage that sort of technology within your connected platform. Sanjit Biswas: Yes, absolutely. Matt, if you recall in our Investor Day, we shared a demo of basically a chat environment that is powered by the unique data asset that we've been creating here at Samsara. So we talked about maintenance, for example, being able in plain English or Plain Spanish, whichever you prefer, be able to tell you which vehicles need maintenance next, what's wrong with them, all that kind of detail. So we're excited to experiment. I think this technology is absolutely transformational and can deliver a lot of value for the customers. It needs to be practical and useful in terms of how we deliver it. So over the next couple of months, we're rolling that out to customers and getting their feedback and enhancing it through our feedback loop. James Fish: Hey, guys. Thanks for the questions here. I guess underneath, it does look like the mid-market ARR accelerated. And so Dom, how much of that was driven by sort of SMB expansion versus net new? And just generally, overall how should we think about the percentage of ACV from new versus existing this quarter? Dominic Phillips: Yes. Like in our most recent quarters, it was pretty balanced. It tilted slightly towards expansion, so it was a very strong expansion quarter, we talked about getting to our net retention rate targets, but it was also a really strong new logo quarter. It was our second highest quarter ever in terms of new core customers added. We talked about 9 of the top 10 new logos were multiproduct transactions. And so similar to the kind of the most recent quarters, it continued to be very balanced. James Fish: And look, in your outlook in the back pages there, you talked about net new ARR and that you're embedding macro worsening in your ARR outlook. But are you actually seeing any impact to the business today, how are deal cycles relative to 90 days ago? Dominic Phillips: No. Customer demand continues to be robust. I think we're just making sure that we're setting up expectations in a way that we feel highly confident that we can hit. Obviously, there's talks about slowing macroeconomics and we're in an election year. And so there's just more inherent kind of uncertainty. But with that, we want to make sure that we're setting expectations that we feel good about hitting. And again, we're not seeing an impact in customer demand, but it's something that we're always watching out for. Mike Chang: The next question comes from Michael Turrin with Wells Fargo followed by Dylan Becker with William Blair. Michael Turrin: Hey, great. I appreciate you taking the question. It's something we've probably touched on before, but the diversity of logos you're landing certainly stands out. It's actually the State of Maine, US Supermarket, two Fortune 500s. So maybe you can just go back to the diversification the business holds and how Samsara's go-to-market and underlying platform are able to address all of those different types of customers as effectively as you are. Sanjit Biswas: So Michael, I think, one of the interesting things we've learned over the last few years is how much commonality there is across these different industries. So whether you're in construction or field services or the State of Maine, you're always trying to be more efficient. You're trying to understand how to be safer, how well your assets are utilized. So we focus on those common use cases and find that they really do apply across these different industries. We do break out our public sector team because the way the deal cycles work is a little bit different and contracting with government agencies is a bit different. But we have otherwise a pretty much a generalist sales team who are able to sell across these industries. Michael Turrin: Great. And Dom, in the materials, there's some commentary around the operating margin improvement flowing through to free cash flow. Maybe you can just help level set all of us as we're working through models, just in thinking through the delta between those two, how we should expect that to progress going forward. Dominic Phillips: Yes. And so -- we did talk about, yes, 200 basis points of operating leverage improvement for the year. And then that 200 basis points would flow through to free cash flow. There is more seasonality in free cash flow, where Q1 and Q3 tend to be a little bit higher than Q2. Q1 gets the benefit, obviously, of the collections coming in from Q4, which is our seasonally strongest net new ACV quarter. And then Q4 tends to be our largest free cash flow quarter because Q4 is our largest, seasonally largest net new ACV quarter and so a lot of benefits from that quarter, then obviously, all of the kind of the second and third year kind of billings from the contracts that were booked in previous years. So there's a little bit more kind of lumpiness within free cash flow. But for the rest of the year, we do expect another kind of 200 basis points to flow through to both operating margin and the free cash flow margins versus what we guided to in consensus. Mike Chang: All right. The next question comes from Dylan Becker with William Blair followed by Matt Bullock with BofA. Okay. Let's go with -- looks like Dylan's not there. Let's go with Matt Bullock with BofA followed by Alexei Gogolev with JPMorgan (NYSE:JPM). Matthew Bullock: Excellent. Hi. Thanks for taking my question. A few if I could on the new product launches. So great to see the early traction with the Asset Tag. Understanding it's early days. Can you talk about how we should think about the pricing and packaging strategy there now that there's been a little bit of time to collect feedback from the broader customer base. Sanjit Biswas: I'll start with that one. I think the initial pricing that we set on the Asset Tag seems to be working well. Feedback has been strong. And like we talked about earlier, there have been pretty significant orders on it. We do think of the Asset Tag again as part of a portfolio within our connected equipment line. So there's lots of different tracking products we offer for nonvehicle assets. And I think it fits in well especially because it gives you the ability to track some of the less expensive smaller assets that are out there in operations. Matthew Bullock: Super helpful. Thanks. And then just one quick follow-up on the continued strength in Europe. I think you said it was the fourth consecutive quarter of accelerating ARR growth. What would you attribute that to? Is that just building up a larger base of reference customers, better sales infrastructure or just improvements to the product market fit? Dominic Phillips: I think it's really all of the above. Obviously, Europe is a really big market opportunity for us. I mean just on the commercial vehicle side, there's more commercial vehicles and physical operations assets in Europe than in North America. And so scenario that we've been focused on a lot of sales capacity building pipeline, making sure that we have the right products for those given regions and just kind of consistent investment has really paid off in particular over the last four quarters. Mike Chang: It looks like we have Dylan back,. So let's go Dylan Becker with William Blair followed by Alexei with JPMorgan. Dylan Becker: Great. Thanks, guys. Sorry about that. Maybe starting with Sanjit or Dom here, given that the ROI is so high, and obviously, you're seeing healthy demand in the ecosystem. I guess, what's keeping customers from adopting even faster and realizing some of the value that you guys deliver? I know that there's phased rollouts maybe, but is there a way to think about how we should think about that evolution of cross-sell and upsell kind of playing out within the existing base? Dominic Phillips: A lot of these physical operations customers are really in the early innings of digital transformation. And so adopting technology, there's change management required internally, but really ensuring that they get ROI and therefore they do it more in a kind of a phased rollout way. And we're fine working with customers whether they want to kind of take all the licenses upfront or they want to do a phase rollout for us, we just want to make sure that they're getting value and they're getting real ROI and it really kind of depends on a customer-by-customer basis based on kind of where they are in their journey and in terms of adopting technology. Dylan Becker: Okay. That makes sense. And then sticking to, I think, kind of some of the highlights as well to on the large customer side, step up in both new logo adds and revenue per customer. Dom, I guess, for you, how does this help fuel confidence in that outlook given this is becoming an incrementally kind of more strategic and larger segment that's growing faster than the aggregate mix here? Dominic Phillips: Yes, it's been incredibly consistent. I mean like over the last several quarters kind of one percentage point of mix continues to move towards the large customers, we're now at 54%. I said 50% a year ago and 46% a year before that. And so this is an area where we continue to make more and more investments. We're really purpose-built for these large enterprises with complex physical operations. They have the ability to take on more products. We can just have more impact and drive more ROI for those customers. And so that will continue to be an important part of our growth strategy. Mike Chang: The next question comes from Alexei with JPMorgan, followed by Derrick with TD Cowen. Ella Smith: Good evening. This is Ella Smith calling on behalf of Alexei Gogolev. Thank you for taking our questions. So first I was hoping that you could share whether there are any products to call out that customers cross attach, either particularly fast, but then also particularly slowly. Dominic Phillips: I think there's a consistent pattern. Most of our customers are adopting multiple products. Obviously, our two largest video-based safety and vehicle telematics tend to be the most common, but equipment monitoring and some of the emerging products combine for more than $150 million of ARR. So again, it really depends on individual customers on what the use cases are and we see different combinations of products across all of our customers. Ella Smith: Very helpful. Thank you. And for my second question, are you interested in investing in additional product development or are you satisfied with your product portfolio at this juncture? Sanjit Biswas: Well, I think I can say as a technology-oriented founder, we're here to build products that go solve problems for our customers. So we are absolutely investing in R&D. And it's an area that we get a lot of great ideas from our customers on. So we're going to keep improving the products we have and investing in some new ones. Mike Chang: The next question comes from Derrick with TD Cowen followed by Junaid with Truist. Derrick Wood: Great. Thanks and congrats another strong quarter. Sanjit, could you dive a little bit into the technology behind the new Asset Tags? I know this uses Bluetooth instead of your typical vehicle gateway systems. What are the differences between using Bluetooth versus gateways? Obviously, this helps target a lot more assets to light up and track. But what capabilities do you give up that you have to rely on other networks? And what are the implications for your COGS requirement? Sanjit Biswas: Yes. So in terms of how these Asset Tags connect, they are absolutely powered by Bluetooth, but we have an industrial-grade Bluetooth implementation. So a bit of a broader range. It's designed with security in mind as well. But again Bluetooth doesn't connect to the cellular network. Instead, these devices connect to the Samsara gateways that are out there. We have millions of gateways out there. There's a high enough density now that we can achieve near real-time tracking with them. And that's really a byproduct of the scale that we've achieved as a company. We basically created this big network across where operations happens. So very excited to be able to do that. The implications of that are that the Bluetooth radios do cost less than the cellular modems. They're also more power efficient because they don't broadcast all the way to a cell tower. So the battery life is enhanced. So in a very small form factor the tag is kind of the size of a fun sized candy bar. We're able to achieve multiyear about four-year battery life for our customers while doing that real-time tracking. So again not something we could have done with cellular and not something that we could have done until we achieve the scale and density of the Samsara network that we have with the millions of gateways out there. Derrick Wood: Got it. That's helpful color. Dom, I know we only get total customer count once a year, but can you speak to the just the velocity of how total customer count is trending versus historic levels and how you're feeling about making sure you've got kind of a funnel to keep graduating a healthy level of customers into that $100,000 number and drive good growth in that $100,000 number. Dominic Phillips: Yes. As I said in the earlier answer, it was our second highest quarter ever in terms of new core customer logos added. So really strong. And again, it drove roughly close to 50% of the overall kind of net new ACV. So it was a little bit slightly of a larger expansion quarter. And so kind of similar to these previous quarters. Landing new logos is really important for us because, obviously, that leads to future expansion opportunities. And it was very kind of consistent mix from previous quarters. Mike Chang: Thanks, Derrick. Our last question today comes from Junaid with Truist. Junaid Siddiqui: Great. Thank you for taking my question. Just on that large customer count, as you continue to shift your focus on serving these larger enterprises, which has been growing pretty impressively, what are some of the additional levers that you can use apart from maybe hiring more quota-carrying reps to further drive that large customer penetration? Dominic Phillips: I think a big part of it is this capital allocation and R&D investment, the more products that we can create and obviously we're reaching a pretty good velocity on a kind of an annual basis. It just opens up more opportunities for us to have conversations with customers and ultimately solve more of their problems and create more ROI and have it more impact for them. And if we can continue to do that, that will allow us to continue to grow the large customer cohort fast. Mike Chang: Okay. This concludes the question-and-answer portion. Thank you for attending our Q2 fiscal year 2025 earnings call. Before I let you go, I have a few short announcements. We'll be attending the Goldman Sachs Communacopia Conference in San Francisco on September 9th. The Wolfe Technology Conference in San Francisco on September 10th. The Piper Sandler Growth Frontiers Conference in Nashville on September 11th and the JPMorgan Software Forum in Napa on October 8th. We hope to see you at one of these events. That's it for today's meeting. If you have any follow-up questions, you can e-mail us at [email protected]. Thanks again. Bye, everyone.

