Q3 2022 Smartsheet Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the smart cheap third quarter fiscal year 2022 earnings conference call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
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As a reminder, this conference call is being recorded.
I would now like to introduce your host for today's conference Aaron Turner head of Investor Relations. Thank you. Please go ahead.
Thank you Blue good afternoon, and welcome everyone to smart sheets third quarter of fiscal year 2022 earnings call. We will be discussing the results announced in our press release issued after the market close today with me today are smart sheets, CEO, Mark Mader, and our C. F O P double.
Today's call is being webcast and will also be available for replay on our Investor Relations website at investors that smart sheet Dot com, there's a slide presentation that accompanies pizza prepared remarks, which can be viewed in the events section of our Investor Relations website.
During this call we will make forward looking statements within the meaning of the federal Securities laws. We are basically as forward looking statements largely on our current expectations and projections about future events and financial trends. These forward looking statements are subject to a number of risks and other factors, including but not limited to those described in our SEC filings available on our investor relation.
This website and on the SEC website at Www Dot FCC Dot Gov.
Although we believe that 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 a reconciliation to the most directly comparable U S. GAAP measures is available in the presentation that accompanies this call, which can also be found on our Investor Relations website with that let me turn the call over to Mark. Thank you Erin and good afternoon, everyone welcome to our third quarter.
Earnings call for fiscal year 2022.
Today I'd like to focus on three key areas.
Our strong Q3 results, which saw an acceleration of our revenue and billings are continuing momentum in both enterprise and SMB and how smart sheet is driving innovation and more departments across more industries than ever.
But people will give you the details I do want to highlight a few standout areas of Q3 performance.
<unk> revenue for the quarter grew 46% year over year to $145 million and billings grew 50% year over year on an adjusted basis to $162 million.
We also exited the quarter with more than nine and a half million smart sheet users and in October we set a smart sheet record for licenses bought by new customers in a month.
Overall, we increased our air or 10% quarter over quarter.
Our reacceleration or aggressive investment posture in our new high watermarks in pipeline and large deal volume makes me more bullish than ever on the prospects of the company.
As many of you know smart heat as a cloud based platform for dynamic work and empowers employees and teams to transform how they work.
Through a combination of a no code platform, a global community and a broad service offering customers online business value by transforming projects programs and processes at scale.
Rather than being just the task oriented tool smartly can scale from a simple project used by five person firm to an enterprise SaaS platform that enables work across critical business systems that the largest companies in the world.
That extensibility is a huge factor driving the momentum we are experiencing in this emerging global work management market.
That momentum often get started when a specific team or department, let's say performance marketing deploy smartly to streamline campaign management as work is shared with other departments via smart heat those departments begin to understand the value of the platform and viral growth occurs.
This low friction method of trusted growth occurs across companies and is amplified by smart sheets work from anywhere accessibility.
As customers graduate from basic productivity use cases to transforming operational workflows, we see rapid uptake and acceptance across more departments for.
For example in Q3, we headwinds within marketing departments at companies like USA today, United Airlines, and Turner Broadcasting HR departments at companies like so knows of a Lora and University of Southern California, and sales departments at Robert half in Juniper networks and legal departments at <unk> net App and Ambev.
In operations at Este, Lauder, and Piedmont, healthcare and government entities, including the U S Department of Agriculture, The U S Department of health and human services and the FAA.
A couple of use cases, I'd like to call out.
We saw expansion of Hewlett Packard Enterprise, and Aruba, and HP company, where the marketing and sales departments are tracking events and consolidating input gathered from very sheets smartweed forms an update requests into a global calendar used by field sales and executives.
And in Autodesk, the legal department is using smart sheets, salesforce connector to pulling deal data to attract negotiation points fall backs used in security issues with smart sheet Autodesk reduces the manual effort related to inputting their deals, which allows managers to track and report on recurring issues monitor team bandwidth and improve strategic decision making.
This continued momentum in the enterprise, where we build deep relationships with customers at more senior levels is driving bigger deals and positioning <unk> as the preferred choice for work management across the enterprise.
All of which ties back to our bookings for the quarter Q3 saw both a new quarterly record of 203 deals of more than $50000 and a new quarterly record of 77 deals of more than $100000 of 92, and 114% respectively year over year.
And this is occurring while we invest in high potential markets like Europe, Asia Pac and the federal government.
<unk> regions, our regional <unk> offering is now available in the EU and enables customers to establish plans with their content hosted in Germany.
On the federal government front, we continue to make progress scaling this long term highly sticky opportunity.
While government is a small percentage of our total IRR the AOR growth rate coming from government entities grew in excess of 125% year over year in Q3 with a significant ramp in logos landed.
