Q3 2021 Smartsheet Inc Earnings Call
Third quarter fiscal 2021 earnings conference call.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone. Please be advised that this takes conference is being recorded if you require any further assistance. Please press star zero I would now.
Anything on the conference over to your Speaker today, Aaron Turner head of Investor Relations. Thank you. Please go ahead Sir.
Great. Thank you Christine good afternoon, and welcome everyone to Smartreach third quarter fiscal year 2021 earnings call. We will be discussing the results announced in our press release issued after the market closed today with me today are smart sheets, CEO Mark meter CFO, Jennifer Ceran and our incoming CFO Pete Gobble, our chief product Officer Gene Fair.
We will also be available during the QNX today's call is being webcast and will also be available for replay on our investor Relations website at investors Dot Smartid 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.
During this call we will make forward looking statements within the meaning of the federal Securities laws. We have based these forward looking statements largely on our current expectations and projections about future events financial trends and our expectations are on the impact of COVID-19 on her business. These forward looking statements are subject to a number of risks and other factors, including but not limited to those.
As described in our SEC filings are available on our Investor Relations Web site and on the FCC website at Www dot as he see that go.
Although we believe that the expectations reflected on a 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 a reconciliation to the most directly comparable us GAAP measures is available on 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 thanks to everyone for joining us on our third quarter.
Earnings call.
We're pleased with our Q3 results of $98.9 million on revenue and $112.4 million in billings.
Highlights from the quarter include continued strength with large deals a new high watermark for our government business. The completion of our acquisition of brand folder.
Successful engage conference and a total smartchip community that now exceeds 7.6 million users.
I'd like to thanks, Mark its employees and partners for their continued hard work and commitment to our customer success.
These Q3 results are a reflection of the resiliency and quality of the smart free community and the increasing relevance of our core value proposition.
As enterprises across the globe seek to digitally transform how work is delivered and innovation is achieved the value of smart sheets platform is becoming increasingly clear.
In Q3, our domain average annualized contract value were ACB grew 42% year over year to 4600, $65 and expansion within the base included 294 companies, increasing their error or by more than $25000 up from 235 in Q2.
Hundred and six increasing their error by more than $50000 up from 79 in Q2 and.
I'm 36, increasing their air or by more than 100000 up from 19 in Q2 per.
Preliminary analysis of our Q4 pipeline suggests a continuation of customers choosing smart sheet at scale.
At a time on collaborative work management or CWM solutions are increasingly recognized as an effective means by which to rapidly deliver digital transformation in high value work flows we are investing to expand product development and innovation deepen our selling capacity across the globe and firmly position smart she is the market leader.
Up to now most digital transformation efforts had been I T led topped out initiatives.
Well valuable their scope has been limited to a relatively small number of high volume high cost workloads, whose benefits are realized after long implementation time frames.
We are seeing me appetite within enterprises extend beyond these mega projects to address a larger portfolio of opportunities that's sold with easier to configure and faster to deploy platforms like smart sheet.
By empowering the people and business units at the edge of their organizations with a platform that brings together three foundational elements of work collaboration content and work flow enterprises are able to improve the speed and agility with which they deliver digital first workflows things.
Things such as improving project approval flows providing visibility to program status and enhancing the development and distribution of digital content.
This shift was reinforced by Forresters recent devaluation of the enterprise CW on market published on November 18th, which underscore the increasing importance of CWM and named Smartreach as a leader that excels and problematic providing dynamic work management for the enterprise.
One example of how smart she delivers value his sage software. This age group on the 12000 employee British multinational software company with 2 million customers across 22 countries.
With strong demand for their business payments solutions Sage sought in their words to harmonize our ecosystem of connected data through seamless automation.
So do so they now leverage smart sheets control center and bridge offerings to create trigger based workflows from various systems, including Microsoft Sharepoint.
Doing so provides sage with real time status updates and visibility into their most critical projects and processes.
Sage like many other enterprises recognizes the foundational importance of Smartreach as a collaborative work execution layer to maximize the effectiveness of their existing technology stack and to underpin third global project delivery and resource management initiatives.
We shared other customer success stories at our annual engage global customer conference held virtually on October Onest.
With nearly 60000 retro strength from 57 countries and over 250000 streams of content, we highlighted a range of new products and use cases, including high fidelity dashboards with a more modern loans that are easier to build an update.
Enhancements to our enterprise scale, Manageability and performance, including policy management plan management and admin insights.
Workouts Smartreach no code platform that will enable users to build intuitive desktop and mobile applications bridge.
Average designed to allow enterprises to automate business processes with workflows that trigger actions and share data across platforms from a user friendly interface and our Reimagine design of smart she didn't 2021 to help our customers achieve more with a more delightful beautiful user experience.
These and other recent product enhancements drove some notable engagement metrics in the quarter.
We saw roughly 40 million form submissions, 128% year over year increase.
Almost 650000 dashboards were created and dashboard views were up 64% year over year.
A 48% year over year increase in workflows built and 4600 customers utilized our digital proofing capabilities.