Smartsheet Inc. (SMAR) Q2 2025 Earnings Call Transcript

Aaron Turner - Head, Investor Relations Mark Mader - Chief Executive Officer Pete Godbole - Chief Financial Officer Good afternoon, and welcome to the Smartsheet Inc. Second Quarter Fiscal 2025 Earnings Conference Call. Please note that this call is being recorded. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Mr. Aaron Turner, Head of Investor Relations. You may begin your conference. Aaron Turner Great, thank you. Good afternoon, and welcome everyone to Smartsheet's second quarter of fiscal year 2025 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are Smartsheet's CEO, Mark Mader and our CFO, Pete Godbole. Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.smartsheet.com. There's a slide presentation that accompanies Pete's prepared remarks, which can be viewed in the Events section of our Investor Relations website. During this call, we will make forward-looking statements within the meaning of the federal securities laws. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends. These forward-looking statements are subject to a number of risks and other factors, including, but not limited to, those described in our SEC filings available on our Investor Relations website and on the SEC website at www.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially and or adversely. All forward-looking statements made during this call are based on information available to us as of today. And we do not assume any obligation to update these statements as a result of new information or future events except as required by law. In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. A reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can be found on our Investor Relations website. Thank you, Aaron, and good afternoon, everyone. Welcome to our second quarter earnings call for fiscal year 2025. Q2 was a strong quarter that further demonstrated our momentum in the enterprise. 75 customers expanded their Smartsheet ARR by more than $100,000 and we had three transactions over $1 million one of which was over $4 million. We now have 77 customers with ARR over $1 million up 50% from Q2 last year. And of those 77 customers, 5 of them are government agencies. We ended the quarter with annualized recurring revenue of $1.093 billion and more than 15.3 million Smartsheet users. In Q2, we expanded with customers, including Intuit, Skechers and City National Bank, among others. In June, we launched our new pricing and packaging model. To date, we've seen thousands of new customers transact on the model, which is leading to high engagement and the addition of many provisional members across these plans. While only a small number of our customers have reached their first true-up period, we are encouraged by the positive early results. Building on the success with global system integrators mentioned on our last call, in Q2, we signed a large expansion with another Big 4 consulting firm, where Smartsheet is being used to streamline client engagement. Smartsheet enabled them to automate their processes through a standardized project delivery framework, which improved the quality of their work and led to significant savings. This customer was an early adopter of our new pricing model, and they estimate that deploying Smartsheet at scale saved the team 39,000 working hours in the last year, reducing their project delivery costs by nearly 12%. Demand for Smartsheet is growing across their organization with users at the company increasing by 120% year-over-year. They are now expanding their Smartsheet project delivery solution to support customers in the EU and U.S. Federal Government. They are also building new solutions to streamline other aspects of their client engagement life cycle. We also had a seven figure expansion with one of our largest enterprise customers during their annual renewal. With a total Smartsheet user population of over 150,000 users, our success in this account has been driven in part by our differentiated feature set and our enterprise grade security and administration. Smartsheet has corporate level IT and security approval, enabling any team across the company to adopt Smartsheet. As a result of increased self-discovery, we have seen a boost in demand of our premium capabilities and growth in this account. This has resulted in data shuttle workflows increasing nearly 200% and Dynamic View configurations growing by 450% over the past year. Also in Q2, we competitive deal with a prominent financial services company following an RFP process that included other CWM vendors. This new customer onboards thousands of clients a year, and they're executing increasingly complex projects. In order to scale with their customers, they needed to replace their in house solution with a more robust work management platform, and they chose Smartsheet because of our enterprise readiness and scale. We're partnering with them to develop an integrated project delivery solution that will streamline their processes, improve collaboration with clients and establish unified reporting. They expect this solution to increase customer satisfaction, while saving their employees thousands of hours per year, unlocking the capacity to work on additional projects and ultimately, grow revenue. As we move into the second half of FY '25, we are making good progress on the comprehensive modernization of the Smartsheet platform, a strategic investment that is ongoing. In just a few weeks, we'll be hosting our annual customer conference, ENGAGE Seattle. During this year's conference, we'll be showcasing the new Smartsheet, a new experience that is more beautiful, powerful and more integrated than ever before. It will empower our customers to manage their projects, programs and processes at even larger scale and sophistication. The new Smartsheet experience simplifies and streamlines getting started for users. It will be easier to create solutions and quickly initiate projects and processes with all the necessary tools for configuration and management, all accessible right from a highly visual AI driven home experience. We are also introducing significant enhancements in how users create, organize and share, whether they're building assets for marketing campaign or managing documentation for a service delivery program. One of the key improvements simplifies collaboration with stakeholders, making it easier to collect feedback and drive reviews on digital files, such as images, videos and PDFs. Over the past few months, I've personally seen the benefits of more accurate, actionable feedback and the substantial time savings for our teams. I believe our customers are going to love this new collaboration experience. The new and improved Smartsheet features, along with our new user subscription model and self-service access to premium capabilities, enables more customers to solve their most common as well as their more complex work management needs. Generative AI is proving to be a helpful differentiator for Smartsheet. Our AI-powered tools like formula generation and tech summaries are designed to simplify complex tasks, saving time and reducing errors. We're committed to expanding these capabilities to help our customers work more efficiently. In Q2, we saw nearly 50% sequential growth in the number of users utilizing our AI tools. Adoption is already showing significant benefits to our customers with approximately 47,000 users having already saved an estimated 1 million hours from AI automations and performance improvements. We also saw positive early results suggesting that AI generated formulas and conversational support are effectively acting as our first point of contact for customer support, reducing friction with the platform and lowering our customer support costs. We expect to see the customer impact of AI tools grow meaningfully as we expand them to support cross sheet formulas, provide portfolio insights and co-build solutions with users. Starting mid-September, in a push to enable customers to feel the impact of AI and to experience one benefit of our enterprise plan, Smartsheet will grant limited time access to our AI tools to all users through December 31, 2024. In closing, nearly two quarters since the hiring of Max Long and the appointment of Praerit Garg to their respective roles, investments in our go to market and deployment of our next-gen product experiences are well underway. Through a combination of a use case oriented value framework, a simplified licensing model, new user experiences and class leading scale, FY '25 will be a transformative year for our customers, our company and the Smartsheet platform. We are laying the foundation for the years ahead. As Mark mentioned, we've continued to see considerable strength in our enterprise segment highlighted by large deals, our largest quarterly expansion in our company's history and an enterprise NDRR that remains at 120%. Additionally, in Q2, we launched our share buyback program and repurchased 918,000 shares for a total of $40 million in the quarter. We have $110 million remaining on our existing share buyback authorization as of July 31. I will now go through our financial results for the second quarter. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call. Turning now to our quarterly results. Second quarter revenue came in at $276.4 million up 17% year-over-year. Subscription revenue was $263.5 million representing year-over-year growth of 19%. Services revenue was $12.9 million. Revenue from capabilities made up 35% of subscription revenue. Annualized recurring revenue or ARR grew 17% year-over-year in the second quarter to $1.093 billion. Moving on to our reported metrics. The number of customers with ARR over $50,000, grew 17% year-over-year to 4,140 and the number of customers with ARR over $100,000, grew 23% year-over-year to 2,056. These customer segments now represent 69% and 55% respectively of total ARR. The percentage of our ARR coming from customers with ARR over $5,000 is at 92%. Next, our domain average ARR grew 16% year-over-year to $10,291. We ended the quarter with a dollar-based net retention rate inclusive of all our customers of 113%. The full churn rate increased slightly due to elevated churn rates in our smaller customer segments and is now around 4.5%. Now turning back to the financials. Our total gross margin was 84%. Our Q2 subscription gross margin was 87%. Overall, operating income in the quarter was $45.3 million or 16% of revenue. Free cash flow in the quarter was $57.2 million. On guidance, we are maintaining our previous FY 2025 revenue guidance of 16% to 17%. While we beat our Q2 revenue guidance, we have lowered our assumption for services revenue for the full year, due to a higher percentage of services delivered by partners. We now expect services revenue to be 4.5% of total revenue, down from 5% for FY '25. Absent the shift, our full year revenue guidance would have increased. Our Q3 revenue guidance also takes into account this change. For the third quarter of FY '25, we expect revenue to be in the range of $282 million to $285 million and non-GAAP operating income to be in the range of $42 million to $44 million. We expect non-GAAP net income per share to be $0.29 to $0.31, based on diluted weighted average shares outstanding of $142.5 million. For