Q4 2020 Earnings Call
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After the speakers presentation that'd be a question answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to have the conference over to your speaker today Mr. Aaron Turner head of Investor Relations. Thank you. Please go ahead Sir.
Thank you Christine good afternoon, and welcome everyone to smart sheets fourth quarter and full fiscal year 2020 earnings call. We will be discussing the results announced in our press release issued after the market close today with me today are smart sheets CEO Mark meter our CFO Junipers ran our chief product Officer, Jim Farrell will be also be available during the Q1 night.
Today's call is being webcast and will also be available for replay on our Investor Relations website at investors that smart she dot com, there's a slide presentation that accompanies jennifers prepared remarks, which can be viewed in the event section of our Investor Relations website. During this call. We will make forward looking statements within the meaning of federal Securities laws. We have based these forward looking stay.
It was 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 FCC filings available on our Investor Relations website and on the FCC website at Www dot as he dot Gov. Although.
We believe that the expectations reflected in the forward looking statements are reasonable or actual results may differ materially and 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 reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can also be found on our Investor Relations website with that let me turn the call over to Mark.
Thanks, Aaron Good afternoon, everyone and welcome to our Q4 in school.
We concluded F. why 20 with a strong quarter.
Q4 revenue grew 51% year over year to $78.5 million, bringing our full year revenue to $270.9 million up 52% to a year ago.
Billings for the quarter were a record $101.5 million up 58% year over year.
Our growth was driven by continued strong execution across the business and significant expansion within our existing customers.
I want to begin by sharing some information on our response to the cobot 19 pandemic.
It will come as no surprise to the safety and well being of our team partners customers and their communities in which we work is a top priority.
As such and based on guidance from local health officials in the CDC last week, we directed employees nor offices in Bellevue, Austin, London, Edinburgh, and Sydney to work from home unless there is a business critical need for them to be in the office.
We are well equipped to continue running our business operating our platform and supporting our prospects and customers even with our teams working remotely.
We're doing everything we can to support our customers as they work through this period.
To that end on March six we released to set a free smartid template.
Modeled after assets, we built for our own use that can be used to create a cobot 19 operations dashboard containing CBC documentation and other resources.
The dashboard serves as an information hub and a resource center for employees and can help any organization understand and assess risks and collect data on needs or health changes in their population.
We've made these resources available to both customers and those in trial.
The response in terms of book value and uptake has been strong with thousands of organizations deploying them already.
In addition, we successfully responded to request this weekend from a global health care customer that's on the front lines of the private public partnership to significantly expand the global testing capacity for covert 19.
Within 48 hours of receiving the request we were able to help them enhancing fully operationalized smartreach solution. They had internally developed.
The solution enables them to collect and share with your Federal Agency partners mission critical information about the volume of tests conducted and current supply levels of their high throughput testing systems.
This will allow more testing to be completed in the shortest possible time.
We are proud to have the opportunity to be of service on this important endeavor.
We're also committed to supporting the government response to cope with 19, that's why we're announcing today that we're making smart she'd Gov are fed ramp authorized environment available for any U.S. government agency responding to the cobot 19 pandemic.
Government agencies can you smartly to plan coordinate track and communicate to covert 19 response free of charge and without any obligation.
We will begin outreach on this program today, but in the meantime interested government agencies can get more details at www Dot Smartid dotcom slash enable dash Gov.
We continue to closely monitor the macro business environment and our daily performance metrics. We've heard from many customers that are platform enables them to work from anywhere and remain engaged during this disruption to normal work patterns to date, we have not experienced any material change to our pipeline due to covert 19.
At times like this we value the diversity of our customer base with respect to industry and customer size and the ability for people to deploy a high value low cost solutions in a self directed or remote low touch manner.
But the economic headwinds or early and the unpredictable in magnitude and duration. So as Jamie will discuss we are taking a balanced approach to our outlook.
Returning to results Smartid ended the year, but over 6.3 million total users, including more than 950000 paid licensed users over 9000 domain based customers pay us $5000 per year now representing over 75% Cobar AOR.
[noise] enterprise increasingly recognize the importance and benefits have been powering a dynamic workforce workforce that is now viewed as a composite of employees partners suppliers and customers. The smartchip platform enables business users to work more effectively through rapid configuration and deployment of solutions with a category leading comp.
Nation of capabilities and enterprise strength.
Our success with expansion continues to drive strong retention rates.
Q4, or dollar net retention rate grew to 135%.
During the quarter expansion within our base included 93 companies, increasing your AOR by more than $50000 up from 69 in Q3.