Engage we also introduced on integration with brand folder, a leading digital asset management platform. We acquired in mid September this.
This integration and those to follow will allow smart sheets customers to more effectively organize control distribute and measure digital content.
Early customer response to the synergies that will be made possible by the integration of brand folders content management and analytics capabilities and Smartchoice work flow platform has been very positive.
Along with the resource management capabilities, we offer me at 10000 feet brand folder deepen smartrates ability to deliver solutions that benefit marketers and content creators, we look forward to continuing to enroll all smart she didn't brand folder customers in the value that the respective solutions provide.
Content centric work is becoming increasingly cross functional driving among other things sales motions marketing campaigns and many other day to day business interactions.
To be most effective this work should not be confined in silos, but in many cases technology itself is the cause of the silos and as marketing and content become more central to overall organizational strategies connecting them with other functions throughout the enterprise is paramount.
For example, Mcgraw Hill, a global learning Science company is at heart and engine of content creation and distribution.
They wanted to make their processes for creating and tracking educational media assets more efficient and accountable by leveraging technology to bring those assets into a single place.
And smartly it enables them to automate and simplify the process of creating and sharing media assets for its educational products cutting time and effort out of assigning and revising assets and processing vendor payments improving efficiency by 50%.
Love, How Mcgraw Hills design leader put it she said smartid frees up our designers to spend their time being creative brainstorming and concept and big ideas instead of working on photo Medidata and tracking your for hours of their day Smartid lets just focus on the fun stuff.
Beyond our commercial business, we're also making progress on the government segment with over a million dollars on federal bookings in Q3, our largest quarter. Thus far we remain bullish on the long term opportunity in this market.
I'm also pleased to report that we have achieved department of defense impact level for I O for provisional authorization, enabling the aerospace Indio do you sectors to deploy the smartid growth platform.
Achieving this authorization demonstrates our continued commitment to furthering the federal governments use of cloud technology to mitigate risk enabled the federal workforce and drive digital transformation.
As an example of the early traction we're seeing in the federal market. The Gs a significantly expanded its use of smartid job in Q3, making them our second largest federal customer.
From supporting the procurement of billions of dollars of worth of supplies each month to managing the world's largest collection of real estate assets Smartid is core to how the Gs say fulfills their broad an important mission and helps other federal agencies achieved fares.
As we look ahead I believe now is the time for leaders to take steps to ensure their organizations are positioned to fully capitalize on a digital first operating model to empower their business teams not solely there I T teams to serve as agents of change in quickly and durably applying technology to improve processes and deliver insights.
As remote work becomes not just a short term adaptation, but a long term strategy businesses cannot continue to rely primarily on synchronous work.
Work undertaken in managed through communications and real time messaging apps, there are limits to people's ability to be productive and accountable when tools require them to be continuously present.
Leaders are recognizing the need to shift more workloads to asynchronous work work that has documented automated tracked with dashboards and where priorities are clearly defined.
They understand that by empowering their teams with no code solutions that facilitate asynchronous work cycle times will be improved a deeper sense of ownership will be created and prioritization and accountability will be insured.
Smartid is ideally suited to help enterprises work more asynchronously to derive the benefits from doing so.
With that I'm about to hand, this call over to Jenny Saran for the last time.
As we previously announced jenny's retiring from smart. She she has played a valuable role at our company, helping his transition from a high growth private company to a public one.
Her leadership has served us well and continued as we work together to identify and transition to her successor I believe the transition plan. She has helped us build will ensure a productive handover to our incoming CFO Pete Dawdle.
I'm pleased to have Pete joined the team and I look forward to working closely with him to drive our next phase of growth.
Peter as an enterprise software industry veteran becomes the Smartid, having most recently served as CFO of hearsay systems and previously as CFO Vmwares end user computing global business unit has experienced helping companies scale into new products geographies and business models makes him a terrific addition to our senior executive team.
I'd like to ask Pete to say a few words.
Thank you Mark I'm pleased to be here and I'm excited to begin.
This business has been really good head.
I'm energized by the channel Smart sheet reached new heights of success.
The EU 22 on the seem to transition to remote working leading to book and changes in collaboration and automation.
The pandemic. It is clearly the future work is going to be a confluence of collaboration work flow and content.
It's mark sheets value proposition is the essence of doing that effectively and efficiently.
The dam and share skew that this opportunity creates is incredible.
I'm excited to play a role in accelerating be outreach of smart cheats value proposition to this large and growing market.
As much as the opportunity itself from my own these conversation I've been incredibly impressed with this deal.
I, so culturally aligned from the start.
And then in fashion for solving customer problems.
On debility and authenticity that drives performance.
And hunger to be disrupted in evolving market.
Truly I'm honored to be part of this winning team.
Much more income, but for now I'm grateful for the opportunities ahead.
Forward working closely with all of you on the call.
Thank you Pete and with that let me turn the call over to Jenny to provide additional details on our financial results Jenny.
Thank you Mark welcome Pete and welcome everyone.
Overall, we were pleased with the results for the quarter, which reflected strength from Midmarket and enterprise customers and stabilization in the SMB sector.