the full fiscal year '25, we expect revenue of $1.116 billion to $1.121 billion, representing growth of 16% to 17%. We expect services revenue to be around 4.5% of total revenue. We are raising our non-GAAP operating income to be in the range of $177 million to $182 million representing an operating margin of 16% and raising our non-GAAP net income per share to be $1.36 to $1.39 for the year, based on 141.9 million diluted weighted average shares outstanding. We are updating our FY '25 ARR guidance to be between $1.177 billion to $1.180 billion representing growth between 14.2% to 14.5%. Regarding seasonality, we expect our Q3 ARR growth rate to be between our Q2 ARR growth rate and our full year ARR growth rate guidance. We are raising our FY '25 free cash flow to be $240 million representing a free cash flow margin of 21%. To conclude, Q2 was highlighted by a continuation of our strong performance in the enterprise and progress on our key initiatives. We launched our new pricing and packaging model to new customers in June and are on track to migrate our existing customers over to the new model starting in January. We are looking forward to unveiling a comprehensive transformation of our platform at our upcoming ENGAGE conference in October. We remain well positioned to drive durable and profitable growth this year and beyond. Now, let me turn the call over to the operator. Operator? [Operator Instructions] Our first question comes from Terry Tillman with Truist Securities. Terry Tillman Yeah. Hey, Mark, Pete and Aaron. It's good to see the ongoing progress on the enterprise side of the business. My first question just relates to I know that it's FY '26 when this is going to be instituted in terms of the new pricing and packaging for existing customers, but you've got a lot of new innovation, you've got a lot that you're going to announce at ENGAGE, new experience, etcetera. Have you thought about potentially some of these existing enterprise customers going ahead and starting to leverage the new pricing ahead of time just given you have a lot of reasons to be talking to them about capabilities and could that drive upside to ARR? And then the second question and less long winded than the first one is, with this kind of new provisioning model for the administrators, do you potentially see some sales leverage as they can really kind of turn this on themselves? Thank you. Pete Godbole So, Terry, in terms of your first question. We do see expect some interest from our existing customers and that could translate into potential dollars for us this fiscal year. And as we've rolled it out to a larger majority of our customers, we expect that percent that number could increase in terms of customers expressing an interest in moving early and that contributing to increased bookings to that extent. So that's the first part of it. The second part of your question was around self-directed capabilities and improving the motion and efficiency of the sales model. Clearly, as people discover those capabilities, there will be efficiency in the model because there isn't as much selling to be done. And that will be a part of our process as we think about FY'26 going forward. Our next question comes from Josh Baer with Morgan Stanley. Josh Baer Thanks. Wanted to stick on this topic of the new pricing model. Just hoping you could provide a little bit more context on the initial customer behavior around the new model. Any rule of thumb for how much of what you typically expect would just be the free users, are now monetized? Any update on the assumptions around the benefit from pricing changes both this year or longer term from some of these initial usage here? And just wondering how the price per paid seat is evolving under this new model? Mark Mader Yes, Josh. Last week was our first week where we saw those first of the thousands of customers, who are on the new model hit their true-up period. We were all waiting with bated breath to see what would happen. We're really pleased to see confirming data come out of that. So high level, more users, more value being realized by a greater number of people, these clients and more ARR. That approach of lower P/E with a conforming Q or a higher Q that is playing out to our expectations. And again, we have a whopping one week of data. So one week of data does not a durable trend make, but really pleased to see that first card out of the shoe look good. Our next question comes from Jackson Ader with KeyBanc Capital Markets. Jackson Ader Great. Thanks for taking our questions, guys. So some reports out about the company possibly being in play for an acquisition. I'm just curious, if we can get your thoughts on those reports first. Mark Mader Yes. We're not going to comment on that today, but happy to take any other questions on the quarter or outlook. Jackson Ader Yes, that's fair. Have to ask. Okay. I guess, follow-up question is that, the share repurchase program, does the company still in the market acquire repurchasing shares in the, I guess this is now the third fiscal quarter? Pete Godbole We have the share repurchase program continues and it continues all the way through the year. That's where the program has been set up for us to repurchase. Jackson Ader And then I'm sorry if I can just squeeze one more in. On the AI capabilities, like giving people access, for the next couple of months, will there be will there be any gross margin impact to that where you're providing these capabilities? I assume that's going to draw on some compute resources, but not really recognizing any uplift in revenue? Mark Mader No. We don't really expect that to be a major topic. Huge kudos to our product and engineering teams. They actually have moved a lot of that workload over to a new model, which is significantly more efficient. We feel very confident in our ability to serve a much larger population with really de minimis impact on the cost change side. Our next question comes from Alex Zukin with Wolfe Research. Alex Zukin Hi, guys. Thanks for taking the question and congrats on a solid quarter here. Maybe just the two for me. I wanted to ask about just bookings linearity trends in the quarter, how it progressed, how it kind of ended up and how that compares to the prior quarter? And then just any thoughts about NRR trends through the second half and any comments about. You made a couple of competition comments, winning some bake-offs against other work management vendors. Curious if you can dive a little deeper there as well. Pete Godbole Yes. Your first question was on implied bookings, Alex. The implied bookings and sort of how they came out for the quarter, very similar between quarters. There was not a big difference in how this quarter looked versus the previous quarter. That was your first question. Your second question. Can you repeat what your second question was? Alex Zukin Just retention NRR trends for the second half. Do you expect it to be stable or further decline expanding? Pete Godbole So what we've said before has been that we expect NRR to track down consistent with our overall, ARR guidance. So that will follow in suit if you will. There's no change in how we think about that in that respect. Alex Zukin Okay. And then just a competition. Yeah, just a competition question. Double clicking on that a little bit. What you saw in the quarter both in the higher end of the market and in the lower end? Mark Mader Yeah. We really haven't seen any meaningful change, Alex. I mean, we continue to crank along in terms of new opportunities that we're winning. We had our largest ever expansion at one of our $1 million plus accounts. So that continues to go. I think what I'm really looking forward to as we hit the second half is as our experiences change improve and with compared with our new pricing model, I think that's going to resonate quite well with the people who are starting out. So I should see -- I should expect a little bit better conversion at that entry point. But again, at the high end of the enterprise, we continue to -- the team continues to perform really nicely. Our next question comes from John DiFucci with Guggenheim Securities. John DiFucci Thank you. I have a question also on the new pricing. And the P-times-Q math works really nicely. But Mark, I think like we do expect the number of paid users to increase, which is logical. And I think you said they could double. Well, first of all is that true? And then Mark or Pete or both of you, I get that you're moving to industry standards for pricing. But if this math all works out like at least the simple math in my head, customers would be paying more. And I'm not sure why they'd be eager to switch and frankly, not maybe even resist it and perhaps even threaten to leave. So it's just sort of a logical question. And I just wonder how I should be thinking -- we should be thinking about this? Mark Mader Yeah. I still feel very confident, John, in our ability to double our paid user base. I think when prices change and when models change, I think customers' expectation that value has to change too. So if you can clearly demonstrate more value, people are actually open to listening. People do not like it when prices change and value doesn't change. And that's part of what as we're working with our clients now and we're enrolling them on who gets to participate, they absolutely have a choice. The good news is we're moving to a model which is conforming to how other software is charged for. So there really aren't a lot of call them sanctuary cities that you can go to where you can get the free opportunity. So we're confident that the value we're layering into the platform does resonate with people. The early metrics in these thousands of customers who have signed on, I think, was indicative of how the existing base will respond to. And we've had not only example with the people starting out, as we mentioned in our remarks, the largest one of our largest global SIs is on the new model. They're spending very rapidly. They are doing so with this new backdrop and they are again seeing the value being they are experiencing that value being realized. So again, it's very early, but we are really pleased with the indications we are seeing so far. John DiFucci And that makes sense, Mark. But what exactly is that value? Are there new features and functionality? Are these things on the come, relative to the old pricing? Or I mean, it's not just the pricing model, right? Mark Mader Yeah. In the in the old world, John, all you could do as a free collaborator is like comment on something and edit on something. You couldn't use AI, you couldn't construct anything, you couldn't create a dashboard, you couldn't do any reporting. It feels like you're pretty handcuffed. So what we heard from a lot of our customers was they didn't like that friction of the haves and the have nots. So this is a huge unlock for these populations, in some cases 100,000 plus people, where they no longer need to navigate this uncomfortable difference. And, yes, again, fortunately, the early reaction to this has been net positive. John DiFucci Got it. Okay. So the actual level of usage has gone up in a more sophisticated way. Got it. Okay. Thank you. Our next question comes from Michael Berg with Wells Fargo Securities. Michael Berg Hi. Thanks for taking my question. I