And 28 companies, increasing their air or by more than $100000 up from 17 in Q3.
Longtime customer S&P expanded its use of our platform to attract participation and report results for global skills management program involving nearly 16000 employees.
Smartly provides a single source of accurate data with updates automatically populate it to the sheets in which data resides. In addition, dashboards provide senior executives with customized view, while protecting underlying data from accidental changes.
The ability to easily scale the program as additional departments and geographies are brought online means that S&P can focus on the program and its effectiveness not on the means by which the content is distributed and track.
Expansion by our customers is fueled through both licensed user growth and attach rates for our capabilities based offerings more than 4000 unique customers have purchased one or more of these premium platform capabilities since their introduction.
Im encouraged by the early uptake of our marketing accelerators designed to enable organizations to drive greater effectiveness across a range of high value marketing activities. These accelerators for marketing shared services event management and campaign management enable marketing teams to meet the challenges of complexity constant.
Range and blurred organizational borders.
Additional marketing offerings include our recently introduced content collaboration capabilities resource management capabilities through 10000 feet and an integration with Adobe creative cloud that help creative teams eliminate manual work. So they can focus on creating great content.
Smart you just focused on building in delivering a set of elite experiences for marketers by offering an expanding range of marketing specific capabilities and solutions that integrate with our core platform. We will enable these teams execute measure and report on the effectiveness of their investments.
Let me share an example of how our focus on marketing is delivering value for customers.
I'm living essential oils fast growing direct sales organization with nearly $2 billion and revenue uses smartly to manage hundreds of project requests coming from all over the organization to the North American marketing and creative teams.
They have created a standardized process for prioritizing and signing work to the right people at the right time as well as collaborating on content all in a single solution.
Doing so has brought clarity the young livings cross functional projects greater visibility into their highest priority projects and better equipped to them to make smarter decisions for their customers.
We are committed to ongoing investments to deliver high value solutions built specifically to address the well documented challenges faced by today's marketers.
With the increased attention on our space I appreciate our ability to drawn many years of experience translating the market signal. We've received in the lessons learned from thousands of customer interactions every year.
We use these insights to create products services and solutions that make a real and meaningful difference for our customers businesses.
Among buyers industry analysts and others. There is now an understanding of our relevance and value and Thats important.
That was made clear to me late last year, when I was invited to speak to see iOS from 50 of the world's largest companies to address a private form where they meet to gather information on important trends and concepts. We were invited to help share perspective on why no co development is important to their workforces and organizations.
This invitation was reflective of CIO is recognizing the need to be more proactive about how they can empower and activate a dynamic workforce by supporting the implementation of tools like smart sheet in their organizations.
In addition, we're also now seeing large cap software companies, such as Microsoft Adobe and Salesforce recognized there theres, an orchestration layer sitting either above or below their solutions in an increasing number of enterprises.
This recognition gives me further confidence in explaining to customers smart sheets role in their enterprise software stack.
Our expansion into new geographies remains on track with a strong base of existing customers on which to build our newly established office in Sydney is now online.
We look forward to continuing to expand smartreach position in the Australian market and a pack more broadly.
In closing I am pleased with Smartid strong Q4, our full year results and the opportunity that exists ahead of us.
Despite the current mek uncertain macroeconomic climate I firmly believe that company is well positioned in the short term and for the future.
And with that I'll turn the call over to Jenny Jenny.
Thank you Mark and welcome everyone.
As Mark mentioned, our fourth quarter revenue came in at $78.5 million, a 51% versus a year ago.
Billings came in at $101.5 million up 58% versus a year ago. Our dollar based net retention rate increased to 135% and our average annualized contract value or ACB per domain based customer grew 48% year over year, and we ended the quarter with approximately 84000 domain.
Customers.
Fourth quarter non-GAAP operating loss was $17.3 million as we continued to make investments on our platform and go to market capabilities and non-GAAP net loss per share with 13 cents.
Operating cash flow was negative $42000 and free cash flow was negative $3.6 million.
Ended the quarter with a strong cash and short term investments position a $566 million.
For full fiscal year 2020, we ended with total revenue of $270.9 million, a 52% year over year and billings of $333.6 million up 54% year over year.
Our full year non-GAAP operating loss was $62.8 million, representing a non-GAAP operating margin of negative 23%.
Our free cash flow was negative $26.9 million, representing a free cash flow margin of negative 10%.
Let me dive more into revenue for the quarter of our $78.5 million and total revenue subscription revenue was $71.1 million, a 53% increase versus a year ago.
Services revenue came in at $7.5 million up 31% versus a year ago and represented 9% of total revenue.
