Q1 2021 Smartsheet Inc Earnings Call
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Great. Thank you Jesse good afternoon, and welcome everyone to spreadsheets first quarter fiscal year 2021 earnings call, we'll be discussing the results announced in our press release issued after the market close today.
With me today, our CEO smart sheets, CEO, mark meter and our CFO, Jennifer shrimp, our chief product Officer Gene Farrell will also be available during the Q and <unk> today's call is being webcast and well also be available for replay on our Investor Relations website at investors that Smartid Dot com, there's a slide presentation that accompanies jennifers prepared remarks, which can be viewed in the event section of aren't.
Mr Relations website.
During this call 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 trends, if future events financial trends and our expectations around the impact of carbon 19 on our business. These forward looking statements are subject to a number of risks and other factors, including but not limited to.
As described in our SEC filings available on our Investor Relations website and on the FCC website at Www Dot FCC Dot Gov. Although he believes the expectations reflected in the forward looking statements are reasonable our 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.
And 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. Thank you Aaron and thank you everyone for joining us our first quarter earnings call.
The last couple of months of underscore just how interconnected we are our communities employees customers and partners.
And that spirit I'm pleased to see our team despite significant disruptions to our collective personal professional lives is work to support one another.
Our team's commitment to each other and to our customers has never been stronger despite or perhaps because of these extraordinary circumstances I'm grateful for the teams work and dedication.
For the first quarter, we generated revenue of $85.5 million and non-GAAP operating loss of $13.6 million above the guidance. We said in March well billings came in below our guidance at $89.9 million as a result or have a lower net dollar retention rate and the extension of accommodations to customers impacted by cope.
Good.
Since the onset of the pandemic, we've seen how the speed with which the smart XI platform can be deployed and the agility that enables has aided in our customers response to covert.
For example, a global health care customer recently expanded their use of smart sheet in order to coordinate the scale distribution of antibody test to thousands of analyzers at hundreds of lab sites across the U.S.
The speed with which the smartly powered solution could move from concept to production became clear differentiator and demonstrated our ability to rapidly orchestrate high value enterprise scale workloads.
In March we made available a set of templates that enable the creation of a cobot operations dashboard to date. The offering has deployed nearly 14000 times as an information hub and resource center for employees and as a way that organizations can assess risks and collect data on health changes in their employee base.
We're also supporting the government's ongoing response to cobot as announced during our last call U.S. government agencies responding to the crisis can use are fed ramp authorized environment Smartid Gov free of charge and without obligation.
To date, nearly 100 federal state and local agencies have availed themselves of this offer.
Well on the topic of Smartid Gov, I'll mention that we made significant progress toward achieving department of defense impact level for ill for authorization.
Doing so will enable the aerospace and deal these sectors to securely and efficiently deploy smartchip platform to modernize their workflows and processes.
We believe we're in a solid position to expand the use of Smarttv me sectors and expect to achieve aisle for authorization in the near future.
We saw many organizations on the front lines of cobot significantly increased the use of Smartid. During the first quarter. For example, the department of health and mental hygiene for one, particularly hard hit American City.
So there are number of active users increased by 712 fold increase.
Medical Air Transport company, which has been a smartid customer since 2015, so active users increased by more than 1500, a tenfold increase.
And a payment processing company for vehicle fleets increase their usage by nearly 1800 active users and eight fold increase.
Overall total users were over 6.75 million at the end of Q1 up from 6.3 million at the end of Q4.
These and many other enterprises now recognize this march it has become an increasingly mission critical platform for empowering and enabling a dynamic workforce.
The workforce capable of working from anywhere adapting to rapidly changing conditions and staying deeply connected to their individual work and the mission of their team.
Helping customers adapt to an abrupt shift in their business operations was a hallmark of our first quarter.
To that end our product team developed and deployed 30 template set specifically designed to help our customers manage through the crisis.
These temple is focused on areas such as CDC preparedness, pp inventory tracking and remote employee onboarding to name just a few.
They were deployed over 37000 times in Q1.
More recently as customers begin planning for a safe and responsible return to the workplace, we're releasing assets to help organizations manage risk and employee awareness.
We also launched a number of meaningful updates to our product this quarter, including larger faster sheets, and new form builder with conditional logic Smartid extension for Adobe creative cloud and an accelerator for CCP, a California's new privacy regulations that arguments are GDPR accelerator, enabling customers to comply.
With the latest privacy regulations.
Preliminary analysis of Mays pipeline development and sales performance suggested stabilization of the disruption caused by cobot.
Early data reinforces our commitment to investing such that smart sheet is best positioned for continued growth and category leadership.
At a time when collaborative work management solutions are increasingly recognized as an effective mechanism for delivering digital transformation and high value workflows, we are allocating our capital to expand product development and innovation deepen our selling capacity and position us as a company that succeeds over the long term.
As enterprises recognize the importance and if adapting to new work from home reality.
We were able to quickly respond and be in market with a campaign, highlighting smart sheets ability to empower dynamic and agile workforces.
Workforces capable of being productive from anywhere.
As these companies emerge from the initial phase of the cobot disruption and seek to build organizational resilience and agility, we will promote the value in importance of using smart sheet to help businesses everywhere navigate a change world.
In a few minutes Jenny will walk through the details of our Q1 financial results I feel we had a good first quarter given the market conditions.
It has been a challenging time for many businesses, but the churn impact was most pronounced among our SMB customers. In addition, the net expansion rate, which includes gross expansions and reductions declined but remained a healthy hundred 40%.