Revenue came in at $98.9 million 38 per se here on billings were $112.1 million up 35% versus last year.
Our dollar based net retention rate with 125% and our domain average ACB increased 42% versus last year.
Non-GAAP operating loss on free cash outflow, you made a $15 million and $8.8 million respectively.
We completed the acquisition of brands during the quarter using approximately 124 million net of cash acquired.
Tend you to remain well capitalized with $420 million on the balance sheet and no debt at the end of the quarter.
Next I'll provide more color on the third quarter financial results.
Otherwise stated all references to on expenses and operating results are on a non-GAAP basis on a reconciled to our GAAP results in the earnings release and presentation that was posted before the call.
I've already mentioned third quarter revenue came in at $98.9 million subscription revenue was $90.9 million representing year over year growth of 41% and services revenue was $8 million representing year over year growth of 12%.
Brand builder contribution to total revenue in the third quarter with $1.7 million exceeding our original expectation.
Turning to billing third quarter billings came in at $112.4 million above our guidance range as we saw strength, among our midmarket and enterprise customers and on larger and a larger number of big deals and.
Billings brand builder contributed $3.2 million on the normal course of business and $4.7 million from acquired deferred revenue.
We were also pleased to see a number of customers who had contracted in the first half of the year expand again as their business is stabilized and improved and.
Additionally, our remaining performance obligations, our RPL, which includes deferred revenue and backlog increased 47% year over year as our sales team closed a larger number on higher value figure deal and brand builder also contributed to the higher number of multiyear deal.
Roughly 89% of our subscription billings were annual this quarter with 7% monthly quarterly semi annual and multiyear billings represented about 4% on the total.
Moving on to reported metrics.
We now have 11172 customers hang on $5000 on more per year.
1331, paying $50000 or more per year, and 504 now paying $100000 on more per year. These customer segments now represent 80 per cent, 44% and 29% of total air are.
The brand builder acquisition contributed 685 customers to the greater than 5000 dollar cohort 63 customers to the greater than $50000 cohort and 16 customers to the greater than $100000 are on.
On average HCV grew 42% year over year to $4665, excluding Brasil, there our domain average HCV with 4506.
We ended the quarter with a dollar based net retention rate of 125%.
Please note our dollar based net retention rate will exclude the impact of bran folder until we lap the acquisition in the third quarter of fiscal year 2002.
On the phone churn rate improved and rounded down to 7%.
We expect our dollar based net retention rate in the fourth quarter to be in the low to mid 100 Twentys asked on rate represents a one year look back which continues to reflect the early headwinds of covance.
Turning to gross margin our total gross margin was 79% three percentage points lower than the second quarter. This quarter, we completed the migration of our platform to the public cloud growth.
Decline in margin versus the prior quarter was driven primarily by the wind down costs, we incurred for on legacy data centers.
Tacked on beef cost reduced our overall gross margin by approximately two percentage points weaker.
We expect to recoup the two percentage points in the fourth quarter with the exit of our data center is now complete.
Moving on operating expenses.
Sales and marketing expense as a percentage of revenue was 52% approximately 14 percentage points lower than the year ago quarter on one percentage point higher than the prior quarter.
Proves make compared to the year ago quarter was driven primarily by lower marketing investments, including our virtual engage conference and to lower travel expenses, while the increase compared to last quarter was driven primarily by increased marketing investments and our virtual conference.
We plan to hire more reps and invest in ongoing marketing, we expect our sales and marketing spend as a percentage of revenue to increase in the fourth quarter.
Research and development as a percentage of revenue was 26% four percentage points lower than a year ago, and two percentage points higher than the prior quarter as Mark highlighted earlier, we continued to make investments in our product.
Driving long term engineering official.
General and administrative expense as a percentage of revenue was 15% as we continue to invest Aaron and make progress on our Sox remediation effort.
Overall operating loss in the quarter was $15 million and free cash flow was negative $8.8 million. Our personnel expenses represented 71% of our total expenses the significant improvement in operating loss relative to our guidance was driven by higher revenue beat and the timing of marketing investments and other sense.
Let me move on to guidance.
For the fourth fiscal quarter, we expect revenue to be in the range of 102 million to $103 million billings to be in the range of 131 million to $134 million.
Operating loss to be in the range of 18 million to $16 million and non-GAAP net loss per share to be between 15 cents and 30 based.
Based on weighted average shares outstanding of 121.5 million.
Our free cash flow is expected to be positive and in the range of 6 million to $8 million, we expect brand builder to contribute about $2.5 million to Q4 revenue and $4 million to Q4 billings.
For the full fiscal year, we expect our revenue to be in the range of 378 million.
$79 million.
To be in the range of 431 million to $434 million operating loss to be in the range of 54 million to $52 million and non-GAAP net loss per share to be between 44 cents and 42 cents for the year based on approximately 120 million weighted average shares outstanding.
We expect free cash flow to be between negative 36, and negative $34 million for the full fiscal year.