Let me move on to metric, we saw strong growth in our larger customers 9079 customers now pay us $5000 are more per year 961, now past $50000 on more per year 350, now pay us $100000 are more per year.
These customer segments grew year over year by 47%, 116% and 138%, respectively, and now represent approximately 75%, 38% and 25% of total HCV.
Our average JCB per domain based customer increased to $3643 for the quarter and our dollar based net retention rate with 135%, a one point increase versus the prior and year ago quarter. The one point increase versus the prior quarter was due to small improvements in both net expansion.
And churn and our churn rate is now below 8%.
Next I'll provide color on the rest of our income statement and a few highlights from our balance sheet unless otherwise stated all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results earnings release and presentation was posted before the call.
In the fourth quarter overall gross margin rounded up to 82% stable with prior quarter.
Subscription gross margin was 88% and professional services margin was 25% professional services margin declined compared to the prior quarter as we added more consultants and used some third parties to deliver on services projects.
Turning to operating expenses general and administrative costs in the fourth quarter were $12.1 million, representing 15% of total revenue flat with the prior quarter as we continue to incur expenses related to Sox readiness.
Research and development was $23.2 million or 30% of total revenue flat with the prior quarter.
Finally sales and marketing expense with $46.2 million or 59% of revenue versus 66% of revenue in the prior quarter and 54% in a year ago quarter.
Sales and marketing as a percentage of revenue improved quarter over quarter with our engage conference behind us while the year over year step up reflected the incremental investments, we're making and brand advertising.
Turning to operating loss in free cash flow operating loss was $17.3 million, representing a negative operating margin of 22% approximately 67% of our total expenses were head count related and we ended the fourth quarter with nearly 1600 employees.
Free cash flow was negative $3.6 million, which includes capex spend capitalized internal use software and principal payments on leases totaling approximately 4% of revenue.
For the full year free cash flow was negative $26.9 million approximately $2 million higher than our previous guidance.
Increase was driven primarily by a payroll change we made in January from paying employees twice monthly to paying them bi weekly, which resulted in an extra stub payroll run in the fourth quarter.
Now turning to billings, our fourth quarter billings were $101.5 million up 58% versus a year ago, we saw acceleration and growth versus the prior quarter driven by continued strong expansion within our larger customers and an increase in a number of deals over 50000 and $100000.
Approximately 92% of our subscription billings were annual with 7% monthly quarterly and multiyear billings represented about 1% of the total.
Before I move onto guidance I wanted to give you an update on a changeable, we'll be making to our metric disclosures beginning this fiscal year.
We will be removing total domain count from our list of key metrics now that 75% of or air our comes from customers, who pay us over $5000 per year, we will focus our customer count disclosures on the number of customers with air are over $5000.
$50000 and $100000, we believe the customer growth and those segments provides the best insight into the effectiveness of our growth strategies. However, our dollar net retention rate will continue to be based on all of our customer segments regardless of size.
I will now provide our guidance for the first quarter and the full fiscal year 2021 to date, we have seen no material impact from cobot 19 to our first quarter, either positive or negative and our pipeline is healthy.
Estimating the potential impact from the covert 19 pandemic beyond the first quarter, however is a bit more challenging.
As Mark said, we are taking a balanced approach to guidance.
Our current full year guidance reflects the composite of our current internal metrics and our best assessment of the risks and opportunities for the remainder of the year.
For the first quarter, we expect total revenue of $82 million to $83 million representing year over year growth of 46% to 48%.
We expect non-GAAP operating loss to come in between 26, and $24 million and non-GAAP net loss per share to be between 21 cents and 19 cents based on weighted average shares outstanding of 118.5 million.
We expect first quarter billings in the range of $97 million to $98 million representing growth of 40% to 42%.
For the full fiscal year 2021, we expect total revenue to be in the range of $373 million to $378 million representing growth of 38% to 40% we.
We expect non-GAAP operating loss to be between 75, and $67 million and non-GAAP net loss per share a between 62 and 55 cents for the year based on approximately 119 million weighted average shares outstanding.
We expect billings to be in the range of $450 million to $455 million for the full fiscal year, representing growth of 35% to 36% versus last year.
For the full year, we're expecting free cash flow margin to be between zero and negative 3% as we continue on our path towards profitability.
We are projecting our Q1 free cash flow to be between negative 30 million negative $27 million consistent with prior quarters. This number is seasonally impacted by our annual bonus payout and compensation increases.
Seasonal payments to suppliers and expanding our sales team in the U.S.U.K. in Australia.
This concludes our prepared remarks, we will now turn it back to the operator to take your questions operator.