just had a quick one on the increase in churn. You mentioned some smaller customers, but want to get some clarity if there's any other dynamics to point to in other segments of the market, whether mid-market, enterprise or any verticals in particular? Pete Godbole We didn't see anything particular. It's exactly as we said in our smaller segments, we saw some slight tick up in churn. That's what we called out. Michael Berg Thank you. And then, one quick follow-up, anything new to point to in terms of paid users on the P-times-Q math with the new pricing model? Mark Mader No further details at this time. Again, we're a week through -- one week past our first group trueing up. Pleased to see it, but we're not reporting out on any dip between the old model and the new. Our next question comes from Pinjalim Bora with JPMorgan. Unidentified Analyst This is Jaden on for Pinjalim. Thanks for the question. Are you giving customers the ability to renew earlier than 2025 to lock in the prior pricing model one last time? One of your partners noted something similar and we were wondering if this is a broad-based thing or maybe limited to a small subset of customers? Thanks. Pete Godbole Jim, what we're finding in conversations with customers is, we're not giving them an option to renew under the old model, for long durations. The preference is to convert them to the new model early with an ability to sort of experience the value the new model provides. So that's been the trend. We're not on the early renewal of the old model approach. Our next question comes from Michael Funk with Bank of America. Michael Funk Yes. Thank you for the questions tonight. I think you mentioned it earlier, but can you reiterate what you're seeing like-for-like customer spend on the new model versus the previous model? Mark Mader We're not giving specifics to that. I will say that, as we look at the P and the Q, we are seeing higher ARR contributions from people who have reached that first step of that first phase of maturity, that first true up motion. So the thesis, which was bring down the P, have connect more people connect to value resulting in a net benefit, the early indications, one week in, are positive and confirmatory. Michael Funk Okay. Very helpful. And the free trial, if you will, of AI through the end of December, what is the plan after that? How do you plan to engage with customers to move them forward with the AI functionality, the monetization plan there? Mark Mader Yes. Our engineering team has done a great job of getting more of our capabilities into people's hands in a trial basis. So I do expect a future in which all of our capabilities, including AI would be discoverable and something that you could trial. We don't have that wired up yet for AI. So we decided to do a full activation for the entire population for these number of months. But I would expect that to be part of someone's trial experience in the future. Our next question comes from Steve Enders with Citi. George Kurosawa Hi, thanks for taking the questions. This is George on for Steve. First one on the revenue guidance. Pete, you gave some helpful color in the services shifting over to partners about 0.5 point of revenue change there, which, by my quick math is like a $5 million to $6 million headwind. So is it right to think about your revenue guide, excluding that, would have been up somewhere in that ballpark? Pete Godbole Our revenue guide would have been up by some part of it for what we've done. So I would describe it as it probably wouldn't have enough for the whole amount that have been up by some amount for what we booked to date and then the rest of it implies our confidence in the business that we've raised by. George Kurosawa Okay. That's helpful. And then you guys continue to find really great leverage in the middle and cash generation. Maybe just a little more color on kind of like where you're finding those efficiencies? Are there any OpEx areas you're pulling back from and how we should think about margin going forward? Pete Godbole Yeah. I think our plan has always been to continue to invest in high-growth areas, but compare that with an absolute focus on driving operational efficiency. And that starts with reducing spans and layers in the organization, scrutinizing head count additions, leveraging near shore locations, streamlining processes. All of those are part of it. And the place we found it has been in sort of many functions. We found it in not quota-carrying roles but in functions that support sales, the sales support functions, we found it in G&A, we found it in real estate. So we've hit all those areas and finding it. And the last part of your question is, I don't view this as a destination. I view this as a journey. So you should think of operational efficiencies continuing as we continue to strive to be more and more efficient. It could be in future years finding ways to do sales and marketing more efficiently by self-discovery and those sorts of elements, which are completely different than what we've done today. Our next question comes from Scott Berg with Needham & Company. Unidentified Analyst Hi, this is [Indiscernible] on for Scott Berg. Thanks for taking the question. Congrats on the quarter. I feel as though the outlook on the economy has dampened a bit over the past couple of months. Did you notice any sort of change in buying behaviors throughout the quarter where things pretty linear and stable throughout? Pete Godbole I think our buying behavior, as we went through the quarter, we saw essentially a good progression through the quarter. We saw momentum build up as we went through the first month to the second and the third. So we saw that build happen quite nicely for us. That was the only trend we saw in the behavior. Unidentified Analyst Got it. Appreciate the color. And then excited to get more updates on the new views and customer experiences at the conference. I believe board view was released in mid-July. So a bit early, but any sort of insight you've got from customers, any feedbacks or anecdotes would be helpful. Mark Mader Yeah. Customers are giving overwhelming feedback that they are excited to see the new experiences come in, and it's beyond the views. I think a few days ago, we just shipped our new home experience. It's much more visual, just easier. And what I love about customers and software is that with every release, there's a fresh batch of new feedback, right? So we made the home experience much more visual, moved away from more of a traditional list-oriented view. And people have ideas, and we welcome those ideas. And I think as a software company, you never want to shut the door on that. And much like we had with our old interfaces, the new ones are prompting just as much curiosity and feedback. I think people will be very pleased to see, what we show at ENGAGE next month, some really neat stuff coming out. Our next question comes from Brent Thill with Jefferies. Brent Thill Thanks. Mark, there's been a lot of questions about the health of the enterprise spend environment. I'm curious if you could give us your view. I know growth is slowly decelerating. It doesn't look like, there's a massive inflection, but what you're seeing between enterprise, SMB, anything notable that you could highlight from a 40,000 foot view? Mark Mader I think what's consistent, Brent, is people want to understand what they're getting for their investment. And the difference at the enterprise is the scale is simply much larger. When you're talking about a multimillion dollar investment, whether you're doing that at a megalith or you're working and serving an SMB customer, everyone wants to know what that return is. Starting years ago, we started talking about that expectation growing. One of the things that's, I think, really helping us perform well there is this use case oriented framework, where we have a number of really key plays that are really getting dialed in where we can articulate this value. I think the degree to which a company can present its software offerings in that light enables you to transact. I think if you struggle in that articulation, people are less willing to sort of invest on hope. So really pleased with how the team has progressed in that camp. But I think that pressure will continue to remain very high, Brent. Brent Thill And did you have any differences between SMB and enterprise? Was there a difference in growth or adoption, or what was the sense downstream versus upstream? Mark Mader Well, enterprise continues to be a huge strength of the business. And I think as we offer some of that down at the lower end of the market, I think there's probably more performance coming out of packaging and interfaces and experience. So when you do engage if a customer who's SMB does engage, I think you need to articulate value. But I think there's a higher number of deals that get done at the low end that are not grounded in that. And I think that's where the product and the packaging can be more of a lead suitor. Takeaway there is, almost every deal at the high end involves this. And as you go down, I would say, it's not 100%. [Operator Instructions] Our next question comes from Keith Bachman with BMO Capital Markets. Keith Bachman Hi, thank you. Mark, in the introductory remarks, you commented that you thought next year would be a transformative year and I'm really focusing on the word transformative. Maybe you want to talk a little bit about what you mean there? And we as shareholders, how do you think we'll note it? Mark Mader We've been on a really, I think, good progression over the last couple of years, around becoming a company with margin expansion, while still growing. I think when you have these transformative opportunities is when you have a number of things converge, I see maturity in our model, I see maturity in our go-to-market motion, I see maturity in our product offerings. And you just don't get that many opportunities in your career or your company's life, where those things converge. A lot of that work is being laid this year. It's never perfect in the convergence, but I think it's really good as it's approaching next year. So I think it will manifest itself in growth in profitability, in cash flow, customer sat. And we'll do our best to report out on those different dimensions. Keith Bachman Right. Interesting. Okay. My follow-up question, one of the previous questions was asking about a press release or rumors in the market, and I understand you can't answer that question. What I want to pose is more philosophical question. You remember, you are on the board and you used the word transformative next year. But how would you sort of as a board member, depict pros and cons or the friction, if you will, on selling the company at this juncture? Mark Mader Yeah, I think that question is a close cousin to the first one that was asked, and we're not in a position to comment on that today. Keith Bachman Okay. Well see you looking forward to engage in a month or so. Thank you. There are no further questions at this time. I will now turn the call back over to Aaron Turner for closing remarks. Aaron Turner Great. Thank you all for joining us today, and we'll speak with you again soon. This concludes today's conference call. Thank you all for your participation. You may now disconnect.