That said the broad and diverse set of industries that makeup smart sheets air our served to diminish the impact is other segments, such as life science, healthcare and finance and technology performed well.
Despite an evolving sales environment trial activity remains strong and we saw many large organizations continuing to lean in 15 customers expanded their air or by more than 100000 versus 13 in Q1 a year ago.
51 companies expanded their air or by over 50000 in Q1 versus 34 same quarter, a year ago and at the end of Q1, we had six customers with air our of more than a million dollars.
Even before cobot the world of work was already in the midst of rapid evolution.
It had become more distributed than ever and the secular shift the digital workflows had begun in earnest.
The disruption has proven to be a tipping point because it brought a new an unforeseen variable that pivot to widespread remote work into the mix.
The business leaders and customers. We are look we're serving our looking over the horizon. They understand that thriving now and in the future goes well beyond connecting people through communication tools.
Success than high performance will not come simply from outer communicating.
They know that to ensure their business is prepared to meet the changing needs of their customers to continue to innovate and to empower their teams to succeed do they need instead to out execute our process out automate and out interpret the important signals their business receives every day.
And as enterprises across the globe seek to enhance their ability to respond no matter. The circumstance the value of smart sheets work execution platform will become increasingly relevant and increasingly clear.
The conviction, we have for the value of our offerings and opportunity to transform businesses remains strong.
Though cobot presented itself mid stride, we are not hesitating, but staking taking steps forward. We continue to focus on international expansion, our government initiatives increased sales and service capacity brand marketing and product innovation.
Cobot is more than an accelerant, causing the inevitable to happen sooner.
Market needs and expectations are vectoring in a new dimension, it's not work from the office or work from home, it's a hybrid.
It's not collaboration through video or collaboration to work execution, it's a balance of the too.
And it's not ITD driven digital transformation for business unit led change it's the two working together.
I believe that there's a strong return unbalancing optimism with realism. It's why we're working as best we can to enroll people in what is possible empower them to achieve and partner in navigating a new landscape.
With that let me turn the call over to Jenny to provide additional detail on our financial results any.
Thank you Mark and good afternoon, everyone, we delivered better than expected revenue operating loss and net income for the first quarter.
Free cash flow came in within our guidance range, while billings came in below and we experienced some headwinds from customers impacted by cobot in the back half of the quarter.
Revenue was $85.5 million of 52% year over year, and billings were $89.9 million up 30% versus last year.
Many large industries and organizations and particularly those in the front lines of coded exhibited strong demand for our product.
Annual recurring revenue or air are coming from our Fortune 500 customers grew 48% year over year in Q1, and 79% of a fortune 500 are now she customer.
Contrasting enterprise strength, we saw koby related softness in our SMB segment, which represented approximately 28%.
At the end of the quarter and from customers in certain impacted industry segments, notably travel and hospitality and retail.
We care deeply about the well being of our customer and as such supported those most impacted with extended terms or adjustments to quarterly and semi annual billing.
To support had a negative impact to our billings growth rate in the quarter.
Our operating loss came in better than expected at negative $13.6 million and free cash flow was negative $28.2 million.
During the quarter, our cost structure benefited from savings generated from our work from home environment as well is lower than planned marketing investments.
Extending payment terms to some customers offset some of the cost savings achieved resulting in free cash flow that within range.
Despite the negative effects of probing on the global economy, We believe our long term market opportunity remains significant the ability to deliver real time workflows and digital solution to an even more distributed workforce is more important than ever today.
Given this belief we continue to invest in our most important go to market initiatives and product plan.
We'll host our engage cost customer conference I think virtual event on October Onest and look forward to bring together in much larger global community for an online day of learning and new product announcement.
We make these decisions from a position of financial strength as we remain well capitalized with $544 million of cash on the balance sheet and no debt at the end of the quarter.
Next I'll provide more color on our first quarter financial results unless otherwise stated all references to our expenses and operating result on a non-GAAP basis reconciled to our GAAP results.
And presentations that was posted before the call.
As I mentioned first quarter revenue came in at $85.5 million, a 52% year over year subscription revenue was $77.2 million representing year over year growth of 52% and services revenue was $8.3 million representing year over year growth of 42%.
To strengthen our subscription revenue growth rate was helped by customer demand across many industries, including life Sciences healthcare technology manufacturing and finance.
Our services revenue growth rate accelerated versus the fourth quarter as we delivered on a large services backlog as we are already set up to work in a fully digital environment. Our team was able to deliver on customer training and professional services remotely.
Turning to billing first quarter billings came in at $89.9 million I've mentioned, we saw an impact from cobot on larger customers and impacted industries and on the SMB segment, which we define organization with fewer than 200 employees.
In addition, when requested and where appropriate we offered covert billing accommodations to help with customers cash flow constraint.
These accommodations and other related actions did colvin reduce our billings by approximately $2 million.
For the quarter, approximately 89% of our subscription billings were annual with 8% monthly quarterly semiannual and multiyear billings represented over 2% of the total.
Turning to reported metrics, we now have 9576 customers paying a $5000 and more per year 1040, paying more than $50000 and more per year and 391 now paying its $100000 are more per year.
These segments grew 41%, 101% and 107% versus a year ago, respectively, and now represent 77%, 40% and 26% of total air are.
Our domain average HCV grew 45% year over year to $3866 as we continued to see expansion from more licenses and additional products to plan and track work build workflows and create dashboards for visibility and reporting.