Thank you as a reminder to ask a question you'll need to press Star and then one on your telephone to withdraw your question press the pound or Heskey. Please standby as we compile the Q and a roster.
Your first question comes from line of Stan Zlotsky from Morgan Stanley. Your line is open.
Perfect. Thank you. Thank you so much guys and congratulations on very strong quarter.
A couple of questions from my end Jenny as much as you mentioned you you're very cognizant of Koby 19 impact.
Maybe just put a finer point on it.
What.
What considerations did you contemplate as you thought about your guidance for Q1 as well as you the full fiscal year and then I have.
Hello.
Yes, there are so we've done.
Like a number of scenario analysis over the last week. We've also looked at all of our sort of leading indicator metrics a day by day. So if you look at pipeline look at bookings that have been closed any losses any deals being pushed any deal being accelerated how collections are coming.
And we took all of these things into account in sort of providing this balance that mark mentioned.
To set guidance for the year.
We also factored in the fact that on Sunday, we had 100 basis point drop in interest rates that did reduce on did put some reduction and incoming cash flow for the year in that that did influence the guide on our cash flow.
Got it but more maybe more broadly did you may be tweak.
Some of your forward.
Those rate assumptions are against sales productivity assumptions or anything along those lines you anything is versus.
How you may have been looking at you pipeline same time a year ago.
Like I said, we looked at the current metrics that are in front of US down and then we took a balanced approach and getting to where we are out for right now.
Okay got it.
Then just.
Very very high level.
Everything that's going on how are you thinking by your international expansion.
The ability to bring people onboard.
To you go after Asia Pacific and continued expansion in Europe and that's it for me. Thank you.
Hey stand its Mark I think we're really fortunate on timing, but we got our team recruited late last year. We got every we set the table for Onboarding with our scale, which happened to pre seed. This uptick that we're now seeing so again feel very grateful for that timing.
So our UK teams in Australia teams are in place and productive today, everyone working remotely.
What we're continuing forward.
We also continue to onboard employs the mechanisms we have our to stripping equipment, our training them via zoom based methods.
Those those are underway now.
Perfect. Thank you.
Your next question comes from line of Mark Murphy from Jpmorgan. Your line is open.
Yes. Thank you very much congrats on the billings acceleration in the improvement in.
[noise] in churn very nice to see that very nice surprises Mark we did notice how quickly you pivoted your messaging on the website you have the temp lets where the Corona virus awareness, you're talking about the ability to work from anywhere while staying connected and.
How to handle the transition to rebuild kims I guess I'm, just curious how well is that pivot resonating with customers.
Is there a tangible tailwind to bookings that you see here or is it more of an emphasis on some of the free products that you seem to be providing to help people can be the crisis.
Yes in terms of a tailwind mark we're really not seeing a monster tailwind yet I think what I would say much like when people ask me a year ago, Mark what would you most like to have divested engineer. The salesperson the best New feature and I would say I would love people to understand the possibilities of what's available to them.
I think what this has done is this has become a forcing function for many people to understand how to utilize technology they're advantage.
So that is being discovered now people are having to discover that so part of our job is not just to say, here's a device or here's now, but informing them of how to do it. So one of the reasons. We put template is out. These are these are mechanism mechanisms to get introduced to our world and we all wish that this wasn't the mechanism to do it absolutely.
You have to educate you have to enroll and gives people confidence to move forward and I think some of things we're doing are giving people comfort.
Thank you for that I wanted to ask you as well I think that slack commented on seeing a bit of a jump in some of the new free users sign ups as a result of this kind of work from home trend.
Is that anything that you've seen or expect to see or is there any or can you talk to us at a high level in terms of just what's going on.
With that piece of non paying users are collaborators.
Yeah, we haven't seen any any meaningful jumps I would say.
In our market, unlike a communication or video conferencing market, where you have the option if you're working in your office to speak to someone face to face.
In our in our world see the product and the ability to collaborate was always.
Technology base, there wasn't the alternative booking never going to manually cycle. This information. So there really hasn't been a major change in that respect if the work pattern I would say in terms of the free trials in the uptick we're continuing to see growth. So we have not seen a dramatic uptick as a result of this.
I hear what one last one Jenny maybe you could comment on this that number of deals or the percentage of situations, which had a competitor.
President in them in Q4 can you talk to us at a high level, but you've seen there.
Yeah, I mean, it the trends haven't changed at all Mark we still see very few competitive deals in our space right now.
Thank you.
Your next question comes from line of Richard Davis from Canaccord. Your line is open.
Hey, thanks.