Samsara Inc. (IOT) Q2 2025 Earnings Call Transcript

Mike Chang - Vice President, Corporate Development and Investor Relations Sanjit Biswas - Chief Executive Officer and Co-Founder Dominic Phillips - Chief Financial Officer Good afternoon and welcome to Samsara's Second Quarter Fiscal 2025 Earnings Call. I'm Mike Chang, Samsara's Vice President of Corporate Development and Investor Relations. Joining me today are Samsara's Chief Executive Officer and Co-Founder, Sanjit Biswas; and our Chief Financial Officer, Dominic Phillips. In addition to our prepared remarks on this call, additional information can be found in our shareholder letter, press release, investor presentation and SEC filings on our Investor Relations website at investors.samsara.com. The matters we'll discuss today include forward-looking statements. Actual results may differ materially from those contained in the forward-looking statements and are subject to risks and uncertainties described more fully in our SEC filings. Any forward-looking statements that we make on this call are based on assumptions as of today, September 5, 2024, and we undertake no obligation to update these statements as a result of new information or future events unless required by law. During today's call, we will discuss our second quarter fiscal 2025 financial results. We'd like to point out that the company reports non-GAAP results in addition to and not as a substitute for or superior to financial measures calculated in accordance with GAAP. Reconciliations of GAAP to non-GAAP financial measures are provided in our press release and investor presentation. We'll make opening remarks, dive into highlights for the quarter and then open the call up for Q&A. Thanks, Mike, and thank you, everyone, for joining us today. Samsara delivered another strong quarter of durable and efficient growth at greater scale. We ended Q2 with $1.26 billion in ARR, growing 36% year-over-year. We also achieved a quarterly record for non-GAAP operating margin. We are the strategic partner to the world's leading and most complex physical operations organizations. Large customer momentum continues to fuel our growth. We added 169 customers with more than $100,000 in ARR. We also added a quarterly record of 14 customers with more than $1 million in ARR. In Q2, we had wins with the State of Maine, one of the largest supermarket chains in the US and one of the largest retail owned hardware cooperatives globally. As we grow our customer base, our data asset scales too. We're proud to announce that we achieved an important company milestone. We now collect more than 10 trillion data points annually on the Samsara platform. In addition to scale, our unique IoT data set has incredible breadth and spans a broad and diverse group of assets. Our growing dataset unlocks unique insights that help our customers tackle their toughest challenges. In June, we hosted Samsara Beyond to discuss the impact of data and AI on the future of Connected Operations. Nearly 2,000 attendees across the world of physical operations came together for the event. At Beyond, we learned more about our customers' challenges and how they're looking to solve them with data and AI. They told us their top priorities include creating a system of record for their operations, standardizing their data and using more AI for insights. These conversations are critical as they shape where we prioritize our R&D efforts to maximize customer impact. During Beyond, we also hosted our Connected Operations Award ceremony. We honored 15 global customers who had an outsized impact on our platform as well as our Ecosystem Partner Of the Year. I'd like to share the impact we've been driving with a few of our winners. Home Depot was our Safest Operator winner in the Americas. They're the world's largest home improvement retailer with over 2,300 stores and 475,000 employees. Together with their appliance delivery and installation company, Temco Logistics, they achieved an 80% reduction in auto instance by leveraging Samsara's video-based safety application. Next, let's turn to Sterling Crane, our Excellence in Efficiency winner. They're one of the world's largest crane rental supply companies with over 625 cranes in their fleet. They saved $1.2 million using Samsara from improved driver productivity and compliance. They also expect to save $2.5 million for major maintenance costs. We are proud to partner with our customers to make a real-world impact on their operations. To help meet the needs of our customers, we've been accelerating our flywheel of innovation. Our growing dataset and AI-powered insights drive our flywheel. As it spins faster, we deliver more value from our platform and build more products and features for our customers. All of this innovation helps our customers take more action to improve the safety, efficiency and sustainability of their operations. At Beyond, we launched a new product, our Asset Tag. The Asset Tag is the industry's first industrial-grade Bluetooth tag to help our customers track and manage their small high-value assets. It can be used for a range of assets from toolboxes and chemicals totes to engines and handcarts. We expect, over time, this will help our customers save millions of dollars a year through increasing asset utilization, preventing asset loss and improving worker efficiency by reducing the time needed to locate stolen or lost assets. In Q2, our first quarter of selling Asset Tags, we reached approximately $1 million in net new ACV. It's an exciting start and customer feedback has been strong. We are seeing demand from our customers across industries and geographies and learning about new use cases every week. A good example of this is TransCore, the leader in innovative tolling solutions. TransCore purchased a large amount of Asset Tags to help with inventory management, loss prevention and hardware functionality. They use this for technology hardware, field support assets, critical inventory and more. This technology is only possible because of the massive network we built at Samsara. We have millions of devices around the globe that are connected to the Internet. The Asset Tag uses industrial-grade Bluetooth to connect to the Samsara network. With the density of our network, organizations can get near real-time visibility and that will only improve as our network scales. At Beyond, we announced two new products to further digitize the worker experience, Connected Workflows And Connected Training. Our customers are using technology to transform the worker experience. Samsara is their trusted partner to make these jobs better and safer. Last year, we introduced Connected Forms to digitize paper processes for physical operations. Connected Workflows takes this to the next level and goes beyond digitization to orchestrating multistep workflows. Connected Workflows can automatically assign forms, manage approvals and create tasks based on contextual insights. Now every department can easily automate workflows to make work safer and easier from the frontlines to the back office. An example is DeSilva Gates, a leading construction company in California. DeSilva Gates is now automating truck inspections with Connected Workflows. Drivers are prompted to complete inspections on time. Any reported issues are submitted and addressed right away. And this has saved them about $45,000 a week or more than $2 million on an annualized basis. The second worker experience product we launched was Connected Training. Connected Training helps our customers reduce risk by giving them a way to train workers anytime and anywhere. It does this by giving customers remote access to courses on the Samsara mobile app. Now our customers can build customized learning itineraries to address each worker's largest risk areas. They can also streamline all their training requirements across the organization. Customers who use Connected Training are already seeing significant benefits. For example, Emery Sapp & Sons, a leading heavy civil construction contractor in the Midwest, saw a 40% reduction in safety events with Connected Training. After launching new products, we continue to run our customer feedback loop to make our products better and more impactful for our customers. At Beyond, we announced new features and partnerships for our platform. To help our customers improve -- to help improve our customer' safety programs, we launched new AI detections and shared updates to Smart Trailers. To help our customers improve the sustainability of their operations, we launched Charge Insights. This is part of our broader EV management offering. We also announced a new partnership with FirstNet, Built with AT&T, the only nationwide communications network created with and for public safety. Samsara is now FirstNet Trusted. So public safety customers can use Samsara in emergency response situations. It was another successful Beyond and I'm happy to share we're hosting the next event next summer in San Diego. We look forward to bringing together even more of our customers, partners and leaders across the world of physical operations. Digitizing physical operations will be a multi-decade journey. As we build for the long-term, we continue to invest in our leadership and our culture. First, I'm excited to welcome Alyssa Henry to our Board of Directors. Alyssa brings over 25 years of experience as a product and technical leader at some of the world's most influential technology companies. This includes her role as CEO of Square at Block and senior leadership positions at Amazon and Microsoft. She has a proven track record of driving innovation and significant growth in the tech sector. Second, we are also happy to welcome Meagen Eisenberg as our Chief Marketing Officer. Meagen is joining us from Lacework, where she was their CMO through their recent acquisition by Fortinet. Before that, she was the CMO at both TripActions and MongoDB. She has great experience engaging customers, driving growth and building brands at many successful companies. We are thrilled to have Alyssa and Meagen join our team. And lastly, Samsara continues to be a destination for some of the world's top talent. This is important as we scale to meet customer demand. This quarter, Samsara was recognized by Great Place to Work for development, well-being and women. We are proud of the impact we're making on our customers. We are operating at scale with our customers generating more than 10 trillion data points, 85 billion API calls and 70 billion miles driven across our platform annually. Our growing data asset drives more AI-powered insights so our customers can get clear and fast ROI. Every year, the impact we make with our customers continues to compound. We're excited for the decades-long opportunity ahead. Thank you to our customers, partners, investors and Samsarians across the globe for joining us on this journey. I'll now hand it over to Dominic to go over the financial highlights for the quarter. Dominic Phillips Thank you, Sanjit. Q2 was another quarter of sustained high growth at scale and continued operating leverage. In particular, the quarter was highlighted by maintaining the same year-over-year revenue growth rate for the third consecutive quarter at a larger scale, surpassing 2,000 large customers, including adding a quarterly record number of $1 million plus ARR customers, adding approximately $1 million of Asset Tags net new ACV in our first quarter of selling and achieving a quarterly record operating margin while sustaining a quarterly record gross margin. Q2 ending ARR was $1.264 billion growing 36% year-over-year. Within this, we added $88 million of net new ARR, representing 20% year-over-year growth. And Q2 revenue was $300 million, growing 37% year-over-year, which is the same year-over-year growth rate for the third consecutive quarter at a larger scale. Several factors drove our strong top line performance in Q2. First, we continue to focus on serving large enterprise customers to drive durable and efficient growth at scale. We now have 2,133 $100,000 plus ARR customers, representing 41% year-over-year growth, including a quarterly increase of 169, which is our second highest quarter ever. And within that, we also added a quarterly record 14 $1 million plus ARR customers in the quarter. In addition to adding more large customers, we also grew our average ARR per large customer to $318,000 up from $306,000 one year ago. The combination of more large customers added and a higher average ARR per large customer increased our ARR mix for $100,000 plus ARR customers to 54% in Q2, up from 50% one year ago and 46% two years ago. Second, our customers increasingly utilize Samsara as a system of record for physical operations by subscribing to multiple applications, all on one unified platform. 