Beyond the numbers I would like to talk for a minute about our <unk> innovations that are driving customer uptake.
Our investments in workouts No-code solutions and content management are paying off with the pace of innovation quickening on work apps configuration and distribution. The table is setting up nicely for wake up work apps to become a major driver in shaping how people interact with <unk>.
More than 50000 workouts have been created to date, providing evidence that strong demand exists within for creating composite solutions across the company smartly deployment, while also helping them maximize yield from existing cloud investments such as Microsoft 365, and Google Workspace.
Content creation and collaborative review is also going mainstream with nearly a quarter of 1 million pdfs images and videos proved within smart <unk> in the quarter, new muscle is being developed around how people enroll others in content review.
With the integration between smart sheet and brand full or deepening new and existing customers choosing smartly for digital asset management have a more flexible and powerful way to securely store customized and share assets.
Our platform and differentiated capabilities allow us to attach to a variety of workflows, placing us in the upper right of the leaders' quadrant for both the <unk> project and portfolio management and digital asset management grids.
And customers consistently score marching highly in the CW AUM and ppm markets in fact in those categories. We have the most five star reviews, and Gartner peer insights compared to all other vendors.
The combination of providing simplicity at the end user level and flexible capabilities to managed programs at scale plus security and governance controls required by enterprise. It is what sets Smart Street apart.
In ppm, we bring a modern approach that connects bottoms up project and process management with Port folio level views that gives senior leaders organization wide visibility to defined standards managed resources and aligned on priorities.
<unk> ability to integrate equally well with both current and legacy systems of record gives our enterprise customers the ability to use the <unk> platform, both wide and deep across their organizations.
In the digital asset management space, we've unified two market, leading solutions brand folder dam and smart sheets CW AUM by creating one platform for marketers and creators shared visibility is achieved and teams are positioned to respond quickly to asset performance.
Our digital content lifecycle, and asset management capabilities, enabling <unk> customers like Mclaren racing to accelerate content workflows for planning creation and distribution using that single platform for.
For example, in Mclaren racing as partners and fans will now be able to easily locate access and share content from race days photographers and videographers on the racetrack had uphold their content directly into brand fold and Mclaren for Mclaren team to approve and distribute in real time.
In Q2, we launched smart sheet advance a new tiered way for customers to unlock the full potential of smart sheet at scale.
At the entry tier advanced silver enables businesses to orchestrate sophisticated programs projects and processes at scale using premium capabilities like control Center.
Advanced gold as the ability to connect merchant solutions to other systems of record via data shuttle and bridge as well as connectors to platforms and tools like Salesforce and <unk>.
At the top tier advanced platinum as capabilities for organizations that desire additional levels of compliance governance and advanced policy management.
With smart sheet advance now in market for two quarters, we have seen that our packaging approach that enables customers of any size to benefit is hitting the mark.
One notable customer customer win was with USA today, where the marketing teams executive leadership was charged with solving challenges of cutting inefficiencies, eliminating budget overrun and reducing employee turnover in order to scale the events business.
<unk> advanced will support the phased implementation of multiple solutions, beginning with control center data shuttle and the Salesforce connector.
But advances more than a mechanism for expansion 46 advanced deals in the quarter were sold to new customers of Smart T. The offering helps accelerate discussions with those who want to start big and start now.
Samsung Group was able to hit the ground running with advanced silver migrating workloads from legacy tools into an end to end project and portfolio management solution from project intake to execution to executive reporting Samsung Group uses smartly control center to ensure that construction projects are deployed with consistency and key information is automatically surface to.
<unk> leadership of this rapidly expanding business.
Advances resonating with customers of all sizes, not just enterprise customers with 51 of the advanced deals coming from organizations with 200 employees or fewer one of those.
<unk> surface consulting is using advanced to standardize their professional services offerings around client Onboarding project management and service requests to.
The centralization and visibility of key information is allow the executive team to have true inside in the client projects in particular on our resource allocation and capacity.
Overall this was a very successful quarter with 160 advanced deals closed.
Before I pass the mic to Pete I'd like to touch on the leadership appointments, we announced a few weeks ago.
The promotion of three senior executives Julian Marshall, Steven brands, better and Andrew Bennett to sea level roles brings deep institutional knowledge and proven innovation into central roles for our next phase of growth.
Each of these decisions is grounded in our commitment to empower anyone to drive meaningful change and further positions us to provide clear ownership drive operational excellence capture the market opportunity and best serve our stakeholders.
Additionally, as previously announced chief product and strategy Officer Gene Farrell, and Chief Legal Officer, Paul Perini will be departing smart sheet.