Question again from all the I know my companies, but for you guys would it be off by a lot if I kind of estimated that.
Hospitality transportation energy is like.
15% of revenues is that that a ballpark I'm just trying to help investors you know.
I think through the life and times that were in thanks.
Yeah, our exposure Richard to hospitality Airlines retail, 3.8% of a totally or.
Okay, so even smaller cool.
I guess I'm wondering what I think it's hard to great. Thanks, Richard about having a diverse set of industries, representing our air or.
Even when you look at Super categories around the technology realm that is still as a super category less than 20% of our error. So we do not have this exposure to any one thing and in this case.
That will help defend the Ford nicely.
Yes I.
Hi, Great Cool I'll, let the next person that's a question. Thank you so much.
Your next question comes from mine of Alex Zukin from RBC capital markets. Your line is open.
Hey, guys. Thanks for taking my question Mark just though a flooding you guys for for the LP, providing federal government dealing with this crisis.
I guess maybe.
Just the first question is what are you seeing in terms of incremental adoption trends of some of the capabilities product products that you're putting out there and anything in terms of <unk>.
More use case driven.
Modules that you put out there over the recent quarter, that's maybe driven some of that increase in enterprise activity and the billings acceleration.
Yes, Hi, Alex This is James Fair all alternate on this one I think that Theres, probably I'll call. It three areas, where we're seeing.
Increased adoption.
Specific to marketing content use cases were seeing very nice pickup and our content collaboration capabilities that we launched engage last year.
Literally thousands of customers.
Start to adopt those capabilities and we're seeing double digit increases week over week.
Usage in creation of proofs.
And using that capability to collaborate around content.
And those are built into our marketing accelerators as well, which.
Our some of the fastest growing accelerators, we've seen they were we sold.
All three of the marketing salary were sold in the fourth quarter.
Contributed to our best quarter for accelerator sales.
Outside of that 10000 feet and resource.
Management is another bright spot for us, we're seeing a lot of customer interest in uptake.
In leveraging combination 10000 feet and smart she to manage their resources more effectively.
In the last thing I would touch on is the new conversations in context capability that we launched engage we've seen a meaningful increase and the number of conversations and commenting that's happening within sheets and the amount of collaborations hopping around content and work being managed with smart sheet.
And Alan just to add onto capabilities as a percentage of revenue is now at a subscription revenue is now at 12% versus 10% in Q3 and as a percentage of book of billing there at 15% versus 11% in Q3. So we are seeing nice uptake overall there.
That's super helpful.
And I guess, maybe just as a follow up maybe for mark or.
You Jenny.
As we think about just in general.
Your level of insulation from disruption from either a sales and go to market perspective, whether theres more direct selling involved or more of an inside sales motion.
Were you know whether you're driving most of your revenue from new logos versus monetization of existing just remind us or help set the stage for us.
Around what makes your model potentially maybe more insulated in times of volatility versus maybe some of your peers or others in the industry.
Yes, Alex I think it's I guess, we're going to be pretty balanced in terms of calling the ball and whether or not we're insulated or not but I look at sort of practical.
Approaches to reaching out to someone trying to contact the vast majority of our quota carrying reps sell to territories that are entirely comprised of existing customer relationships. So if I reached out to you Alex wanting a sales call you've never heard of me before the likely have you pick up front to respond to be am I would say is lower than someone with whom I have a relationship.
And I think we that will serve as a as a potentially in insulating effect for us.
Most of our 90% of our quota carrying reps are inside base. They are ready communicating digitally with their customers. The fact, who the dream up from the home that doesn't change that didn't dynamic.
And even our field based reps a minority of our field 10, 10% of a quota carrying reps a minority of their time spent physically onsite at our customers. So those are a few attributes that I think serve us well I think I'd just add we also of course for an online self service solution, which allows customers.
To get up and running really quickly if they if they want to and they don't want to talk to anybody.
Perfect. Thank you guys they said.
Thanks, John.
Your next question comes from the line of but sell from Jefferies. Your line is open.
Good afternoon, Mark if you could just expand on the strength, you're seeing among large enterprise and.
How you look at this year versus kind of last year in Jenny you had set a goal for 300 sales reps did you achieved that goal.
I think we are within two yes, the answer is yes.
Yes.
Think in terms of the in terms of the enterprise success.
We're still not talking about you know seven figure deals wall to wall transactions, but we are definitely climbing the latter of divisional success getting visibility at the C suite and solving solving and addressing solution needs.
And I think what what helps is when you have a combination of the ability to automate information automate were visualize work through dashboards like the S&P example, I gave on the earnings call that is very helpful.