94% of our $100,000 plus ARR customers subscribed to multiple products and 59% subscribed to three or more. We're also seeing multiproduct adoption at scale. Our two vehicle-based applications, Video-Based Safety and Vehicle Telematics, each represent more than $500 million of ARR, while Equipment Monitoring and other emerging products combined for more than $150 million of ARR. In addition to large scale, each of these three product categories continued to grow more than 30% year-over-year. We also saw a number of large multiproduct transactions in Q2. Nine of the top 10 new logos in Q2 included two or more products and six included three or more. Notably, one of our largest Q2 new logos, Cassens Transport Company, one of the largest auto haulers in the US landed with four different products. In addition to licensing our two vehicle-based applications, Cassens also purchased Equipment Monitoring and one of our newer software-only SKUs Connected Training in their initial transaction. Additionally, all of our top 10 expansions included two-or-more products and five included three or more. This expansion strength allowed us to achieve our target dollar-based net retention rate of 115% and 120% for core and large customers, respectively. And third, we demonstrated strong execution across several frontier markets. 16% of net new ACV came from international geographies in Q2, driven by strength in Europe, which had its fourth consecutive quarter of accelerating year-over-year ARR growth at a larger scale. Construction drove the highest net new ACV mix of all industries for the fourth consecutive quarter and field services had the second highest mix for the second consecutive quarter. In total, 87% of Q2 net new ACV came from nontransportation verticals, an increase from 83% in Q2 last year. And lastly, we also saw strength in emerging products. We achieved roughly $1 million of Asset Tags net new ACV in our first quarter of selling including a more than $300,000 expansion with a top 100 customer in the construction industry. We also added roughly $1 million of Connected Workflows net new ACV in Q2, including four separate $100,000 plus ARR transactions. And we signed an approximately $250,000 Connected Training expansion in our first quarter of selling the product with a top 30 customer in the logistics industry. In addition to driving strong top line growth, we continue to deliver operating leverage across our business as we scale. Non-GAAP gross margin was 77% in Q2, which was tied for a quarterly record, non-GAAP operating margin was a quarterly record 6% or nine percentage points higher year-over-year, and adjusted free cash flow margin was 4% in what is our seasonally weakest free cash flow quarter. Okay. Now turning to guidance. We're raising our guidance across all key metrics because of our Q2 performance and outlook for the rest of FY'25. For Q3, we expect total revenue to be between $309 million and $311 million, representing year-over-year growth between 30% and 31%. Non-GAAP operating margin to be approximately 4% and non-GAAP EPS to be between $0.03 and $0.04. For full year FY'25, we expect revenue to be between $1.224 billion and $1.228 billion, representing year-over-year adjusted revenue growth between 33% and 34%, non-GAAP operating margin to be approximately 5% and non-GAAP EPS to be between $0.16 and $0.18. And finally, please see additional modeling notes in our shareholder letter. So to wrap up, we are pleased with our first half performance and our improved outlook for FY'25. In Q2, we sustained our revenue growth rate at a larger scale while also delivering more operating leverage. And looking forward, we believe we're well positioned to continue delivering durable and efficient growth because we're digitizing the world of physical operations, which is a very large and underserved market opportunity and that's driving strong customer demand. Our products offer real ROI and a fast payback period to our customers and we're targeting a very different operations budget. We're proud to partner with our customers and are excited to continue helping them operate more safely, efficiently and sustainably. And with that, I'll hand it over to Mike to moderate Q&A. Thanks, Dominic. We will now open the line for questions. When it's your turn, please limit your questions to one main question and one follow-up question. The first question today comes from Kash Rangan with Goldman Sachs, followed by Alek Zukin with Wolfe Research. Kash Rangan Thank you guys. What a phenomenal quarter. It looks like the tone of new business seems to have picked up, if I can tell from the net new ACV growth rate you've experienced in the quarter and also the $1 million ACV contracts you landed at the quarter. Can you talk about any potential changes to the buying environment you've noticed in the past month or so? And also Sanjit, curious to get your take on the impact of the tremendous new product innovation that you've layed forth here. How could that translate into better pricing power for the company and also better retention rates as your products like the Workflow, which we had a lot of fun talking about at our conferences. Those things start to take hold, how do you envision the stickiness, renewal and pricing for the company? Thank you so much. Sanjit Biswas Sure. Kash, this is Sanjit. So first of all, I think the adoption of the platform has been really strong. This really is a continued pattern we've seen for a couple of quarters now. So I wouldn't say that this was especially different in terms of buying environment other than customers are really seeing clear and fast ROI with the platform and they want to do more. So not just safety and telematics, but monitor equipment, track those assets like you said, connect their workflows into the system. So the impact of new products, I think it strengthens our platform story for our customer. They're already in the system. They have lots of frontline and back office employees using Samsara and ultimately that helps us deliver more value for them. In terms of pricing power, I think, really it's about delivering great value for our customers. We're seeing strong renewal rates, and that's what I focus on is making sure our customers are happy that they're getting tons of value from the product. And if we do that, they're going to keep coming back. Mike Chang The next question comes from Alex Zukin with Wolfe followed by Keith Weiss with Morgan Stanley. Perfect. Thanks for taking the question and congrats on another great quarter. I guess maybe just two for me. The first one, if you think about the Asset Tag product, the industrial Asset Tag, it's pretty remarkable to hear about a multi-hundred thousand dollar deal in like basically the first weeks of availability. So just if you can give us your sense, Sanjit, like the trajectory of how to ballpark the TAM for this product relative to telematics, video-based safety and others. Where does this kind of fit in that gain and how fast relative to those other products can this ramp over the course of the coming years and then I've got a quick follow-up. Sanjit Biswas Sure. So Alex it's hard to do a compare versus safety and telematics because when we released those products, we were a much smaller company. We weren't as well known in the market. And so we're very pleased with how Asset Tags has kind of jumped off the line. There was a lot of excitement at the customer conference when we released it. And I think it's because it got our customers thinking about all the other assets they have in their operations, They go well beyond vehicles and even trailers like all the smaller assets, fiber splicers, tools, things that get left beyond the job sites. So overall it feels very strong. There's a lot of strong customer pull and interest in it. But again it's hard to kind of compare it to products that we launched many years ago as a smaller company. Alex Zukin Okay. Understood. And then maybe Dom might not like this question, but the Federal Motor Carrier Safety Administration seems to be planning to revisit the ELD mandate in June of '25. Is there any tailwind that you can kind of see or have visibility on? Because it seems like that would expand your telematics ARR like if it ends up being applicable to fleets that have free 2,000 engines, how applicable would like how much more coverage do you feel like that could unlock within your existing large customers? Dominic Phillips Yes, I think the way that we're going to continue to drive growth out of the business is really being more on offense, meaning customers are buying Samsara and really using us as a system of record across multiple products because they're getting ROI. They're finding ways to operate more safely and more efficiently and reduce their costs, improve their asset utilization and worker productivity. There may be other regulatory compliance things that ultimately kind of pop up, but we're not necessarily tracking that or relying on that to kind of drive future growth. It's really more about kind of being on offense and providing ROI for customers. And we'll take those things as they kind of come up, but none of that's kind of on our radar right now. The next question comes from Keith Weiss with Morgan Stanley followed by Kirk Materne with Evercore. Chris Quintero Hey, guys. This is Chris Quintero on for Keith. Thanks for taking the questions here. I wanted to go back to an interesting slide you had at Analyst Day where more than half of the market does not use a telematics solution and even higher percentage not use a video safety solution. So curious to hear your thoughts on why these companies are not using a provider today? And are there any potential challenges around getting these customers to adopt the solution or is it really just a timing thing and eventually everyone will? Dominic Phillips Yes. So the dynamics are obviously different in on the telematics side. Again, it's an industry, it's a product set that's been around for multiple decades. And as you said, more than half or roughly 50% of commercial vehicles in North America are not using solution today. And so most of our customers are multiproduct. And so it's often the case that they're subscribing to multiple products, which ultimately helps convince them to maybe adopt telematics technology when they weren't using it previously. On the other side, safety, it's really tied more to