Our net dollar retention rate declined three percentage points from the prior quarter to 132%. The decline was driven by lower net expansion rate, while the churn rate improved by a 10th of 1% compared to the end in the prior quarter and rounded up to 8%.
Due to the ongoing impact from Cobot, we expect our net dollar retention rate to trend down during the second quarter to the high when Twentys.
Turning to gross margin our total gross margin declined one percentage point to 81% driven by incremental costs related to our migration to the public cloud.
We are ahead of schedule to complete this transition during the fiscal year and expect our gross margin should trend towards our long term target of 70% to 80% as a result.
Turning to operating expenses.
Sales and marketing expense as a percentage of revenue was 58% one percentage point better than both the prior and year ago quarter research and development as a percentage of revenue was 24% six percentage points better than the prior quarter, an eight percentage points better than a year ago quarter.
General and administrative costs as a percentage of revenue was 14%, one and two percentage points better than the prior and year ago quarters, respectively.
Scale and operating cross during the quarter was driven predominantly by lower than planned personnel travel and marketing expenses.
Operating loss in the quarter was negative $13.6 million and free cash flow was negative $28.2 million operating loss was better than expected due to reduced spend in several areas mentioned above.
Our personnel expenses represented 67% of our total expenses.
We have slowed the pace of hiring but intend to continue to add headcount where needed to support our planned investments.
Now, let me move on to guidance, while we remain bullish on our path to $1 billion revenue. We expect it coldwell continued to impact the demand environment, especially in certain segments in the near term.
So against this backdrop, we are adjusting our full year topline revenue guidance, assuming that cobot will continue to be a headwind for the remainder of the year.
As Mark mentioned earlier, we will continue investing against our key initiatives, notably our migration to the public cloud new enterprise capabilities and functionality in our platform in product our brand and engage conference and systems to scale our operation.
For the second fiscal quarter, we expect revenue to be in the range of 86 million and $87 million billings to be in the range of 91 million and $93 million operating loss to be in the range of negative 21 million negative $19 million and non-GAAP net loss per share to be between 18 cents and 16 cents based on weighted average.
Shares outstanding of 119.5 million.
Our free cash flow is expected to be in the range of negative 11 million negative $9 million.
For the full fiscal year, we expect our revenue to be in the range of 360 million to $370 million operating loss to be in the range of negative 65 million negative $55 million and non-GAAP net loss per share between 54 cents and 45 cents for the year based on approximately 119.5 million weighted average.
Shares outstanding.
Due to our limited visibility into the back half of the year stemming from co, but we are withdrawing our previous full your billings and free cash flow guidance. However, we are providing directional guidance for free cash flow given the size of the market opportunity and our decision to invest for the long term growth of our business, we expect our free cash flow burn for fiscal year 21.
Seed the low end of our previously issued guidance of negative $11 million.
I will now turn it over to the operator for questions operator.
Thank you at this time I'd like to remind everyone in order to ask the question. Please press Star then one on your telephone keypad again star one in order to ask a question.
Pause just moment to compile the kuni roster.
Your first question comes from Harchandani with William Blair. Your line is open.
Hi, guys. Thanks for taking my questions. Mark you mentioned this in your prepared remarks briefly but I was hoping you could just elaborate a little bit on some of the stabilization trends that you.
You saw in May and if you could specifically maybe talk about the how some of the pipeline dynamics have evolved over the past a handful of weeks that'd be great.
Yes, I think through throughout May we saw a good improvement in terms of opportunity development.
To a point, where we're exiting the past with the most significant we've had the pipeline we've had leaving any month in the history of the company.
This isn't just at the enterprise layer. This is really across the stack.
Quarter on quarter every single one of our.
Customer segments in terms of company size increased in aerostar.
And both our commercial reps and strategic reps that are very productive month and building the pipeline and now we're now we need to go execute on.
And investing in both the product in kind of the go to market function.
How do you think the current environment impacts that and when we look into the other side of this should we think of smart sheet is accelerating on the on the enterprise Frac that it's been on or do you think it's going to be relatively steady in the trend that it's that you've been performed so far.
Well I'm very grateful that we made that decision a couple of years ago, because as we talked to customers who are looking to make investment decisions.
AD hoc purchases as scale aren't happening much your ability to connect to real business value and articulate how process can change in our customer experience changes that matters today.
And the transactions, we've closed some of which were material in the quarter significant size, we're hook to those types of business processes and business impacts. So I'm quite pleased with that continued move.
The customer second we've heard in the prior couple of years around our focus in developing elite experiences for marketers. For example, these are all get I guess conversations that a couple of years ago, we weren't getting so I'm very pleased that were deepening the offering I'm pleased that we can speak at a different elevation within companies.
Got it alright, thank you for taking my questions.
Yes.
Your next question comes from David Hynes with Canaccord. Your line is open.
[laughter].
Hey, Good morning, guys are afternoon, Mark just trying to think through kind of where you've seen some of the impact are there certain.
Use cases that.
Used to drive more growth that.
Yes, you haven't seen as much momentum in or is it really just SMB and certain verticals that have been Josh.
Yes, I think the it's really that some of the decisions that we go through as a business. You know were inspecting every every investment decision north of 25000 within our own business and we're we're seeing that within our customers as well so.
The transactions that are that are flowing freely are the ones that are clearly business clearly articulated habit business exact sponsor again, we're talking about the transactions that size businesses still happening on the micro transactions right, but if anything has sort of a five digit number in north that is having a different close process than it has had in the past so we've adjusted our.