Before I turn it over to the operator for questions I'd like to welcome again, Pete Godbole as the next Mark Shields, CFO and to thank Mark on the entire team for a wonderful and exciting for years building this business together.
I've had the opportunity to get to know Pete and the interview process and as we begin the transition.
He shares my passion for this business and will be of interest in addition to the team.
Thanks also to all of you our investors and sell side analysts for the time, you spent getting to know our business and our opportunity I'm truly grateful.
With that I will now turn it over to the operator for questions operator.
As a reminder to ask a question you on either.
Thats Star one on your telephone to withdraw your question press, the pound or hash key.
Please standby, we compiled the culinary roster.
Your first question comes from the line of David Hynes from Canaccord. Your line is open.
Hey, Thanks, guys. Congrats on the on the strong results Mark.
Mark I want to ask if you've seen any change kind of in the percentage of use cases that lean more towards low.
Workflow automation versus maybe project management or collaboration and I realize that most the plug on most of your deployments have kind of flavors of both but I'm I'm wondering if if coal that has in any way kind of accelerated interest in automation.
I think it is now more central in common to have it as part of the conversation in terms of it being the tip of the spear for the conversations I would still say that program on project theme is alive and well I would say, though it's less less now us introducing the concept is really PB people being more fluent in it and recognizing that the business units can actually.
Peyton this but I would say in terms of sort of tip.
Tip of the spear new opportunities originating on specifically that dimension, we haven't really seen a fundamental change yet yeah.
Yeah, Yeah, okay.
And then Jenny just a quick follow up on the numbers I I wasn't sure if I caught the comment but do you think we've seen that the nadir in net dollar retention in this quarter.
So we expect net dollar retention rate as I mentioned on the call to be in the low.
No one twentys to net for Q4, so you have to understand that our dollar net retention rate is a four quarter look back. So we still have cobot headwinds, but we do see an opportunity for stabilization be on that.
Yeah, Yeah, Okay. Congrats to you Jenny I. Thanks for all your help and Pete welcome.
Thank you. Thank you very much.
Your next question comes from line of Terry Tillman from maturing Securities. Your line is open.
Yeah. Thanks for taking my questions I want to make sure I get all the send Mark in gene Hi, Jenny Congratulations and I'm going to Miss you and Pete welcome.
I guess first question, though Jenny.
Is it just I want to make sure I got this right were you, saying that for the stub period of a brand folder, its 8.7 million and billings contribution with the quarter and then the guidance per it was I off on that.
You were off on that so 1.7 million was revenue. So that's what we showed on topline revenue.
7.9 million. When you include both the core business billings of 3.2, and I think 4.7 on the deferred revenue. That's what we contributed to the billings number so 7.9 on billings 1.7 million on revenue.
Okay got it thank you.
I guess, Mark maybe just the big quick picture question here in terms of.
You, all helping really kind of craft this market and really be a category leader in what you've been working on on the branding side. The Discoverability of features you have the new you why and just overall sea level exposure, where I'm going with this is I heard about large deals you guys, becoming like the system of record for collaborative work management, maybe an update on that how many.
The billion dollar deals do you have now and how much attention are you all now garnering from C level executives why don't we just use smart cheaper that thank you.
Thanks, Terry I would say the and just to answer the question on the million dollar customers. We did see an increase of two in the quarter I think the thing that I'm more encouraged by in terms of just counts, though is that the growing stable of accounts north of half a million and while we don't report out on that as a metric we reported on 150 100000 to 50000 threshold that's stable of north of.
500 is growing nicely.
And I do think the conversations as we talk for with more enterprise relevant themes around automation integration with systems driving yield from their existing staff people are wanting to have the conversation.
The work apps conversation you know gene and I were just talking yesterday around how CIO is we're talking now around what their strategies are for no code on outbuilding, well that conversation wasn't happening two years ago. So I think the things we're doing on inviting their conversation were much we're much more Ah I think well suited to have those conversations now.
Thank you.
Thanks, Sir.
Our next question comes from the line of Stan Zlotsky from Morgan Stanley. Your line is open.
Hi, guys. This is Melissa Dan on free Stan. Thank you so much for taking my questions on.
Yeah. The first one I have is around the commentary on your federal business on so it sounds like you had a high water Mark fair and that you've been doing a lot of work around on your presence. There. How did this segment on track versus your expectations in the quarter and on any color.
He gave on your expectations for how.
Because the percentage federal can be going forward or how meaningful this can be going forward to be super helpful.
Yes in terms of what we're looking for is we're looking for quarter on quarter improvement and when I look at the productivity of our reps in that area and I look at what are our customers who are experimenting with smartphones. We're doing we're seeing we're seeing nice nice adoption. There I would say you know still as a as a low.
Low single digits million part of our business, we're not making huge remarks, yet in terms of its contribution influence on our overall performance next year, but over the three to four year frame that we've set in terms of $1 billion in business. We think it's going to be a material contributor. So we look at this on a three year horizon as being a really nice really nice component when we talk.
How about guidance in Q4, we may have some more remarks on it but at this time.
Okay. That's really helpful. And then just a quick follow up so operating margins are coming in really well done.