recent technology tailwinds. So going to 4G or HD videos has really kind of unlocked the ability to sell a solution and safety, and we're seeing that market rapidly start to adopt new technology. And so maybe at the time of the IPO, only 5% of commercial vehicles had a solution, now we're up to 10 and a lot of our safety ARR and growth is coming from new use cases for customers. Sanjit Biswas And Chris, if I can just add one more point there. If you zoom way out, historically, telematics have been viewed as something that was prevalent in the transportation industry, so kind of long-haul trucking. As we described earlier in the prepared remarks, 87% of our business came from industries outside of that, field services, construction were very strong. And so what we're seeing is even for applications like telematics, new industries that had not previously adopted GPS tracking are adopting it. And then to Dominic's point around video based safety. That's enabled by new technologies, the connection, the quality of the cameras, but also AI being able to go sift through all the safety events and deliver value for the customer. Chris Quintero Got it. That's super helpful. And then my second question is for both of you. Clearly, things are firing on all cylinders at Samsara and the results clearly back that up. But just at a high level, we all can always improve. So I'm curious from both your perspectives, what are some areas at Samsara that you're looking to improve on or get better at today? Dominic Phillips There's a lot that obviously that we can improve on. I think it's just about execution. Can we make sure that we're hiring the right people and retaining the right people and creating the right kind of company culture and ultimately improving sales capacity and productivity. Can we make sure that we're making the right capital allocation decisions around R&D and building the right products, not only focused on kind of near-term growth, but as we've demonstrated over recent product announcements, making sure that we're planting seeds for medium and longer-term growth to drive that durability. Make sure that we're constantly taking customer feedback and making improvements. And so there's just a lot of execution that's required, obviously, as we continue to scale, and we're very focused on that. Sanjit Biswas Yes, I think I would echo Dominic's points around you know there's a lot that we can do. And one of our operating principles that our company is to build for the long-term, I feel like we can always do a better job spending time with customers in the field, hearing what else they want us to build and put on the platform. So if I had more hours in the day, that's what I would go do is go spend even more time with the customers. All right. So the next question comes from Kirk Materne with Evercore followed by Matt Hedberg with RBC. Kirk Materne Great. Thanks guys and I'll echo the congrats on a great quarter. Sanjit, I was wondering, I realized Asset Tags are incredibly early on for you all. But one of the things that's kind of interesting about is that these tags can be used for incredibly high value assets as well as maybe lower value assets. I'm just kind of curious if customers are leaning one way or the other. I think you guys gave the example of everything from a toolbox to a train car full of potash. So I was just kind of curious, are they going after the high asset value and assets at all? And does that inform your thought process on pricing longer term? Again I realize it's like the first quarter end, but I'm just kind of curious what you're seeing out there. Sanjit Biswas Sure. As you said, it's very early, but it's exciting to see all the different use cases. And I think we mentioned earlier, we're seeing basically a new use case every week. It's hard to see a specific pattern related to asset value. A lot of what we are hearing about are assets that are left behind that were historically untracked. And these are ones that often don't have power, so they're not connected to a vehicle or they don't have fuel source or battery in them. So that's a lot of it, and that encompasses tools, but there's all kinds of accessories in the world of physical operations. If you think about an excavator, for example, the little bucket at the end gets left behind at a job site. Those can cost thousands of dollars. We've heard same thing about crane parts and so on. So I would say a lot of different kinds of assets is the pattern if there is one. But we should see a little more of kind of the high value versus low value over the next couple of quarters. Now stepping back, we have a portfolio strategy when it comes to equipment. We offer powered equipment trackers. We have unpowered, whole family, really. And so we kind of view it as a portfolio and we can kind of mix and match within a customer's deployment to meet their needs. Kirk Materne Okay. That's super helpful. And then Dom just a really quick follow-up. Obviously, great to see the leverage flowing through the cash flow numbers and the operating margins. Given the strength in demand, how are you thinking about hiring heading into calendar '25 or I realize it's early, but I assume you're starting to think about that now. I was just kind of trying to think about how that might impact sort of your thought process over the next couple of quarters. Dominic Phillips It's still really too early to kind of get into calendar '25. I think we're just kind of kicking off our annual operating plan kind of review process. And so we'll have more details on that in a couple of quarters. But the hiring has continued to be robust. We obviously had a kind of an accelerated hiring year last year. We've continued to hire aggressively this year and we're kind of on track with our plans and we'll work through our annual operating plan review process and figure out what we're going to do for next year. The next question comes from Matt Hedberg with RBC followed by Jim Fish with Piper Sandler. Matthew Hedberg Great. Thanks, guys, for the questions. Congrats again. I really do appreciate the sizing the asset size just in the first quarter that was helpful. I'm curious, and I know, again, it's early, but looking at that customer where you saw a $300,000 uplift, do you get a sense like that's like an initial purchase? Did they think about scoping that like that's going to keep -- get them going for the next year. I was just sort of curious on because that's a big number. Any perspective on where that order would be in their Asset Tag journey? Dominic Phillips I think for that customer and for other customers that are at least in the pipeline, there's really more of a kind of a phased rollout approach of we're going to go after one use case upfront, and then we're going to find other things that we ultimately want to want to track and bring into the Samsara cloud. And so I think this kind of quarter will be indicative of future quarters where it's more of a land and expand over time. Sanjit Biswas And if I can add to that a little bit. Some of our customers, they once they try the Asset Tag, they're discovering new use cases within their operations. One of the examples we shared in the remarks, I met the customer, and they ordered a few thousand tags. One of the departments had a project in mind and another department swooped in and said, wow, this is super useful. We'd like half of those. And so they had to come back and order some more. And it's exciting because that means we're providing value for these customers. Matthew Hedberg That's great. Great color. Congrats on that launch. And then maybe reflecting back on your user event, which I thought was a well-done event. There's a lot of buzz about generative AI and I think trying to find that killer use case that your customer base is looking for. Can you give any perspective on sort of like where we're at in that journey? I mean, is that something that we're thinking about in the next year or so? Because I have to mention there's a lot of opportunities to leverage that sort of technology within your connected platform. Sanjit Biswas Yes, absolutely. Matt, if you recall in our Investor Day, we shared a demo of basically a chat environment that is powered by the unique data asset that we've been creating here at Samsara. So we talked about maintenance, for example, being able in plain English or Plain Spanish, whichever you prefer, be able to tell you which vehicles need maintenance next, what's wrong with them, all that kind of detail. So we're excited to experiment. I think this technology is absolutely transformational and can deliver a lot of value for the customers. It needs to be practical and useful in terms of how we deliver it. So over the next couple of months, we're rolling that out to customers and getting their feedback and enhancing it through our feedback loop. The next question comes from Jim Fish with Piper Sandler followed by Michael Turrin with Wells Fargo. James Fish Hey, guys. Thanks for the questions here. I guess underneath, it does look like the mid-market ARR accelerated. And so Dom, how much of that was driven by sort of SMB expansion versus net new? And just generally, overall how should we think about the percentage of ACV from new versus existing this quarter? Dominic Phillips Yes. Like in our most recent quarters, it was pretty balanced. It tilted slightly towards expansion, so it was a very strong expansion quarter, we talked about getting to our net retention rate targets, but it was also a really strong new logo quarter. It was our second highest quarter ever in terms of new core customers added. We talked about 9 of the top 10 new logos were multiproduct transactions. And so similar to the kind of the most recent quarters, it continued to be very balanced. James Fish And look, in your outlook in the back pages there, you talked about net new ARR and that you're embedding macro worsening in your ARR outlook. But are you actually seeing any impact to the business today, how are deal cycles relative to 90 days ago? Dominic Phillips No. Customer demand continues to be robust. I think we're just making sure that we're setting up expectations in a way that we feel highly confident that we can hit. Obviously, there's talks about slowing macroeconomics and we're in an election year. And so there's just more inherent kind of uncertainty. But with that, we want to make sure that we're setting expectations that we feel good about hitting. And again, we're not seeing an impact in customer demand, but it's something that we're always watching out for. The next question comes from Michael Turrin with Wells Fargo followed by Dylan Becker with William Blair. Michael Turrin Hey, great. I appreciate you taking the question. It's something we've probably touched on before, but the diversity of logos you're landing certainly stands out. It's actually the State of Maine, US Supermarket, two Fortune 500s. So maybe you can just go back to the diversification the business holds and how Samsara's go-to-market and underlying platform are able to address all of those different types of customers as effectively as you are. Sanjit Biswas So Michael, I think, one of the interesting things we've learned over the last few years is how much commonality there is across these different industries. So whether you're in construction or field services or the State of Maine, you're always trying to be more efficient. You're trying to understand how to be safer, how well your assets are utilized. So we focus on those common use cases and find that they really do apply across these different industries. We