Gene and Paul had been with <unk> since before the IPO and contributor to our growth from a $100 million company doing over half billion dollars ASR category leader I'm very grateful to gene and Paul for helping position the company well for our future success.
<unk> veteran of three years paired garg has assumed joint leadership of the product and engineering team at <unk> I very much look forward to writing smart sheets next chapter with Prairie and the rest of the team.
And on the topic of team I'm proud of the recognition we've received for our strong company culture, including being named the Best led company by Inc magazine being named a best place to work in Australia by W. RK, plus and earning seven comparably awards in 2021.
The momentum we're seeing in so many areas as demonstrated by our acceleration in revenue in billings driven by the best bookings performance in the Companys history motivates our entire Smart Street team I look forward to talking with you in Q&A, but for now I'm going to turn it over to Pete.
Thank you Mark and good afternoon, everyone. As Mark mentioned Q3 was a great start to the second half of the year, continuing our momentum of crisp execution against the backdrop of an improving global economy.
Our Q3 outperformance relative to our guidance was a function of strong execution by our sales team significant enterprise expansions. Another record number of larger deals and continued success of our advanced offering which is resonating with companies of all sizes.
I will now go through our financial results for Q3.
Otherwise stated all references to our expenses and operating results on a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call.
Getting into the numbers now.
Third quarter revenue came in at $144 6 million.
Up 46% year over year.
<unk> revenue was $132 $6 million.
Representing year over year growth of 46%.
Services revenue was $12 million.
<unk> year over year growth of 50%.
Now turning to billings third quarter billings came in strong at $161 6 million.
Representing year over year growth of 44%.
As you will recall in September of last year, we acquired brand folder.
As a part of the acquisition accounting, we recorded onetime billings of $4 $7 million associated with the acquired deferred revenue from brand Folgers balance sheet.
After adjusting for this $4 $7 million or year over year billings growth rate in Q3 is 50%.
Approximately 91% of our subscription billings were annual with 5% monthly.
Quarterly semi annual and multiyear billings represented approximately 4% of the total.
Moving on to our reported metrics the number of customers with over $50000 grew 56% year over year to 2078.
The number of customers with <unk> over.
Over $100000 grew 72% year over year to $8 68.
Both of these are our customer segments experienced the largest sequential net addition additions in our company's history.
These customer segments, now represent 53% and 38% respectively of total IRR.
The percentage of our IRR coming from customers with over $5000 is now 85%.
Next our domain average ACB grew 37% year over year to $6368.
We ended the quarter with a one dollar based net retention rate of 131% a three percentage point improvement from Q2.
Q3 was the first quarter to incorporate brand <unk>, which was a headwind of less than 1%.
The full churn rate dropped further and is now below 5%.
Over the course of this fiscal year, we experienced large incremental improvements in our dollar based net retention rate as you've replaced quarters negatively impacted by COVID-19 with more normalized quarters in.
In Q4, we will complete the lapping of our Covid impacted quarters from fiscal year 'twenty one.
Now that we will be lapping more normalized quarters, we expect our dollar based net retention rate to stabilize around the 130% level.
Now turning back to the financials, our total gross margin was 82%.
Our Q3 subscription gross margin was 88% we.
We expect our gross margin for fiscal year, 'twenty, two to be between 81% and 82%.
Overall operating loss in the quarter was negative $2 $7 million or 2% of revenue an improvement from 15% of revenue a year ago.
This margin improvement was a function of scale across our sales and marketing and R&D lines inherent in our model.
Free cash flow was negative $6 3 million.
Which over achieved against our guidance due to strong collections and the timing of the legal settlement payment of which is now expected to occur in Q4.
Now, let me move on to guidance for the fourth quarter of fiscal year 'twenty. Two we expect revenue to be in the range of $151 million to $152 million.
Billings to be in the range of $204 million to $205 million.
Non-GAAP operating loss to be in the range of $20 million to $80 million and non-GAAP net loss per share to be between 16% and 14.
Based on weighted average shares outstanding of $126 5 million.
Our net free cash flow is expected to be in the range of negative $6 million to negative $4 million.
Given our strong Q3 results and continued momentum in our business, we are raising our full fiscal year 'twenty to revenue and billings guidance.
We now expect our revenue to be in the range of $544 million to $545 million.
Representing growth of 41%.
Billings are expected to be in the range of $641 million to $642 million representing growth of 42%.
We expect non-GAAP operating loss to be in the range of 40% to $38 million and.
And non-GAAP net loss per share to be between 32 and 30.
For the year based on approximately 125 million weighted average shares outstanding.
Our free cash flow margin in fiscal year 'twenty, two is expected to be negative 4%.