Mechanisms, we have adjusted how we work with our sales reps and how we checked down as we go through that pipeline with them.
So the what we saw on the SMB side, we saw a little bit more pronounced the full churn on the SMB side and at the at the larger companies. It really wasn't a change in full churn our overall loss rate actually improved on the quarter, but we did see the delay or the deferral of some decisions I think we're seeing companies try to figure out where when his reopening going to happen.
What's the shape of the recovery and a lot of people are still asking those questions. Much like we are as a provider.
Yes, I wanted just to add a little bit to what Mark said from an industry perspective, there were a number of interest industry to dollar not retention rate increased inside so we think about healthcare telecommunications finance education, we actually saw acceleration in the dollar net retention rate, where we saw a deceleration more pronounced we're in.
Sectors that truly are being heavily impacted by kovats as a retail industry as well as travel and hospitality both declined in that that influence the overall outcome of our business results.
Okay. That's helpful and then Johnny just I want to make sure I heard you right on the billing shortfall in the quarter. So it was 2 million attributable to flexible payment terms gross attrition was.
Unchanged and.
The.
Other delta that would have been driven by lower upsells that the right way to frame.
Exactly the that is exactly yes.
Okay perfect. Thanks, guys.
Your next question comes to stand Blocky with Morgan Stanley. Your line is open.
Hey, guys. Good afternoon, and thank you so much for taking my questions.
A couple from my end.
When when you guys think about.
The.
Withdrawal of guidance for the rest of the year and you noted limited visibility.
Help us kind of rank where that you have the least visibility is it on potential for further churn.
Is that.
Continuing and when I say guidance billings guidance right is it continue is continuing changes to billing payment terms or is it just straight up your uncertainty around new logo acquisition.
I think a lot of the the guidance is influenced stand by what we're looking at the schedule for things coming back online and as we look at the hiring decisions, we're making the first half we have very good visibility and what's happening. This month in the next month in terms of second half the decision to increase quota carrying reps is going to be.
No what we see on the macroeconomic side, what we see within our state of Washington, New York, Boston Sydney, London. These are all things that are to be on a to b to b still unfolding. So it is it is more about our ability to react to those motions than it is any other major determinant.
Got it some maybe just on on on the Q2 billings guidance.
Help me reconcile essentially the.
Your expectation for net revenue intentions would be somewhere in the high one twentys and the midpoint of billings.
Let's call it 60% is the delta there.
A function of continuing payment term changes.
Just directionally help me, let me close that gap.
Yes, we're continuing to get requests from customers for either extended payment terms or request for quarterly billing I will say that in may the percentage was down I think is a good sign.
What's really driving the billings guidance right now is the April results. It was up a significant change from what we had seen in March.
This is our still closed small businesses certain industries people still aren't flying for the most parts. So it's just reflective of the pain that we're seeing in certain customers and their ability to purchase right now.
Got it thank you.
Your next question comes discomfort with Needham Your line is open.
Hi, Ginnie Mark Thanks for taking my questions today, I guess, Mark I know the sample size is probably small but are you seeing anything differently on the sales trends internationally than domestically here in the United States.
So if you look at the revenue growth rate international versus U.S., we saw acceleration in Q1 in EMEA very healthy and in the U.S.. We saw a slight one percentage point deceleration in Asia and then the other markets.
Americas markets went down a little bit more that's sort of the trend that we saw in general if you look at the dollar net retention rate Mark talked about the three percentage point decline that was really a global phenomenon. So whether you were looking at the you asked for international customers, who spend more than $5000 customers, who spend less than 5000 I think this.
This pandemic is really affecting everyone to some degree.
[noise] got it helpful and then from a follow up question perspective.
Obviously seeing a lot of different technology tools benefit from out work from home strategy and most of US on this call will leave that smart sheet that in that bucket, obviously in the use cases, but as you've had conversations with customers. During the last two months. In this period are you seeing the decision has become more strategic get more higher level kind of manager.
Is your Cxo individuals.
Part of these conversations or is it still more of a department level sale Jenna. Thank you.
I think it's a function of the size of the transaction and as that as as you move into six figures and north.
That's typically the key driver on on Who's who's participating.
In terms of the tools and technologies used I.
I think we all reacted to being a work from home. So the first stop was can we communicate with one another.
And I think what we will see as bad as we've talked previously around the different phases of what people will be deploying I do anticipate that people have now quote mastered the ability to communicate and they will be looking for subsequent technologies to benefit them.
Great spur helpful. Thank you.
Your next question comes from Britain, though with Jefferies. Your line is open.
Thanks, Jenny last call you mentioned, you wanting to hire more quarter reps. This year than the last is that is that still on track given mark comment about the record pipeline.
It is yes, we hired 50 reps in Q1.
Hi, So that was it was very good.
We are going to hire a few more in Q2, and then as Mark mentioned, we're going out we're going to step back and see where the landscape is how things are opening back up but yes, we hire reps this year and we'll continue to do so based on the demand that we see.
And Mark just to circle back to that that May comment you made I think a number of tech companies that we all work with had been saying things are getting better day by day week by week could.
You can see it across many industries, we all track I guess when you look at it May would you consider this to be kind of that.
Normal month from what you've seen historically and this is really just and more of an April issue what.
Emirates, just trying to figure out how you would frame the differences that you saw this past month to month before.