It doesn't I don't necessarily see that same improvement on the free cash flow guidance is there anything to keep in mind, there on why those things might be trending a little bit differently.
Yes, its really has to do with how revenue gets recognized relative to your collections and then on payments and how you accrue those over time.
We did mentioned our Q4 free cash flow will be positive and still catching up.
From what we saw on Q3.
Okay. Thank you so much guys very helpful.
Thanks.
Your next question comes from the line of Ittai Kidron from Oppenheimer. Your line is open.
Thanks, and also Jamie. Thank you so much for services, it's been great working with you wind up had good luck in your on.
On your role you got some big shoes to fill but I'm sure you'll do just great.
[noise].
Couple of questions for me first on the on brand fold. There are clearly very good start your Jamie if I remember correctly, you talked about originally 2 million dollar revenue contribution for the year. It looks like you did almost in one quarter. So help me think about how much of the contribution there was brand full thereby sales momentum kind of carrying forward vs.
You've already started to see.
Smarttv sales being able to monetize that very effectively.
Well I'll take this one this machine.
That contribution is 100% brand folder on its own.
We really just started to put in place some of the.
Lead sharing and kind of co selling where it makes sense motions, but we really believe brand folder.
Can be a significant standalone.
Element of our business.
Got it.
And then I know you haven't talked about.
Next year's outlook is there.
The general framework, you like us to keep in mind as far as growth for expansion rates and.
And Mark maybe you could talk about it clearly productivity is heading in the right way and I've been following your job listings and they've increased quite substantially over the last two or three months, how do I think about the linearity of hiring for the year.
I think we you know as we looked at the cobot headwind that that happened in the first half we were committed to keeping our keeping on investments on point. So that was book on a people dimension and a program dimension and I think were actually well suited to enter next year with a group of quota carrying reps and other team members who can produce more.
When we expect to produce more next year than they did this year.
So we don't have this this this huge need to do this massive hiring right now to support our current plans for next year any questions well positioned on that front.
I think as we as we look at what our what our objective is in growing the business and this notion of being a ruler 40, where a company with a bias towards growth right. We look at both aspects. We look at investment we look good top line growth and I would say our posture is very much to still be growth growth minded.
Excellent very good guys. Good luck on the agenda again thanks.
Thanks.
Your next question comes from the line of our.
Gene on the Buckeyes from William Blair. Your line is open.
And they're Jenny ill Echo my my congrats to you some great working with you over the past few years.
And Pete look forward to and look forward to working with you over the next few maybe.
Maybe first one for Mark you know it seems that your.
You're on pace to add you know in excess of 2 million total users to your platform this year.
You know when we look at that free collaborate on base can you just maybe give us a sense of how that impacts your long term growth prospects and if we dig in maybe a level deeper how should we think about the time that it typically takes those free users to convert to paid on whether it's a matter of quarters or years, just how should we think we think we'd be thinking about that.
I think next year is going to be the commencement of something that's that's quite quite new for us and that is providing our customers with additional mechanisms for engaging these users in the past we've been a very simple model, which is paid creators and free collaborators and with the announcement of workouts at our engage conference.
Allowing people to build these much more tailored experiences, which are no longer free but they come at a very low cost. So you really low enterprises to create these you lead solution experiences, but we get the benefit of actually getting paid for some of the value. We deliver so we're just starting off on it we have over 1000 companies previewing workouts today, So I would say the impact.
Mark from engage was successful on that dimension, which was which was great to see and as we head into next year, we look at formally releasing that product.
Got it and then maybe one thing if I can touch on the you know you created some great solutions for the marketing Department now you're layering layer on in brand older.
How should we be thinking about the go to market motion is that's still very much that same self serve landing expand or or does brand folder and some day organic work that you've done there allow you to reduce direct outreach to the CMO loans and maybe try to solve that sell those marketing solutions, a little bit more top down.
I think it's going to be much more balance going forward, we've actually seen a really nice uptick in some leads coming into the business that are not grounded in a self directed trial. So we've done a bunch of testing over the last year and we've actually seen some interesting results of what is delivered when you allow somebody when you invite somebody into a conversation.
As opposed to a trial and it gives you a chance to articulate the value some of the mechanisms, which maybe are hard to hard to learn on a self directed basis. So I do think this solution set does lend itself well to that top down solution orientation and that doesn't mean, we're abandoning the self directed right, we're making investments there too, but I think by having both.
If you really get to address two types of preferences and I think we've learned in the past year that that both exist.
Perfect. Thank you very much and congrats on the quarter.
Thank you.
Your next question comes on the line of Ryan Mcwilliams from Stephens, Inc. Your line is open.
Hi, guys. Thanks for taking the question so strong additions from customers contributed over 50 K. in air on in the quarter.
As larger enterprises start going through their budgeting process have you ever have you noticed any differences to how these larger customers are approaching their expansion plans for smart cheap compared to last year.
I think one of the topics that we continued to be a welcoming is the notion of how can we how can we drive more yield from our from our investments. So as they look at the offerings, we have whether it be on the content dimension. The automation dimensioning the collaboration dimension, but also looking at where they can.