We also expect the success we've experienced this year to continue for the foreseeable future.
As such we are providing initial billings for year over year growth guidance of 37% to 40% for fiscal year 'twenty three.
To conclude we were pleased with the quarter on several fronts the acceleration in revenue and billings the success of advance with the opportunity for it to be a significant future driver.
And the net expansion rate that has crossed the 130%.
We see an enormous opportunity in front of us and we will continue to invest behind this signal.
Now, let me turn it back to the operator for questions operator.
Thank you as a reminder, SASSA question, you will need to press star one on your telephone.
And that is star one to ask a question.
The other question just press the pound key.
Your first question comes from the line of Brent Thill from Jefferies. Your line is now open.
Good afternoon, Mark you called out record net new client wins I am curious if you could just drill in and give us a little more color what youre seeing.
And effectively if you can talk a little bit about where you're seeing that he's seen at the enterprise SMB.
International just give us a little more color on that that would be that'd be great.
Yeah, you bet, Brent I think any part of it was in the.
In the last two quarters, we really have had an opportunity to balance our investment across a couple of investment areas one being at the very high end sort of capable advanced platinum serve the most.
I guess.
Assertive companies in terms of their policy management and enterprise side and then on the other end of the spectrum. It's the antithesis of that it's like how can you get someone who's passing by to check out your product and have it resonate with them and have them take a step forward.
And in Q3, we re factored our entry level plan called Pro plan and what we found was that by removing some of the restrictions on things like sheet capacities and limits. It gave people a lot more freedom to get started and I think confidence and that has started to play out. So the month of October was the highest.
New license total we've had in the company's history and that was really exciting for the team.
There is we take a lot of pride in our ability to expand and I think theres equal excitement internally now about about landing.
And maybe a quick follow up for Pete just when you think about Mark's comments about net new coming in stronger are you adjusting your quota carrying capacity differently.
As you look at this are you at a quicker rate are you effectively trying to get the current reps just more productive.
We're not adjusting our quota capacity you've already leaned in heavily as a part of our investment posture. We think that serves us well to take care of the incremental demand whether it comes from enterprise expansions and it comes from these new customer additions of new license editions.
Your next question comes from the line of Mark Murphy from Jpmorgan. Your line is now open.
Yes. Thank you very much congrats on a fantastic result.
So mark I believe smart seeded several years ahead of the field in terms of the fed ramp.
Certifications and I noticed the federal news network was highlighting smart <unk> for the rest of the agencies could you talk to us about the traction there or does it feel like youre running the table with those massive contracts and I guess I'm wondering is it helping to support this.
Pretty robust billings guidance that youre, giving us for the out year.
I really I really related more to the early years of smart sheet, where we were planting many seats. So I referenced the logo growth and when you land on an agency.
Love to be able to say Mark we're closing huge seven figure contracts at every agency, we're not but we're planting a ton of seeds, we're getting a sense for what the agencies want we're adjusting our R&D to support that and I do expect in out years as we talk about this being a highly sticky category once you're in we think and what we're observing is that the growth within those agencies.
Absolutely exists, but I would I would really like in this too that the earlier phase of smart.
Planting and then we shift into growth and then sort of hyper growth in out years.
I see okay.
And Pete.
I was curious about the advanced version of the product.
Specific elements of that package do you think are resonating.
The strongest and.
Is it something can we see that manifesting somehow in the financials.
There's a lot of strength, but I guess I'm wondering how that manifest is it helping your churn is extremely low now.
Retention is strong is it coming through in the in the <unk>.
<unk> of the.
The billings numbers that we're seeing.
I'll take this one.
When we when we introduce new product innovations you always hope that each of them are going to be a homerun and when they are actually in market and you see what the customer uptake is then you really get to see it play out in one of the things that we introduced in the spring through.
Through advance was this product called data shuttle and data shuttle is a mechanism that allows people to take a.
Datasets from any source and to bring us into smart sheet, and then shuttle them back out once they've done processing on them within smart <unk> that is the fastest growing offering we've had of the company in its history.
Now is it ratable or no. It's not charged on a ratable basis. However, it is a component which is the capability of premium capability that people are really latching onto.
Those are the types of home runs you need within our portfolio to get attached and wondering how that connects to our loss rate is that when somebody has a durable repeatable process on your platform they tend to stay.
So the more people, we can get exposed to these things the better the second one I would point to is relatively new and we just turned on for our enterprise customers, which is a snowflake powered.
Analysis capability within the product that allows people to do things like time series reporting.
Old adage here, she who holds the keys to the Kingdom also hold time series.