Yes, I think there was a very concerted effort on our sales organization also to accelerate out of April but people got on the horses and win and engage customers. The good news was customers were picked up the phone conversations were being had and the quality of the pipeline being generated I would say is going under deeper inspections than in prior.
Our quarters.
The key is for all the companies were speaking about pipeline development now it's your job to convert that pipeline right. So I think we were very pleased to see the teams activities in may and now we need to do the same this month and then convert on the business that's in front of us.
Great. Thanks.
Your next question give some Alex Zukin with RBC capital markets. Your line is open.
Hey, guys. Thanks for taking my question.
And I hope, you're saying sand safe.
I guess, maybe first Jay I'm trying to figure out what exactly are the.
Payment.
Payment term adjustments that you're making that are impacting billings and it's primarily for the SMB cohort. It sounds like some I'm trying to reconcile the no change in dollar churn with the with the payment flexibility are you basically not seeing them change their ACB commitment to you, but but just shifting.
That maybe.
From a TCV perspective or is there something.
There's some other nuance.
And then I've got a quick follow up Mark.
Yes.
So we're seeing some requests for extended payment terms. So you think about an airline.
Generating any revenue right now they still want to use that they don't want to downgrade even in some cases, they want to upgrade for something they need us for.
So we're seeing request for a typical terms or 30 days and and those instances where folks just don't have money right now to pass because their businesses shut down we've extended 90 in some cases 120 day time and there were about 150 customers where that was relevant.
And then we have some others. It just say you know I'm still generating revenue, but not as much Craig said pay quarterly versus odd pay annually and so we've been extending some of those offers as well.
Okay. So I guess, what is happening to the SMB cohort, if the churns not changing and really again the HCV is not changing what is changing for within the SMB Cobra like what is the impact that you've actually seen.
Yes, the for the full churn Alex on the SMB Hort cohort did go up in the quarter. So the reaction the reaction to.
Smbs.
In the coded environment was that we saw more full churn than we had prior.
So there was an increase as a company in aggregate as a company.
Our overall loss rate improved slightly.
Okay. So we were the segments statement within the SMB segment loss went up full loss went up that's full churn.
Got it okay. So that's that's that's dollar.
Thats encompassing dollar and logo and I guess are you seeing mark a change because.
Is there a change in engagement I guess is what you're.
Being in the SMB.
Customers as well like engagements going up but temporarily monetizations going down and that could that that could revert over the next few quarters, if the situation doesn't Bruce.
Yeah, I mean, unfortunately, when someone or trips the engagement goes to zero rights as a population we saw engagement increasing within our larger companies segments and stay level and slight in some in some segments decline based on industry. We saw that occur. So overall when we release for instance, Kobe.
It hits template issued spike in trials like people coming to the site people engaging some of that results in the pipeline, we've created but in terms of the activity level within the SMB segment, specifically I would say we saw more pronounced engagement level within our larger clients than we did our SMB ill give you. One example, because I have to approve every single one of the common.
Then I think that marketing from small business. They do wedding My daughter was getting married in September it's been pushed out a year now.
She's request data cobot accommodation because she literally has no business right now she loves smart sheet she needs us for all of the management of her programs that she does but she just has no business right now she needs to get her business. We started and then I expect to see are fully engaged in our product again.
Okay, and then sorry, just one one moral just sneak again I guess mark when you are seeing these customers a trip is it.
Business destruction or is that going to a different vendor.
In a lot of these case the very the vast majority of these are vendors citations I mean, we look at it we look at this data critically and the cobot mansions.
We saw more pronounced uptake due to business challenges inability to operate continue operations that was that was the largest uptick we saw this disruption yeah.
Got it thank you guys.
Thanks, Josh.
Yes.
Your next question comes from Keith Bachman with Bank of Montreal. Your line is open.
Hi, Thank you I want to follow on the thread a little bit of the past couple of questions and just.
I'm stuck on the billings guidance when you're effectively.
Moving from a situation in April where round numbers. Your your billings grew 30% and moving to a situation where you're guiding to 15 to 16, so roughly cut in half.
And.
Im trying to piece together.
What you said about may.
You didn't say that there was a material increase but it certainly sounds like stabilization.
Just trying to thread together wide billings, it's understandable, while new lower because.
April imagine was was probably the bottom, but you've talked about stabilization in may.
I'm trying to thread why.
That billings number would getting cut in half versus moving lower simply 30%.
It can you explain some of the billings terms, but that it certainly doesn't seem to cover anywhere close to that magnitude of a change. So is there any other anything else you could point too.
In terms of the billings number and then I've a follow up question.
Yes, so what we saw on May was a slight improvement to April on and we did see.
Demand for our product in terms of our pipeline increased nicely people do want to buy.
So that's all good but what we didn't see as we're not back to pre covance.
Selling levels, yet and so you know I believe that as we begin to open up it's going to be a very good thing because I know that there are people, who want to buy the product, but until that actually happen.
We're just assuming June and July is similar to what we see in May.
It's better we will be.
Okay.
Maybe just taking up a level than is as you indicated that free cash flow guidance.
So rescinded I understand you gave.
Some parameters around it but just talk a little bit more about.
On your longer term targets and and I think most investors had assumed that you would.
Free cash flow.
Positive.
As we looked out.
Over the course of next year, but this does everything gets pushed out or how should we be thinking about.
The free cash flow.
Objectives that you have.
As you look to get through cobot situation.
I think as Jenny remarked is we look at our at our path to a billion within our three to five year frame I think I think would cobot has done it pushes a little deeper into that three to five year frame, but I mean, we remain.