Maybe reduce some of their spend in other application areas and there are really two areas of investment. One is what are my subscription dollar outflows in the second is what is my cost to deploy solution. Both of them are budget impacting so I think our continued focus on velocity index period of the solutions I think loans really well to savings on on that front vs.
Vs, they're competing solutions.
Great and then just on the composition of these new customers who were added to these cohorts how should we think about how customers who were previously dipped below. These guide posts added to growth here just trying to see how you know maybe they came back and see growth or their expansion. Thanks.
I didn't quite understand your question can you repeat it.
Sure just the customers that maybe previously contributed greater than 50, K., our HR and then dipped below that in the previous quarters.
How did that contribute to the new growth that you saw within those customer segments.
For this quarter.
Yeah. It was it was immaterial immaterial. These were I think what we were pleased to see there was some there was some anecdotal evidence of customers who were heavily impacted who again I've gotten their sea legs under them.
But in terms of meaningful impact in the numbers it's their non.
Perfect I get it.
Your next question comes from the line of Scott Berg from Needham and company. Your line is open.
Okay.
Hi, everyone. Congrats on a good quarter in Jennie O. It certainly echo my on equity Awards, you good luck and Peter.
And to working with you as well.
I guess on on within the quarter Mark you had a large competitor of yours actually get acquired which was the first.
Real acquisition in the space at least on the sizable vendor.
What do you think that means to the collaborative work management space in terms of helping to validate what you. All are are trying to accomplish each day.
Yes, I think it does I think when you see a large cash.
Really take note and look to expand their diverse portfolio I think it's I think it's notable I think it's it's also worth highlighting that they're fairly different solutions. In this that we've just got done talking a little bit about a self directed versus a consultative sale. The acquisition of that asset. It is it is purely a consultation sales in the sense on is no lantronix.
Span motion it is truly a sort of services driven deployment.
But I do think it is obviously on a related category.
So I think it shows that there is demand within enterprises for these types of solutions.
As we've articulated we think that the marketing organizations are fundamental to being a cohesive provider to any enterprise and yeah. We look forward to continuing to work with Adobe in serving our tens of thousands of customers.
Got it helpful and then for my follow up perspective gene.
Can't leave you out of the call at least when you look when you look back in a year or two out of all the pieces of innovation that just came out and engage which I thought was a great pace. What's the one item do you think that will be most impactful on the smarts business here in the near term.
Well, that's a that's [laughter] joleon shoes. Yeah. This is a tough on I I have actually had this one before it is it is a little bit like picking your kids, but but I would tell you Scott the one that I I think really has the most opportunity to transform his work EPS I think the in and we were already seeing this.
Because it just gives us that frame to bring together all of the capabilities of smart. She is on the other assets, we've acquired whether rebrand pulled or 10000 feet and bring that together in a really cohesive experience.
That just creates a completely different.
Way to deliver our capability and users and the customer feedback has been exceptionally positive now saying that it's still very early days right. We're still on a preview.
And we still got a lot of work to do getting into GA and seating in the market, but I think it really has probably the the day.
Most potential to really be transformative for our business.
Very helpful. Thanks are choosing amongst your favorite kids congrats on good [laughter].
Your next question comes on line of Keith Bachman from Bank of Montreal. Your line is open.
Hi, Thank you very much I was going to ask two questions concurrently since they are related the first is Jenny I know you mentioned on your expectations for net retention rate in Q4, but I was just hoping to get a little broader context to that question and extended out.
Through F Y 22, yes.
Where do you think that shakes out on the net retention rate in other words your cash.
She is still there.
Yes can you hear me.
He dropped for a minute you said where did that shake out net flight 22.
Yeah is that the low in Q4 does it stay steady at that rate and if so assuming you can still hear me I wanted to ask the second part of my question and that is on is there still an economic climate.
Thats, a headwind for smart sheet, and what I mean by that is.
Your as you think about EPS like 22, and assuming that cobot recedes and whatnot do you feel like there is still low current economic impact on your revenues and I'm just I'm asking the question in the context is any kind of guide posts that you could give us around how we should be thinking about top line growth and 22.
In other words could there be a little bit of cobot relief on your top line.
That's exhibited during the course of 22 and hopefully heard both those questions. Yeah. I did so you know we're currently in our planning process for next year and I won't be here.
The here and I want to make sure that Pete delivers the guidance for next year, because he's going to be held accountable for it on.
But with respect to that the net retention rate on.
We do see on just based on the metrics the larger deals that we're doing the fact that customers who did contract some customers in Q1 and Q to come back in Q3.
I do see a scenario where on it does stabilize and potentially could go up next year, but we're not guiding to next year right now we're just guided to Q4.
Okay, Okay, well I will leave it there on many thanks Jim.
Thank you.
Your next question comes from the line of Brent sales from Jefferies. Your line is open.
Hey, guys. This is Joe on for Brian. Thanks for the question and congrats on the strong and proven results.