And when I look at in the matter of a month and a half more than 50% of the enterprise customers have utilize that capability and thank you snowflakes for putting us in a position to deliver that to our customers, but those are the kinds of things you look for in the portfolio that really I think helped drive the strength.
And I think gives us confidence for the out year I mean, there are multiple things that give us confidence for the out year, but those are two things that have really have really landed.
Alright, Thats very very helpful. Thank you Mark.
Your next question comes from the line of Scott Berg from Needham. Your line is now open.
Hey, guys. This is John <unk> on for Scott Berg, Thanks for taking my questions.
First I'm just kind of curious how have your conversations around some of the more transformational deal it's been evolving.
Turning to see this.
Type of broader demand earlier in the sales cycle and maybe are you increasingly seeing the end users start to push that upwards at a more rapid rate than previously thank you.
Yes, we are seeing the continued bottoms up approach worked very well and I think the better you can present your offerings and get them to discover them utilize them promote them. The better I think there is another part of the approach, though which is which is quite opposite to that which is helping somebody understand how youre innovations will drive.
<unk> realizations after which you have the right to monetize and that is not always in a bottoms up motion. So when I think about how we're going to some of these large brands and doing discovery sessions with them to help them understand how to unlock value on more of a strategic level that is quite useful as well. So I think it is it is a hybrid approach how do you.
Discovery occur in self directed growth to occur combined with more that consultative approach, which really plays out well in those scaled environments and we refer to that spectrum is the customer journey, alright, and endpoint and end user is going to have a different journey expectation than maybe an executive.
Great. Thank you and then just quickly on gross margins it looks like you've raised.
The level of expectation currently 79 to 81% to 81% 82 for the year I guess is.
There anything specific to call out there.
The gross margin line. Thank you.
No I think the reason we raised the margin by the moment you mentioned is because we've only got one quarter to go and we've seen the trend of how we've sort of worked on gross margin and maintained in Greece that that's really the way we set the table for you folks.
Okay.
Your next question comes from the lineup Alex Zukin from Wolfe Research. Your line is now open.
Hey, this is Alan Borkowski on for Alex. Thanks for taking the question you touched earlier on all the new management changes at the company.
And while we certainly see this going on as companies scale can you just go a little bit more in depth.
In terms of what you're most excited about.
What's the new members of the team.
It can be done differently or better and then I've got one follow up.
Yes, I think.
When you look at when you look at change in opportunity I, often look at what how you how you apply a risk to change and one of the things I'm very grateful for is that if the new appointments, we have existing institutional knowledge, we have existing cultural alignment, which allows you to really move forward swiftly and with great confidence and.
One of the things that we're trying to achieve is how you accelerate decision, making so as I look at the unification of marketing with Andrew as our CMO looking after the demand in the brand the product marketing and other elements that constitute marketing we have a much much faster decision flow than we had prior where we had elements of marketing existing within three different parts of our business.
When I look at prior taking on engineering and I look at the ability to have a unified product and engineering person help be the arbiter in the moment that lets us make faster engineering decisions when I look at jolene, taking on things like procurement and risk and working with our CSO I look at the scope of legal also expanding so the neat thing about having <unk>.
Institutional knowledge brought into that S. L. T is that from a ramp standpoint, you get to bypass that in many cases and when I look at having what 2600 roughly people on the roster now. It's also an amazing thing to be able to point to some of them growing their career within the business. So I think it's a really really neat need composite there.
And I think on the Stephen front on the CMO, Stephen as our SVP of ops, just prior to getting the appointment of COO. He has been running the rhythm of the business and he is as we look at really formalizing our approach to expanding international I really look forward to Steven taken that institutional knowledge and applying it in our new markets.
Got it that's really helpful. Thank you for that and lastly, as a quick follow up can you. So you mentioned was really strong statistics about new licenses and the strength you saw raw in October can you just kind of touch on what you saw on a monthly basis and let demand environment through November.
We went through.
Through Q3 through November how are you seeing people approach their expansions with smart as they think about the remote work environment and plans for next year. Thanks.
Yes, I think the <unk>.
Thing about seeing strength is that when you see strength you want to invest more behind it. So as we look at improvements to how people land in how they procure and how they expand it just causes you to want to put more both engineering and go to market dollars behind it so as we as we as we pared the launch of our new Pro plan.
We absolutely flex in terms of making sure was in front of more people and when we think about our marketing investments heading into next year.
We look at top of funnel, we look at mid funnel and we look at bottom of the funnel and we're really ramping in each of those areas as I think about the rest of the year and heading into next year I think the awareness of mainline individuals' within lines of business being able to serve themselves and derive great value.
That is hitting mainstream now so it's less about evangelizing a new concept that nobody understands and more about getting people aware of your solution on the concept that is really gaining steam.