do break out our public sector team because the way the deal cycles work is a little bit different and contracting with government agencies is a bit different. But we have otherwise a pretty much a generalist sales team who are able to sell across these industries. Michael Turrin Great. And Dom, in the materials, there's some commentary around the operating margin improvement flowing through to free cash flow. Maybe you can just help level set all of us as we're working through models, just in thinking through the delta between those two, how we should expect that to progress going forward. Dominic Phillips Yes. And so -- we did talk about, yes, 200 basis points of operating leverage improvement for the year. And then that 200 basis points would flow through to free cash flow. There is more seasonality in free cash flow, where Q1 and Q3 tend to be a little bit higher than Q2. Q1 gets the benefit, obviously, of the collections coming in from Q4, which is our seasonally strongest net new ACV quarter. And then Q4 tends to be our largest free cash flow quarter because Q4 is our largest, seasonally largest net new ACV quarter and so a lot of benefits from that quarter, then obviously, all of the kind of the second and third year kind of billings from the contracts that were booked in previous years. So there's a little bit more kind of lumpiness within free cash flow. But for the rest of the year, we do expect another kind of 200 basis points to flow through to both operating margin and the free cash flow margins versus what we guided to in consensus. Mike Chang All right. The next question comes from Dylan Becker with William Blair followed by Matt Bullock with BofA. Okay. Let's go with -- looks like Dylan's not there. Let's go with Matt Bullock with BofA followed by Alexei Gogolev with JPMorgan. Matthew Bullock Excellent. Hi. Thanks for taking my question. A few if I could on the new product launches. So great to see the early traction with the Asset Tag. Understanding it's early days. Can you talk about how we should think about the pricing and packaging strategy there now that there's been a little bit of time to collect feedback from the broader customer base. Sanjit Biswas I'll start with that one. I think the initial pricing that we set on the Asset Tag seems to be working well. Feedback has been strong. And like we talked about earlier, there have been pretty significant orders on it. We do think of the Asset Tag again as part of a portfolio within our connected equipment line. So there's lots of different tracking products we offer for nonvehicle assets. And I think it fits in well especially because it gives you the ability to track some of the less expensive smaller assets that are out there in operations. Matthew Bullock Super helpful. Thanks. And then just one quick follow-up on the continued strength in Europe. I think you said it was the fourth consecutive quarter of accelerating ARR growth. What would you attribute that to? Is that just building up a larger base of reference customers, better sales infrastructure or just improvements to the product market fit? Dominic Phillips I think it's really all of the above. Obviously, Europe is a really big market opportunity for us. I mean just on the commercial vehicle side, there's more commercial vehicles and physical operations assets in Europe than in North America. And so scenario that we've been focused on a lot of sales capacity building pipeline, making sure that we have the right products for those given regions and just kind of consistent investment has really paid off in particular over the last four quarters. It looks like we have Dylan back,. So let's go Dylan Becker with William Blair followed by Alexei with JPMorgan. Dylan Becker Great. Thanks, guys. Sorry about that. Maybe starting with Sanjit or Dom here, given that the ROI is so high, and obviously, you're seeing healthy demand in the ecosystem. I guess, what's keeping customers from adopting even faster and realizing some of the value that you guys deliver? I know that there's phased rollouts maybe, but is there a way to think about how we should think about that evolution of cross-sell and upsell kind of playing out within the existing base? Dominic Phillips A lot of these physical operations customers are really in the early innings of digital transformation. And so adopting technology, there's change management required internally, but really ensuring that they get ROI and therefore they do it more in a kind of a phased rollout way. And we're fine working with customers whether they want to kind of take all the licenses upfront or they want to do a phase rollout for us, we just want to make sure that they're getting value and they're getting real ROI and it really kind of depends on a customer-by-customer basis based on kind of where they are in their journey and in terms of adopting technology. Dylan Becker Okay. That makes sense. And then sticking to, I think, kind of some of the highlights as well to on the large customer side, step up in both new logo adds and revenue per customer. Dom, I guess, for you, how does this help fuel confidence in that outlook given this is becoming an incrementally kind of more strategic and larger segment that's growing faster than the aggregate mix here? Dominic Phillips Yes, it's been incredibly consistent. I mean like over the last several quarters kind of one percentage point of mix continues to move towards the large customers, we're now at 54%. I said 50% a year ago and 46% a year before that. And so this is an area where we continue to make more and more investments. We're really purpose-built for these large enterprises with complex physical operations. They have the ability to take on more products. We can just have more impact and drive more ROI for those customers. And so that will continue to be an important part of our growth strategy. The next question comes from Alexei with JPMorgan, followed by Derrick with TD Cowen. Ella Smith Good evening. This is Ella Smith calling on behalf of Alexei Gogolev. Thank you for taking our questions. So first I was hoping that you could share whether there are any products to call out that customers cross attach, either particularly fast, but then also particularly slowly. Dominic Phillips I think there's a consistent pattern. Most of our customers are adopting multiple products. Obviously, our two largest video-based safety and vehicle telematics tend to be the most common, but equipment monitoring and some of the emerging products combine for more than $150 million of ARR. So again, it really depends on individual customers on what the use cases are and we see different combinations of products across all of our customers. Ella Smith Very helpful. Thank you. And for my second question, are you interested in investing in additional product development or are you satisfied with your product portfolio at this juncture? Sanjit Biswas Well, I think I can say as a technology-oriented founder, we're here to build products that go solve problems for our customers. So we are absolutely investing in R&D. And it's an area that we get a lot of great ideas from our customers on. So we're going to keep improving the products we have and investing in some new ones. The next question comes from Derrick with TD Cowen followed by Junaid with Truist. Derrick Wood Great. Thanks and congrats another strong quarter. Sanjit, could you dive a little bit into the technology behind the new Asset Tags? I know this uses Bluetooth instead of your typical vehicle gateway systems. What are the differences between using Bluetooth versus gateways? Obviously, this helps target a lot more assets to light up and track. But what capabilities do you give up that you have to rely on other networks? And what are the implications for your COGS requirement? Sanjit Biswas Yes. So in terms of how these Asset Tags connect, they are absolutely powered by Bluetooth, but we have an industrial-grade Bluetooth implementation. So a bit of a broader range. It's designed with security in mind as well. But again Bluetooth doesn't connect to the cellular network. Instead, these devices connect to the Samsara gateways that are out there. We have millions of gateways out there. There's a high enough density now that we can achieve near real-time tracking with them. And that's really a byproduct of the scale that we've achieved as a company. We basically created this big network across where operations happens. So very excited to be able to do that. The implications of that are that the Bluetooth radios do cost less than the cellular modems. They're also more power efficient because they don't broadcast all the way to a cell tower. So the battery life is enhanced. So in a very small form factor the tag is kind of the size of a fun sized candy bar. We're able to achieve multiyear about four-year battery life for our customers while doing that real-time tracking. So again not something we could have done with cellular and not something that we could have done until we achieve the scale and density of the Samsara network that we have with the millions of gateways out there. Derrick Wood Got it. That's helpful color. Dom, I know we only get total customer count once a year, but can you speak to the just the velocity of how total customer count is trending versus historic levels and how you're feeling about making sure you've got kind of a funnel to keep graduating a healthy level of customers into that $100,000 number and drive good growth in that $100,000 number. Dominic Phillips Yes. As I said in the earlier answer, it was our second highest quarter ever in terms of new core customer logos added. So really strong. And again, it drove roughly close to 50% of the overall kind of net new ACV. So it was a little bit slightly of a larger expansion quarter. And so kind of similar to these previous quarters. Landing new logos is really important for us because, obviously, that leads to future expansion opportunities. And it was very kind of consistent mix from previous quarters. Thanks, Derrick. Our last question today comes from Junaid with Truist. Junaid Siddiqui Great. Thank you for taking my question. Just on that large customer count, as you continue to shift your focus on serving these larger enterprises, which has been growing pretty impressively, what are some of the additional levers that you can use apart from maybe hiring more quota-carrying reps to further drive that large customer penetration? Dominic Phillips I think a big part of it is this capital allocation and R&D investment, the more products that we can create and obviously we're reaching a pretty good velocity on a kind of an annual basis. It just opens up more opportunities for us to have conversations with customers and ultimately solve more of their problems and create more ROI and have it more impact for them. And if we can continue to do that, that will allow us to continue to grow the large customer cohort fast. Okay. This concludes the question-and-answer portion. Thank you for attending our Q2 fiscal year 2025 earnings call. Before I let you go, I have a few short announcements. We'll be attending the Goldman Sachs Communacopia Conference in San Francisco on September 9th. The Wolfe Technology Conference in San Francisco on September 10th. The Piper Sandler Growth Frontiers Conference in Nashville on September 11th and the JPMorgan Software Forum in Napa on October 8th. We hope to see you at one of these events. That's it for today's meeting. If you have any follow-up questions, you can e-mail us at [email protected]. Thanks again. Bye, everyone.