I have high conviction on our ability to generate operating margin at that level. We are fully invested in this as we come up with our models for the second half there are a wide variety of scenarios right and until you see evidence in terms of things happening within our locales and within business is coming online.
Those models or.
Hi, again, which one do you want us to choose.
All right. So this is what we're planning so what we wanted to do as we want to be in a position to maintain optionality, where we can respond we can invest further whether it be on a marketing dimension to sales rep dimension, what have you to be able to go after that but in terms of the impact to our two or long term business prospects solving for the decade, not the second half of the year right. So so we're really trying to.
Stay very true to that and I think we are still in a position where we feel we can hit within that three to five your window and that so.
Content continuation of our past comments, yeah, I would just like to add that I really feel that this situation with our billings number this quarter, which impacts collections for the short term, it's really a co related issue.
When we gave guidance in mid March.
We did not see any impact of this coming right. We didn't even know that we were all going to be sequester to our homes and that we were going to be continued to be sequestered to our homes until this changed so our business until March 25th was performing fine performing really well what we saw late March.
Into April was really this oh shit excuse me to say that but other businesses going Oh, yeah, we're not air VNB No. One is going to stay at home no. One is flying no restaurants are happening that kind of stuff is what what really impacted our business. So when we get through that I feel pretty confident that we're going.
To see a lot better performance. The good news as you look at the leading indicators look at trials look at number of organizations trials on a monthly basis look at the pipeline across all segments. If I were seeing softness on that front that would have any more concerned. So we're going to be there to serve the customer we're going to continue to improve the product I do believe that them.
Market will recover and we need to be best position to own that market when it does.
Okay. Thank you.
Your next question comes from the line of Walter Pritchard with Citi. Your line is open.
Hi, Thanks, I'm wondering if you two questions first just on.
On the private companies in the space and.
Pretty aggressive I think push up from the low end I'm wondering what youre seeing that.
Sort of moderate as he moved into this environment and how to follow up.
Yeah, well take that one.
We really haven't seen a change in trend that we've seen in the we reported on the past we continue to see the vast majority of our transactions are replacing the status quo.
We have had a couple of situations, where we've had large customers that have consolidated to smart sheet and actually push out a number of smaller providers that had small footholds in those brands and those are pretty large brands both of those happened in this quarter.
Yeah, we're not we're not seeing really any encroachment, we still feel like we're super early days and it's very much land grip.
Got it in the Jenny just I think everybody kind of answering this question of the effected industries can you maybe highlight for US I understand SMB is this is an overlap but what percentage of your revenue is from these industries like your retail hospitality event planning and so forth just to help us sort of understand the magnitude of what they are impacted.
Yes, so we reported that last quarter it was roughly 4%.
But smbs is kind of in other industries as well, it's not just retail and travel and hospitality.
The go ahead.
This is going to add one thing I think I think.
One of the things it's important I understand is.
And across industries and company size the disruption caused by cobot has causal caused almost every company to take a step back in the uncertainty. This early in the market and really.
Be thoughtful about how they spend because nobody knows with certainty what the recovery curve looks like and so I would say that we saw companies across the board.
Delaying decisions and taking longer and contemplation and one of the advantages of our business model is we have a relatively short for lot of our transactions sales cycle.
But when companies start to slow down that shows up a little bit more quickly in the numbers and I think that's what we're seeing this quarter.
The pipeline build the trial build all those things give us a ton of confidence that has as certainly emerges in the in the recovery path.
We expect to see a lot of those those that hesitation.
Two.
Unlock and we expect the trends to improve.
Great. Thank you.
Our next question comes from research area with da Davidson. Your line is open.
Hi, everyone Mark Danny Herron, Thanks for taking my questions I hope everyone staying safe out there I wanted to start by asking a little bit of a philosophical question. So and the prepared remarks, Jenny I believe you had mentioned that you're slowing down the pace of hiring a little bit still obviously continuing to.
Higher and areas that that matter right now maybe help me understand why not be more aggressive in hiring given the huge opportunity you have that had given the the big Tam that you're going after.
I think it was what Marc Benioff that said one of the regrets you man and he has a from only two nine was not always taking his foot off the axon or so maybe you want to understand how you're thinking about that in the investment philosophy. This environment and then I've got a follow up.
Yes, I think I think in aggregate.
We look at very few things now you're right. So when I think about investing in engineering and innovation and the pipeline we have to deliver on our product roadmap to unlock enterprise and Midmarket growth like hammer down like we are hiring people. We're innovating we had an incredibly productive spring, we're having incredibly productive spring.
I think one needs to be pretty darn thoughtful when you think about adding quota carrying reps, especially people who have compensation online right make sure that the team members you have the 60 or so people. We've just added with quota carrying our well served that they have good territories that this territories you're producing.
We're very mindful of that so we are we're aware of pipeline, where where pipeline conversion new territory development government. All those pieces go into it on the marketing dimension, a if we decide to push brand spend a portion of brand spend into a quarter when a market reopens as opposed to winter market is closing that seems like a prudent.
Investment. So these are all puts and takes that we're making but I think back to the benioff comment absolutely do not stop innovating.
His categories alive, and well you need to be there with the best product and and we're continuing to do that.
Got it that's that's helpful.
And then Mark you said some really interesting in prepared remarks that you think we're going to be in kind of a hybrid work environment and then I completely agree with you on that.
You also mentioned that maybe some of the delays and deals are from people waiting for.
Three openings.
I guess pro forma market perspective.