And then engaging I T and say how does it not only approved but how does it start to advocate and when you look at the offering set now whether it's on the content word that people have which in the past has been an I.T. initiative in many cases, we are able to respond better. So I think that can positive ICTI executive worker status.
Serving us well in some of this growth.
Thank you.
Your next question comes to provide a medium kidron from Oppenheimer. Your line is open.
Hey, guys.
Maybe you can talk about the fed ramp.
How's that been going for you and then again I'm sorry to trying to dig in a little bit to deep on this but can you comment specifically on your business in Europe.
I'm not imagining you're doing too much over there, but Italy, France, Germany UK.
It's just hard to believe nothing has changed over the last two three weeks over there.
Yes.
Good to speak with you in terms of those markets for us those are very very small in terms of or overall our.
In terms of looking at the lead growth in those affected markets.
That is a level of detail it's below the level of materiality for us. So that has not been our top top objective in terms of in terms of tracking and making decisions on guide.
In terms the fed ramp status.
Times like this get us front and center with agencies that are having to react to situation.
We're not looking at this in the immediate term as an economic pursuit. We are looking to have impact with them I think through demonstrating amazing solutions I think they're going to be.
Surprised at how quickly we can move and types of value, we can deliver hopefully that pays dividends for us as we get into this year and as we get passed this this pandemic.
Got it and then one follow up.
No.
Things are changing very quickly.
And I guess I was wondering even though you haven't seen much impact if at all on your business at this point.
If anything in your offering assumptions has changed and then when you and when I mean that is specifically with respect to hiring.
Are you a debate at least on the margin holdings things off delaying hiring decisions or you're still moving along at the same pace.
Relative to your plan for the year.
Yes, I think this is one of those Ittai, where you have to be have a lot of conviction around your capital allocation.
And then having having worked and lived through 2000, having worked and lived through 2007 eight now living through this.
We've seen a lot of different types of reactions.
We have over half billions of dollars on our balance sheet. We have no debt, we expect to be a company that succeeds over the long term. So the wrong move we believe is to pull back on product development and innovation. We look at daily we have daily stand ups now as senior leadership team at 830 every morning, we assess a series of early indicators that give us a sense for a heartbeat.
And we have a number of levers that we can pull on things that are discretionary spend oh, we're continuing to onboard sales reps.
And until we see indicators that tell us otherwise, we're going to continue to do that full force.
Very good good luck guys.
Thanks.
Your next question comes from the line of Arjun body from William Blair. Your line is open.
Hey, there congrats on a quarter and glad to hear all the steps you're taking to support the testing efforts maybe to start off on.
The marketing front.
You know I know you've taken you've introduced a handful of accelerators and slope acquisition and Adobe integration, but how should we think about this this audience for the marketing audience for smart sheet. This.
Is this a new user group that you're trying to attract with all these product development efforts and additional in addition to the.
Project managers and IP ops, both of you have already or is this.
Is this a group that you have a foothold in and you're just trying to equip them with maybe a more curated solution and more advance tools.
Okay.
Rooms gene I'll take this one I think for US it's really a recognition. We've we've got lots of Mark can use cases that we support today, but I think it was a recognition on our part of a need that we thought we weren't meeting.
For some of our customers for more advanced marketing workflows and marketing is one of those.
Functions it really exists in almost every company in industry and many times is a light house or or very visible part of how companies actually execute market. It's also an area, where you're typically collaborating across both internal and external stakeholders with agencies and other creative groups and so we felt it was.
Really well suited for us to.
To to invest to provide higher level solution, so adding content collaboration adding the.
Resource management capabilities.
And we've got to a fairly aggressive investment pipeline to build out additional capabilities to really support those use cases in a very robust way so.
In a way I would say, it's an expansion of an area, where we've landed in many companies, but really an opportunity for us to up level and support them with truly elite.
Abilities and experiences.
Got it thanks, James and Gennine, maybe a follow up for you nice to see the uptick in the net dollar retention rate in Q4 can you just maybe.
Help us.
Stage, what we should expect going into into 2020 or you are you still seeing some of the older cohorts expand and maybe biomar accelerators and just higher level, what should we expect on the net dollar retention rates aren't.
Going into the next fiscal year ago.
Yes, so our our best estimate for Q1 is that we'll continue to see a net dollar retention rate above 130% so very healthy.
In terms of the full year guidance right now currently contemplates a non net dollar retention rate in the mid twentys by the end of the year and Thats subject to change as we get through each quarter.
Got it thank you.
Your next question comes from the line of Terry Tillman from Suntrust Robinson. Your line is open.