I just want to ask a follow up to Ryan's earlier question are you starting to see enterprise license agreements were a formalized contractual agreement process, making it easier for customers to scale up quickly or is it still too early for that.
Yes, I think we put mechanisms in place as early as three or four years ago, which allowed us to really simplify the the way in which smart she can expand with administration very often that is predicated on being approved and enabled by core IP.
So the business unit identifies it presented to presents its too I T. We go through Security review and then we get enabled within there really provisioning environment.
I would say the degree to which those are becoming more frequent we do believe that will be a trend for us as we go higher into these air our contribution layers. The other pieces on the on the multiyear side, where people are making not just the decision to proven enable but also lock in for a multiyear commitment and while it's early there we are seeing signs of that type of commitment from the largest.
Customers.
Great to hear and then I guess just to keep a gene in the flow of the conversation given your product portfolio typically follows customer requests anything surprised you got to engage or any common requests or vertical stick out.
Well I don't know that I would say that I was really surprised I said I I would actually say I was really more satisfied with the positive response, we got from the announcements that we made.
On the some of the core elements of product and portfolio management that we announced like baselines was was really well well received a really big uptake on things like column formulas of all things.
And then I would tell you that the early response, we're getting to the marketing offerings has been really encouraging and we've seen a number of large deals and on an a fair number of competitive displacements because customers are looking for solutions that can could break marketing out of what in some cases has been a silo within the organization.
Something we can be.
Apart from that can can support marketing and all of the other parts of the business. So obviously thats been really gratifying on some of the other big announcements like work EPS is still super early so.
We're going to kind of hold on those until we get more signal.
Awesome. Thanks, guys.
Your next question comes from the line of Walter Pritchard from Citi. Your line is open.
Hi, Thanks part question on my end just around on no could low code. How are you. How fast are you seeing incremental demand evolve around that on that.
Driver and sort of when you're in those conversations what other sort of platforms do you see customers looking at beyond on yours understanding every sort of intersected in this area net tangential way.
Yeah, Walter I would say that looked like low as I mentioned before it's still early days, we're still on preview, but I would I would tell you that we've had an increasing number of conversations with you on.
And those types of platforms, it's really.
He is.
Is driving the discussion and Weve got an increasing number of conversations like tea, where there's there's deep recognition that they're not going to be able to continue to do business. The way. They have the last 10 years. They really are hungry to empower their users are able to build and deploy and managed solutions with some appropriate guard rails.
On their own and so I would say, it's still relatively small numbers, but we're seeing increasing signal and greater clarity on what they're looking for and that's part of what gives me a lot of optimism.
Optimism around.
The solution, we've built in work EPS, because one of the things that they are very clear about is the solution. They deployed needs to empower their average knowledge worker not just.
A business analyst or a more technically savvy a member of their staff and when I look at the competitive landscape.
Believe that what we believe is really well positioned to serve the broad base of knowledge workers and I don't know that I can say the same about many of the other platforms in that space.
Great and then just quickly on for Jenny on that people that on the net retention rate thought I mean, just just on churn and so forth I mean, you turn the corner a bit this quarter do you expect that in Q4 with with some of the larger customers there and so forth contracting with you that you'll continue to see that trend here or better or do you think there's risk that that boxes back the other way.
Before I.
I don't see any reason why that trend would continue on it may not go below 7%, though in terms of rounding down but theres no reason why the trend would continue.
Okay, great. Thank you.
Your next question comes from the line of Mike She's doing some day Davidson Your line is open.
Hi, everyone. Thanks, so much for taking my questions and Denny it's been a pleasure working with you on all the best.
Two questions first I wanted to ask a little bit more about the the billings number this quarter on on.
More importantly, the guidance for next quarter, if we if we do the math at the midpoint of guidance.
Got it.
Talking about an acceleration on billings on again next quarter on an organic basis on one bucket seats floating Brown told I just want to give us on what's giving you the confidence to given the low carbon by that we're seeing in the pipeline to guide to an acceleration on organic billings next quarter when I've got a follow up.
Sure on.
So this quarter, we saw really.
On the nice strength in enterprise and Mark and I, both talked about the number of larger deals that were seeing when we look at the pipeline, we have a big pipeline of larger deals and so all of those things I think.
Gave us on decent confidence and the guy that we had for fourth quarter.
Got it that's helpful. A day thanks.
Just on on.
Brand folder and by the way I really appreciate all the disclosures and transparency, it's very very helpful for us.
But as we think about the ACB per branch grant pulled a little surprised to see its actually higher than that of course MACI HCV.
If you could give us a sense for why is that is it a function of how.
Hi, Mark Spencer pricing wise, you have larger deployments on assets.
Customers, what's what's leading to that thanks.
Yes.
Yeah, I would I would say I'll take that one I would say that the way to think about brand folders, it's a different proposition because it's not really a user base solution. It is think of it more like a capability based solution that we deploy and you have tiers of capability within brand folder and there there are additional oh.
Out on some premium offerings on top of that core platform capability. So we do believe there's opportunity to expand with within existing base, but fundamentally it's just a different type of sale that also that being said it does land at a higher price point than typical smart sheet.