Is there kind of a sweet spot, we're smart sheets, most valuable in a hybrid work world versus a purely remote won or a purely on in the office kind of physical presence our environment. Thanks.
Yes, I think I think when we think about the transition it's.
I think the reopening and sort of the deal flow in the deferral is less about whether someone is in the office or not and more about their confidence in the economic situation of their business. So I I just wanted to clarify clarify that the notion of of hybrid on all those dimensions I mentioned.
People people often like to think there's one thing that's going to make it all worked well it's never quite that simple in life right remember back in the day 10 years ago and it's like it's all about my mobile phone and my mobile mail to my mobile calendar say, well, it's little bit more than that and that's when our category merged like eight years later right. So we think about this work from home work from the office I think.
Not quite as clear cut like people will be going back to the office will it be different absolutely and I think people are going to be bridging between remote technologies in office technologies connecting people across companies. So it's I just wanted to clarify though that it's less about the work from home or not and more about the economic condition of customers change we're going have home.
I'll just add all at one thing to that and that is that I think we saw evidence of.
And the numbers sectors, particularly technology, where you have folks working from home and seeing tremendous value in moving more workloads onto on smartphones and saw actually increases in usage in those those segments, where I think the company's had better certainty on their business prospects. So I think I think that reinforces Mark's point that a lot of.
It depended on how confident the company is and where their environment is the other thing I would add is I think that this pandemic actually created.
A great opportunity for us it was realized across a number of customers, where they really appreciated the agility and speed at which we can help them.
Configure or reconfigure business work flow and business process to meet an emerging demand or or a changing business. We had customers that were leveraging smart she to reconfigure supply chain, we referenced some of the coded.
Use cases around testing and coordination on both.
Managing government activities as well as companies switching to remote work, so being able to adapt quickly and offering that dynamic platform.
I think is a real differentiator for us and we I think we actually gained a lot of mindshare through this process.
Great that's really helpful. Thank you.
Your next question comes from Terry Tillman with Suntrust Robinson Your line is open.
Yes, thanks for taking my questions. Good afternoon March in 18 and Aaron.
First question just relates to we've been talking a lot of your customers than really helpful for our research and I would say.
We can confirm their using your software more than they had in the past cross whatever the Cape Yeah, you look out from an activity standpoint, when we talk to them, though and what I'm curious about in terms of kind of thinking about sales playbooks.
Some of these capability based solutions, whether it's the accelerators dynamic your control center, sometimes they don't know about them or.
Or maybe which didn't ask the question right, but it seems like you could turn dials with some of these businesses that are using it aggressively in are actually resilient. What are you doing to maybe go in there and when you're seeing those aggressive activity levels, maybe they didn't know about dynamic even what that could do so what are you doing right now because of what's going on as an opportunity around the heavy users the do how.
Some budget and we'll buy those add ons how's that going into that a follow up.
Yes, I agree with your observation Terry and I would say that we are running plays both on.
Product marketing and sales motion side to better educated and and identify help customers identify opportunities and understand how they can leverage capabilities. I would also tell you that we have a very significant investment in flight right now on them on the product development side to improve discoverability and make it much.
Easier for.
The average user to understand what's available to them and more easily.
Enable that capability. So I think I think it's really.
Huge opportunity for us, but it's a balanced approach between go to market and and actually product improvement.
Okay. Thanks, Stephen and I guess the question Jenny up I think that asked about this last quarter because.
Kind of the way you all would quantify capability based revenue generation.
It could change going forward and part of it could be this new premier skew I see it now on the website. So it's a separate kind of product packaging, how is that trending because I could see where again for businesses that are more study or it's a lot easier to just by a bunch of stuff, including connectors and one in one packaging as opposed to the Olic heart. So how is the playing out with the premier skew. Thank you.
Yeah, we've had.
Increasingly strong demand for the enterprise Premier skew.
Lot of strength in Q4, we sold less of it in Q1, but that's very typical because people are buying into it as their year end start or end and then absorbed in the first quarter.
Thank you.
Your next question comes from Mark Murphy with JP Morgan Your line is open.
Oh, Hey, that's been Jim sitting in for Mark.
Mark or gene.
You had added automated workflows capabilities about a year ago.
Based on what do you have seen maybe in this last year do you think smart she could become the workflow execution hub within an organization organization overtime and are you see anything any kind of relationship between the retention and those customers using the workflows.
Capabilities.
Yeah, well, so I would to your first question do you do I think we can become the workflow hub, absolutely and I think we have we've seen almost doubling in the number of automated workflows triggered over a 30 day period and it's it's in the millions now we don't disclose all the specific numbers, but we're seeing really really nice guy.
Growth there.
And that continues to accelerate month over month.
And.
As you mentioned Automations, we started two years ago with Automations with very simple single step automation, we now support multistep much more complex automation.
And we have some new capabilities coming later in the year that will allow us even move further up the of the capability stock. If you will serve both our power users as well as I T and citizen developers to orchestrate manage workflows and but importantly, the place that we will play there.
There is really managing.
Work flow that crosses systems and the demand signal. We are strongly from customers is there's a lot of work that they manage and smart sheet that they want to be able to.
Dr. based on either intake from other large systems of record like like ERP or CRM or be able to report back to those systems on the results will work towards runs marshy. So we're super bullish on that and I think.
The cost value speed and agility of deployment are going to be real differentiators for us in that space.
Understood. Thank you and Jenny just on the the.