Hey margin in Aaron Congrats on the quarter I guess up Mark first question is for you and other put you on the spot, but sitting in front of that the CIO as well first of all I think thats kind of symbolic and where we are what the market in the kind of realization of this category but.
I was curious if maybe you actually sold any business. When you were part of that group, but I guess more broadly speaking talking to see iOS and C level executives do you foresee at some point, though where the starts to be a conversation about wall to wall standardization and I've asked did this in the past, but you do tend to see markets kind of evolve that way, so I would love to hear a little bit more on.
Maybe the feedback you're getting from those scenarios and C level folks.
Yes, Hey, Terry.
View on this is I think theres a lot of.
Focus on wall to wall and it may be premature I think first we need people to understand how it fits in the stack. There's a lot enterprise software Thats purchased that is not wall to wall that doesn't touch every end user. So that's actually not how CIO as we're thinking about many solutions first they're getting comfortable with what is that how does sit alongside my other systems, where does is it.
Hi, stack, who can use this is my core team as is the business users. This my citizen developer those conversations are happening I love. The opening volume was actually two groups of 25 in private session and my opening Lloyd second one was one of the reasons I'm here is because I'm available to you to answer how smartid is being used in your organizations because.
As it exists in 90% of your organizations.
And then there was a long pause and it's that type of dynamic they recognize it's there and what I'm sensing is a shift in Ceos from.
They still care deeply about rationalization, making smart choices, but there are no longer centered on I need one solution for everything or even one solution. This specific category, they're saying I need fewer and they're picking the best ones.
So that's the that's how the conversation is going in terms of did we sell only because we did get a couple of great conversation subsequent.
Which were which happened in Q4, one of them I know culminated in business and.
I think over time, it's really a stair step and I do expect overtime, we're talking years I.
I expect us to have some wall to wall, but again that there's not that is not the key thing we're marking a success right now.
Understood I guess any a question I think this was the last quarter, but I think you caveat. It in terms of there could be some puts and takes in terms of the billings and revenue coming from capability based products because of the product and packaging and maybe how you bundle going forward or was there any kind of potential opportunity where you could be bundling.
Some of these capability based products in the core offering so we may not necessarily see that separate breakouts, maybe a little bit more on that thank you.
Yeah. In fact, we we do do that we how they apply on license called on premium which include some of the capabilities and that's been growing really nicely. It is excluded from the numbers I gave you, but if you added that and you would see further increase and the capabilities as a percentage of revenue and billings.
Gary Let me chime in as well this is James.
The other thing that we're evaluating is with some of our larger customers. We are looking at some new packaging and pricing configurations that.
Bundle.
The vast majority of our capabilities into a platform based licensing structure to really enable organizations to really leverage the entire suite.
To really extend and expand the power smart sheet across across our business. So we're absolutely starting to experiment with those types of offerings.
Thanks.
Your next question comes from a line of Scott Berg from Needham Your line is open.
Hi, everyone. Congrats on a great quarter and thanks for taking my questions I guess to get two quick ones first of all on the International front you guys are clearly, making a stronger push their city difference on how the customers use the capability solution.
First of all and then second it kind of in conjunction with that is is the buying kind of pattern does that deferred all internationally from what you see domestically.
Hi, Scott I would say from what we've seen in probably the most evidence we have is from the UK.
Let's see a material difference in fact, what we find is that customers, particularly when we have reps on the ground that can.
Better understand their businesses help them configure solutions.
We see very similar patterns, what we see in the U.S. and I think as evidenced by our net dollar retention actually.
Starting to catch up in other parts of the world, where we have boots on the ground with the U.S. and so we've got many customers in Europe that are leveraging our premium capabilities. So we think thats the pattern that we have in the U.S.. We think we can replicate.
In most other developed markets.
[noise] I've got it helpful. And then from a follow up perspective, you had mentioned.
Your services gross margins were a little bit weaker based on some consultants and third parties that were involved with implementations.
Maybe mark or maybe it's for Jennie key comment on the overall healthcare environment of your Parker partner ecosystem and their ability to flex kind of right now or maybe over the next quarter to based on what you're well at your sales requirements are.
Yeah, we're definitely increasing capacity in the system, we when we launched our our new partner program last year, we had a couple of hundred partners already enrolled what we're looking what we've done in the last couple of months. We've identified some additional service delivery partners on the capacity side, which allow us to respond more quickly to grow.
In demand.
Again, a lot of this services work is delivered remotely.
In the form of either training for configuration services or implementation of accelerators.
But I would expect us to continue to lean heavily on those skilled resources.