I actually assigned more to that than I do the notion of hybrid work or working remotely.
Got it thanks for that color and congrats again on a really strong quarter.
Thank you.
Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.
Yes, Thank you and I'll add my congrats on a great quarter.
I think you mentioned that you should expecting net retention to stabilize around the 140% range going forward, obviously, a very strong net retention rate can you give us a sense for what's actually what the primary drivers are behind that.
Uptake of advance are you still seeing customers.
User growth for user growth that's driving that.
Marching proliferates within within existing customers.
So Arjun this is Pete I think if you looked at the cut down on the net dollar retention rate, we're seeing strength across all verticals first of all it's coming all across every word vertical every customer segment and what we're seeing is expansions in large enterprise are going up and churn is coming down. So that's the way this thing.
He is getting built out and we're seeing that reflected in the numbers that show up as the 131%.
Yes.
Okay understood.
And also advanced seems like there is theres a lot of good momentum there.
Mark you pointed out are you provided a handful of.
Stats points of a diverse kind of uptake we're seeing across the base I'm curious is there a difference youre seeing yet.
And the size of a deal that includes advance versus one that doesn't cause I would assume that those customers are.
A little bit more sophisticated I would say and they are in their use interest Mark just curious what you're.
Seeing in terms of deal size.
Yes, all of our top 10 deals in the quarter six of them did have advance elements to them.
The really promising stat that I love from the from the earnings call was the fact that we had many new customers buying advance so when I think about someone being prepared to take on more.
In the past, we often talked about maybe a $503000. Let me just dip my toe in and get a couple of licenses. They are now having more substantive discussions on how can we start a little bit bigger and a little bit faster.
<unk>.
The neat thing about advances that it's simplifying the conversation I think in past calls we've talked about the do you look at the menu with 32 items honored if you were looking at menu with four items on it the form four item menu is much easier to traverse and and I do expect continued strength on the new lands as well and again those are happening in an assisted motion those are less the self directed.
But we have hundreds of quota carrying reps now who are in a position to have that discussion. So so yes, I think it's I think it's it's really setting up nicely.
Wonderful.
Good to hear thank you and congrats again thanks.
Thanks.
Your next question comes from the line of Terry Tillman from Truman Your line is now open.
Hey, everyone. This is Joe Meares on for Terry Thanks for taking the question.
Wondering if there is any recent customer reaction on the venue platform announcements that you guys made at the engage event, including.
Customer managed encryption keys.
Enterprise plant manager and the data retention controls that you guys are now.
<unk>.
Yes, I would say the the reaction in many cases is congratulations you may now proceed and I say that a bit a bit jokingly said if you don't have some of these things and it's a hard requirement you don't get to Paas go did you stop.
And I Love. The fact that we now have the right to proceed we think we can deliver a ton of value to customers and getting getting boxed out on one of those I'll call. It a technicality its an important technicality that is like the worst thing to experience as a SaaS provider you've worked so hard to build build build and you wanted to do that next big expand and you get stuck.
Those three that you mentioned are just great. Examples of things that are very important to some people and now we have a chance to really get past that nicely and once you get into the scenario, where like enterprise plan manager, it's less about new discrete feature function for the end user it's about making the administrator's life easier.
And let them sort of operating a more confident manner and that's worth a lot once you get into those big accounts.
That's really helpful. Thanks, and then just a follow up just to kind of.
Doubleclick.
The promotions and stuff.
Related to Andrew <unk> promotion to CFO, what does that mean for commercial sales and demand generation areas are there any new leaders emerging there or any other changes related to our go to market or field sales.
Yes, part of the unification I spoke to in a prior answer was about aligning that demands and the brand and product marketing under one leader So Andrew who previously owned demand Gen and his in his combination commercially hosted management brings that over with him too to the sales Org. We're also looking at elements within our SDR function.
And keeping those aligned so you really have a very tight top mid lower funnel grouping now and as it relates to our worldwide field operations on the sales side very strong leaders in the U K, Australia East West U S and they are working directly with our CRO right now.
Thanks, so much I appreciate it.
Your next question comes from the line of Steve Enders from Keybanc. Your line is now open.
Hi, great. Thanks for taking the questions I.
I guess I just want to touch on the $1 billion that you are providing for next year.
And I guess, what kind of really gives you the confidence to go at these at these numbers I mean is this things you've already seen that are booked on that.
Our bulk carriers is about pipeline or faster.
Last year your close rates Youre seeing with the dance I guess what are the factors that are.
And they are contributing to the outlook here.