Guidance on Billings, obviously, you talked about the net expansion on that retention rate being one twentys.
What are your assumption what did you see in Q1 and what are your assumption on net net logo.
Is that is that did it took a big hit in Q1, and what are you thinking for the rest of the year.
When you say net logo air our if you look at isn't that net net.
We're all logos increased for the quarter.
And if you look at dollar air our as Mark mentioned earlier air our creep as well across every industry.
Okay understood. Thanks.
Your next question comes from George I want it with Oppenheimer. Your line is open.
Thank you for taking my questions.
Could you, possibly give us a bit more color on what you're seeing in the government vertical and with any fed ramp benefits.
Yes. So the pipeline is continuing to go as we said last quarter, we're looking for.
Really the big breakthrough deal that that that unlocks it I think the the work that we're doing one that on the deal do you side and I. All four will provide a couple of new unlock opportunities for us.
And again, we will report out as soon as we have one of those the team in terms of its the team we have in place in DC I feel very good about I think from an operation standpoint, an offering standpoint, a big piece around control center, which is really one of our anchor capabilities is on the cost, but now being approved for government as well and that really allows to go.
It has some very very compelling use cases for those government prospects.
The number of transactions were doing continues to go with multiple agencies.
North of $1 million there are now out of that fed Gov platform. So we've definitely planted seeds and we're expecting a good outcome this year.
Just following up with all the near term.
As it related disruption or saying, there anything, especially with your larger customers that you're seeing and the conversation that suggests you might be a maybe a secondly beneficiary from all the changes that have to happen.
I don't think your customers articulating, it's quite that explicitly I think we're you know we remain centered on the transformation of their workloads into modern mechanisms and.
They're not they're not delineating between we're doing this first and that second that's really our perspective on People's motions. So again, just reinforcing the importance of us to connecting to things that really matter. The question earlier around is there a correlation between important workloads and being more stake you are having more success I think absolutely.
And one of the reasons why as gene said, we're investing in this cross system integration capabilities. So that CIO is can look at their systems say Holy Smokes I've invested all this money in my ERP system, how can I extract more yield from it and we're starting to come up with these motions not just to do automation within smart cheap, but how do you actually get unexpected yield.
From those other systems that is the theme that is resonating really well and we're now on the customer being able to respond to that.
Yes.
Thank you.
Your next question comes for Steve Koenig with Wedbush Securities. Your line is open.
Hi, Smart thanks for taking my question I just have one for Mark.
Mark I would love to get some color on what you're seeing in terms of awareness trends.
And specifically recognition of collaborative work management as a category and smart sheet as a brand.
Yes, you're doing your investments here, what what are you seeing and those trends.
Both secular and I'm curious in the last three months and just to add to that and how is that translate into to lead gen. As well how what are those trends thanks very much.
Yeah, I was really pleased to see with and our CMO, having been on now for a little over year. We continue to checkpoints studies in terms of aided and unaided recall within our category. We are leading in terms of on both fronts aided and unaided.
That is up.
Very nicely over the course of the year. So I'm really pleased to see that on some of our larger transactions. We saw sponsors who had not been users themselves of smart sheet make statements around Oh, yes, that's the brand Yep, we're familiar with it we've heard about it so even if they can't perfectly articulate what it does having soften that beachhead really in.
Important so we're really pleased with those results in terms of the ongoing investments.
You know as Terry asked it made mentioned a couple minutes ago. The importance now is to say how do you articulate bring the full value of smart sheet. Two there. It's not just are you aware of our name, but what can do for me. So we're entering that next phase now and I think we set some really good foundation to build on though.
I would just added over this quarter, we spent some time with some.
Software industry analysts and they they have reported out.
Market increase in inquiries around collaborative work management.
And I think you at least the signal we're getting from from neutral third parties is that there's there's there's an expanding awareness and appetite.
And interestingly enough you know you saw us introduced a number of capabilities targeted at marketing departments. The number one category.
Or source of those inquiries within the company is a function is a marketing.
Great. Thanks for answering my question.
Mm.
[noise] in our last question comes from Brett No block with Aaron Berg capital markets. Your line is open.
Hi, guys. Thanks for taking my question. Thank you are both well.
Can you talk about how capabilities, maybe accelerators to form the quarter and how that it's Mormons mileage and our deferred from the core business and then just a follow up on maybe the timing of these combinations you given to customers was this mainly in.
Particular week or in April and have you seen that meaningfully kind of decelerate in terms of the number of customers asking for came that combination.
Yeah, I'll I'll start.
What's your second question. So when we we didnt start seeing any of these until the third week in March.
Third week in March we started to see them.
There were more most pronounced in April.
And like I mentioned earlier, we had about 150 customers that asked for and were given a extended terms of 90 days 90 to 120 days, let me about 33 customers that asked for quarterly billing terms.
And on the capability side, we saw we saw activity across our connectors to systems of record we saw dynamic few data uploader.
We really had all all products firing in Q1 that was sequentially on the heels of an unbelievably strong Q4, and so we haven't seen a disinterested anyone of those categories and I would expect the capabilities and sort of the building on a foundation someone has to two again react.
Night as things open up a bit I think right now people are really looking at core licenses, making sure. The bases are cover they're interested in learning about those capabilities, but I think some of the deferral decisions are on some of those ancillary products.
Okay perfect. Thanks, guys.
With that I turn the call backs presenters for any closing remarks.
Great well. Thank you for joining US then we'll speak to again next quarter.
This concludes today's conference call you may now disconnect.
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