Got it helpful. Thanks for taking my question.
Yes, Thanks, Doug.
Your next question comes from the line of Keith Bachman from Bank of Montreal. Your line is open.
Hi, Thank you I had two questions. The first is.
Understand both in the growth of average domain HCV in the dollar base net retention, which are really strong metrics. How important has price increases on a like for like basis, not mix, but price increases been on the growth of those attributes.
It's been it's been diminimus or we have the approach we've taken.
On the vast majority of new offerings has been.
It's either new plan or to new capability that someone can opt into.
I would say.
Well under well low single digits of impact in terms of price increase driving these figures okay excellent and then the second question.
Building off the F 21 guidance roughly 21 guidance I should say can you just confirmed that investors should expect the operating income in free cash flow to continue to move towards your longer term targets theres been no change in aspirations there.
That's correct, okay, great. Thanks very much.
Your next question comes from the line of Steve Koenig from Wedbush Securities. Your line is open.
Hi, Marty Thanks for taking my question.
I'll just leave it at one question here you all talked a little bit about what was driving your sales and marketing up as a percentage of revenue the investments in the branding and awareness.
How do we think about.
Trend this year on sales and marketing that start to come down as a percent et cetera, you know maybe in your baseline scenario and then maybe you could it.
You addressed your commitment to.
Turning to invest in product innovation.
Any contingency plans on sales and marketing and some of your other scenarios.
Yeah, so on the sales and marketing the marketing specifically for this coming year really spending about the same amount as we did last year, maybe a slightly up on a percentage basis it should come down.
And that is up marketing only or is that that's the whole sales marketing follow us overall sales and marketing incorporating the marketing should come down as percentage of revenue a bit.
Got it got it and then any thoughts on contingency planning around I'm.
Saturations gut feel a lot worse out there.
Yeah, I mean, we definitely are monitoring on really closely our key metrics every day, if things turn negative for any reason, we have a number of levers to pull and that includes slowing down our pace of hiring but we are hiring this year. So I do expect a number of folks its archie to increase I will.
Look at some other expenses like travel already travels coming down a bit since no. One can travel at the moment and then we'll look at marketing, but as Mark mentioned a this is also an opportunity to really invested help help customers help our employees and Thats really what we're focused on right now.
Got it got it thank you very much.
Thank you.
A question comes from the line of lease highs Tilera from D.A. Davidson. Your line is open.
Hi, guys. This is hana on for issue today. Thank you for taking my questions. So you've talked about what you've seen from customers and your business model, but have you seen any noticeable disruption within your business given your headquartered in Bellevue.
We have an I think what I would give real kudos to is our people operations team, who I would say was leading in our city. We were not a follower. So the steps. We took immediately was to inform people when we transition to work from home model. It was no surprise.
Wise, we had I would say really good advance notice people felt informed and I think when you. When you look at the inputs to what makes for a smooth transition. It's not just do you have the infrastructure do you have the tooling do you have people psychologically aligned correctly and I would say, that's what our team really didnt nicely.
Okay good to hear.
Then on 10000 feet was the performance of that in 2019 inline with what you initially expected and is there anything left to do on integration front there.
Yes. It was absolutely in line, we're really happy with that acquisition and I would say yet we continue we continue to work on integration, but we're making good progress.
Yeah I'd just add we are we're right now in private beta with the integration with many customers and we expect to have that available to all customers and Andy.
Next two months, so really excited about the path forward there.
Great. Thank you.
Your next question comes from the line of Brett Knob Wash from Bear number your line is open.
Hi, Thanks for taking my question congrats on the good quarter.
Regarding your revenue guide I guess relative to last year, assuming similar contribution from existing customers and.
New customers.
I guess or maybe as this year, maybe more heavily weighted to existing customers given the macro backdrop.
So in terms of our guidance this year relative to last year, it's not significantly different in terms of what we expect from kinetic sand perspective dollar net retention rate new business, it's still pretty consistent.
Okay, and then if you know.
I guess the macro backdrop kind of continues to worsen would you think.
Kind of reducing the advertising spend to kind of grow brand awareness, given you'd probably see a lower our lives from kind of IP, but it's getting class. So I guess less opportunities for new business expansion.
I mean, that's what we're looking we look at all of our spend areas to determine which ones are generating more ROI than others and marketing could be one area on if we're not seeing yield the from it will certainly pull back until the market environment changes.
Okay, great. Thanks, guys.
There are no further questions at this time Mr., Aaron Turner I turn the call back over to you.
Great well. Thank you all for joining US today, we look forward to speaking with you again next quarter.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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