So this is Pete when you look at the confidence that we've seen in the last few quarters. We see we're very bullish in fiscal year 'twenty three and we've seen this bullishness come in both the expansions we've seen at the enterprise level as well as the number of customers.
New licenses, we're adding we've seen momentum in our what I call advanced sales and when you couple that with our ability to add and higher sales capacity, we see that as a natural extension of the plays we've run this year. So we're seeing that play through in the guide we provided to you.
For next year between 37% and 40%.
Okay got you.
Appreciate the color there.
And I guess just as we.
We think about when you were marketing use cases that you've been calling out with brand Boulder and some of those capabilities I guess would have kind of been the differentiating factors as you go in and close.
Some of those marketing use cases with customers now.
We've seen customers appreciate being able to engage with one provider.
And it's not just do they provide the capability.
Independently, but how do they work together and when I think about the deepening of brand folder and smart should coming together, it's about how do things like proofing and smart sheet.
Parlay into brand distribution via via for your brand folder.
How can we understand the cost of our campaign development and the performance of an asset and <unk>. These are all things that are starting to be realized now and thats. The yields you're getting you're right. After an acquisition is done right you have to basically independent products and then to what degree can you bring those two together and as we head into next year and we look at our hundreds of quota carrying reps theyre going to be and such.
We are better positioned to talk about a unified Dan and CW and product versus last year.
Again, it's another one of those things that gives us.
Great confidence heading into next year and I would say in this with this persona type the marketing persona type I would say there maybe even a little bit more particular about things working well.
And again as we one of the reasons why we're investing so much in the integration of these two.
Okay perfect appreciate the color there and thanks for taking the questions.
Yes.
Adam.
Your next question comes from the line of Keith Bachman from BMO. Your line is now open.
Yes. Thank you very much for taking the question also very impressed.
The guidance Youre, giving on the billings I wanted to focus on.
Two parts of that if I could and then I was going to follow up with just a quick clarification.
In terms of just the philosophical if you're guiding to kind of $1 30.
The net retention rate and so therefore, if we look at 37% to 40% kind of billings growth I assume that we should just philosophically think about kind of 30% from existing customers in the 7% to 10% from.
New logos, so to speak and just wanted to see if that's helped philosophical we could approach. It and then the other question. If you could just describe a little bit on workouts where is that.
Really generating new activity.
And where do you think thats.
Or is that most.
Specifically showing up in terms of is that mostly new customers and retention rate is at new just help us understand a little bit how work apps is driving competitive differentiation.
And then I just wanted to ask a quick follow up to clarify Keller clarification afterwards.
So Keith I'll take the first part of your question and then I'll, let mark answer the forecast as part of your question. So.
As we described the stabilization of 130% you should think of it as being here's the rough numbers that I would build my models on and then as you think about the additional pieces that comes from essentially new business in other spots, which we've sort of talked about so that is an accurate way to think about it.
Martin.
On the work outside today work apps is something that is available to our enterprise customers and so I would say the companies who are more fluent with our products have deployed are now using work apps to come up with these more curated ways to enroll people in the product distributed either internally or externally.
And we do hold that option card to be able to say as work apps becomes better and better and we have ways to introduce it to other plans, maybe even a trial user we will fully pursue that but right now it is really more for the existing customers as enterprise customers to derive significant value but.
But we're actively thinking about the role it can play based on the residents it's had.
Okay. So it sounds like more of an up sell help today.
Particularly in the enterprise Okay terrific.
Okay.
Well I think one sorry, one thing I would add though is it's difficult to it's difficult to factor how the presence of something influences someone's initial decision right. So even if you don't experience it in your trial or user propane user and you know what exists it may still play a role.
Fair enough fair enough. Okay. All the demand metrics are very sound and the guidance is quite impressive.
The one thing that I want to ask a clarification of the free cash flow guidance.
Was a little lower than they thought you mentioned the attacks.
Or payment or onetime payment in there could you just clarify what is the payment and how much for the Q4 free cash flow guide.
Yes, it's a onetime payment of $10 million as a part of a legal settlement, which we had previously disclosed unrelated to our ongoing business. It's just the cash part of the settlement if you will.
Okay perfect. Many thanks.
Thank you for your welcome.
Your next question comes from the line of George <unk> from Oppenheimer. Your line is now open.
Thank you for taking that question Mark.
If you can share some color on our chief regions and now.
Now that you watch that.
International momentum is built in your App to launch that in a new market.
Yes, much similar to the conversation we had about some of those enterprise capabilities like the management.
Encrypted keys and such.
Regions is similar if someone has a requirement for you to host their data in country. You don't have it they move on to another option. So I love. The fact that we have the option card that we can present and we have examples of people in the first week that we had it available elected to deploy their smart sheet environment.