That's really helpful. Thank you.
Thanks.
Your next question comes from the line of Mark Murphy from JP Morgan Your line is open.
Oh, Hi, this binge on him on behalf of Mark Thanks for taking on questions and congrats on the quarter and Jenny Great working with you and sad to see you go and Pete Welcome Mark.
Mark just one question on war caps.
You had talked about bridge last time this.
We're workup seems something you help us understand maybe with an example, what what can customers build on where caps to day, what and what is the vision maybe three to four years from now and do you expect work apps and bridge maybe to help alleviate the.
The churn on an aggregate basis, even more.
Yes, I think I think with that let me start with work apps.
One of the things that is essential in collaborative work management solutions is the ability for the participant to understand what they are supposed to do so in our current approach. If you share someone a dashboard a sheet a report in a form and you say just follow these instructions and here's a little Here's your guide book on how to do it you're actually placing book.
Burden on the person you're asking to participate and let's not forget these are collaborative situations either within your company or cross company would work absolute value to do is to create a very intentional presentation.
These capabilities. So you log into an application and to you. It presents a dashboard and a form for intake and reported all in one place. So it's a unified it's a collection of things you want that person to see Theres no distraction from other things with that within that environment.
One of the real benefits, though is when you invite someone to an application like that non everyone should have the same level of access to very important enterprise capability you might want to program director to see all the assets you might want to see have a contributor to see 30% on the assets you may want to have the CFO see 90% of the assets so the ability to see.
Simply create that bundle that composite solution and share that in a secure manner.
As a very very important things to think about it as being able to unify the artifacts that we've spent the last decade building in a really cohesive secure manner.
And again this is not slinging code to pull it off this is allowing someone in a very straightforward interface to identify what they want to present and enroll people. So it is a it is a very big impact to that to that reach out to the user base. I think bridge is a very different value proposition bridges, one which is enabling people to.
Orchestrate different interactions between Smartid and external systems. It is not principally tailored at being consumed by users or collaborators, it's about enabling people, who understand systems or construction to do more with us murchie platform.
The neat thing about bridge is it allows us to participate in workflows that are not simply core to our application and over the over the past we've done things like integrating to Atlassians Euro and the Salesforce for sales and service cloud and the service now this opens up portfolio of touch points.
The other real benefit with with bridge and work apps is you allow third parties to do more on our platform. So when we think about partner enablement and being at roughly 450 plus partners worldwide. Now we think the opportunity do allow partner to advise customers on solutions is a huge win for our company over the next three year frame.
So you know, it's gene and I and pressured on on engineering talk about this it's not just empowering our customers it's empowering the partner community.
Super helpful to understand that thank you and Jenny just one housekeeping did you give the cash the mix for the capability based offering as a percentage of subscription revenue.
I can give it to you so it's 83%.
Licenses and then 70%.
His capabilities.
Got it thank you so much.
Your next question comes from the line of Michael Faerm from Wells Fargo. Your line is open.
Good afternoon. This is Allen on for Mike. Thanks for taking my question.
Just one high level one for me I want to follow up on engaged but from an international standpoint.
Let's move on to me.
On an if you could talk about the opportunity there going forward.
Along with any other regions you'd want to call out or that are you that you're most excited about price.
Yeah, I think we saw we saw a good good engagement from from those conferences from that from those regions. We remain very focused on the UK and Continental Europe next year and in the Asia Pac region headquartered out of Sydney, starting to identify other regional.
Regional markets that we want to pursue but I think this next year will be really reinforcing our go to market in those two geos and that partly comes in the form of of marketing and sales capacity, partly in the form of how we deliver our solution now that we have moved to a total U.S. for our day.
Liberty model it really gives us optionality for going in market from a from a solution deployment standpoint.
So I would say that will probably be the one of them on the bigger moves for US next year as it relates to international.
Got it thanks.
Good day.
Your next question comes from the line of Brett Wash from Burnham per capital markets. Your line is open.
Hi, Thanks, so much for taking my question first just let's say good luck and best wishes to you Jenny Congrats Pete a foreigner working with you I'm just wondering if you try to update to total user count and maybe how many users came from that brand folder. I know you said that maybe not like a user base model and then this is a free.
Total up 47% Rps growth very strong could you break that out organically.
So you want to answer the rents on the.
A question.
The user count that we gave out is that non inclusive of brand for users so that would be organics murchie.
And then just on ARPU growth.
So well so on RPM growth I don't have the breakout between short term and long term on I can tell you is of the RPL, which is 207 million, 92% on that will be recognized within the next 12 months and that is.
Is down from 96% in the prior quarter.
Oh, I was asking organic growth from an ARPU standpoint, how much came from right Yep.
Yes.
So you would take out roughly 7.5 million for brands all day.
Perfect. Thanks, so much.
There are no further questions at this time I turn the call back over to Mr. Aaron Turner.
Great well, thanks for joining us this quarter happy holidays, and we'll speak with you again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[noise] [noise].
[music].