In that area.
I think as quarters go on we'll have a really good sense for what the economic impact is how we decide to go into other regions and how quickly, but it's really really proud of the team for having gotten ready ahead of schedule and in market and activated.
Again, I think the ability for the both.
Initial customer experience that person, who is considering pro business or the enterprise. It actually is relevant to both populations. So I think both our inside team in our large enterprise team will be beneficiaries of this.
And following up maybe broadly speaking on the competitive landscape.
The new customer momentum is that typically a greenfield opportunity or are you seeing those as.
Competitive bid situations and as you expand or are you displacing or are you seeing natural growth.
So we see it is still I think this market is so fascinated because I think it is one of the most diversified terms in SaaS.
And what I mean by that is you have tens if not hundreds of thousands of buyers of these solutions.
I don't have one person that you don't have one CFO you don't have one head of people ops who's buying and HRS system, you have people in business units, making decisions that.
That results in many many buying decisions happening in an uncontested way, where an individual's considering it for their business unit their team or their division and so.
I described the new environment.
Lately contested people, graduating from the way <unk> done work overtime.
In the accounts of significance you do start looking across other divisions other teams and seeing other things other tools used in such so the importance of having diversity in your user base critical.
And when we look at some of our biggest accounts and we see like 60 nodes of smart sheet across six divisions.
I would actually prefer that hand over being Super deep in one division.
So I think that diversity is does create a lot of greenfield for a lot of companies and then just make darn sure you don't become known as Oh, they're a pure filling the blank Division type company you really what we believe you really want to be able to spread.
Thank you.
Sure.
Your next question comes from the line of Tyler Radke from Citi. Your line is now open.
Thanks, Brian.
Brian Kim on for Tyler Radke. Thank you for taking my question and I wanted to build on an earlier question about.
What's giving you the confidence to initiate 23 billings growth outlook.
Better understand what's driving the strength this year as well.
We could break it down into use cases to what extent do you see.
Greater demand for for use cases within the CW and category.
Versus a traditional ppm category are there any use cases that you would call out that's done, particularly well since you updated last quarter guidance that would be helpful. And then I have a quick follow up thanks.
Yes on the ppm front I would say people are growing less satisfied with the old approach and the old approach would be give me a planning tool.
And then all executed in some other way theyre looking for a more unified environment. So this notion of totally disconnected I'm going to plan and allocate capital in one area and then just sort of have my team to get it done in another way that is feeling quite antiquated and I think that again the market is getting more deeply familiar with the modern way of doing it.
Which was where we're really driving so even though we do experience as we talked about legal departments HR Department sales Department service departments are really the bow wave of a lot of demand remains centered on the project and process and program orientation and then at vectors from there. So it's interesting that you highlighted.
The ppm round, because it's still a very very common theme of someone's initial buying criteria and decision.
Great and then I wanted to touch on the USA. Today example, I think you talked about how there is keith evolved around scaling the events business. So.
Are there any macro level paint lines that youre seeing from factors such as a return of events and conferences anything that you'd call out on a broader level there. Thank you.
I would say our revenues so distributor I wouldnt call out one specific sub segment or sub use case as a material contributor I would say that there is growing evidence that people have figured out how to operate in a model which is hybrid.
And so.
So when we look at how people are executing events people are doing them still virtually are starting to see people execute events in person as well as well as in that in that hybrid mode and I think that will I think people are getting their confidence is growing in that.
But people are not sitting still they're making decisions.
And last question comes from the line of Andrew de Gasperi, some bearing Burke aligned is now open.
Hi, This is Ellie on for Andrew and Thanks for taking my question.
Carter you touched on the engagement partner deals, especially with partners that had thanks.
Thank you.
Areas like health care and manufacturing I was just wondering how you're seeing that type of go to market with partners continue that's quite alright.
This partnership Ian how are they impacting the APB.
So we were really pleased with the performance with.
What I call partner collaborated bookings.
They represented.
Key part of how we closed the way this works as well.
Whether we have the expertise of our partners have the expertise we work collaboratively collaboratively with them. Some of these are focused on individual verticals like manufacturing et cetera, and we've seen that this works really well because they are with us as we sell to the customer a solution that works for the customer.
In terms of numbers the partner collaborative bookings represented what I call low teens, if our business and really strong year on year growth. So we're pretty proud of how this played out.
Partner channel.
Okay.
Thanks, that's helpful.
There are no further questions at this time I would now like to turn the conference back over to Aaron Turner.
Great. Thank you and thanks, everyone for joining us today, and we will see you out on the road and talk to you next quarter.
This concludes today's conference call. Thank you for participating and have a wonderful day you may all disconnect.
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