Q4 2022 Samsara Inc Earnings Call
Speaker 1: Chief Executive Officer, Sanjay Bizwas, and our Chief Financial Officer, Dominic Phillips.
Speaker 1: In addition to our prepared remarks on this call, additional information can be found in our shareholder letter, press release, investor presentation, and SEC filings on our investor relations website at investors.samsara.com.
Speaker 1: The matters we'll discuss today include forward-looking statements. Actual results may differ materially from those contained in the forward-looking statements and are subject to risks and uncertainties described more fully in our SEC filings.
Speaker 1: Any forward-looking statements that we make on this call are based on assumptions as of today, March 2nd, 2023, and we undertake no obligation to update these statements as a result of new information or future events unless required by law.
Speaker 1: During today's calls, some of our discussions will include our fourth quarter fiscal 2023 financial results.
Speaker 1: We'd like to point out that the company reports non-gap results in addition to and not as a substitute for or superior to financial measures calculated in accordance with gap.
Speaker 1: All financial figures we will discuss today are non-GAAP except for revenue and revenue growth.
Speaker 1: Reconciliation of GAP to non- GAAP financial measures are provided with a press release and investor presentation.
Speaker 1: We will make opening remarks, dive into Highlights for Q4, and then open the call for Q&A. With that, I'll hand over the call to Samjith.
Speaker 2: Thanks, Mike, and thank you everyone for joining us today. FY23 was a year of durable and efficient growth for Samsara, and our continued momentum reflects the strength of our platform and large market opportunity ahead of us.
Speaker 2: We ended FY 23 with ARR of $795 million, growing 42% year-over-year.
Speaker 2: During the year, we added 431 large customers with more than $100,000 of ARR, bringing us to over 1,200 large customers in total.
Speaker 2: To support customer demand, we grew our team to over 2,200 Samsarians, representing approximately 40% increase in headcount year over year.
Speaker 2: As a company, we are focused on balancing growth and profitability, and we improve our adjusted pre-cash flow margin year over year by more than 90% in Q4, with negative 3% adjusted pre-cash flow margin.
Speaker 2: We also achieved Rule of 40 for the last two quarters of the fiscal year, which is a significant milestone, but there is still much work to be done to consistently achieve Rule of 40 on a quarterly and annual basis.
Speaker 2: As you know, our customers represent the broad world of physical operations and span diverse industries from prudent beverage to construction to government and more. I'm always impressed by the resilience of our customer base.
Speaker 2: They are the backbone of the economy and provide the critical infrastructure that keeps the world running.
Speaker 2: Many have been around for over half a century and are no strangers to challenging economic cycles.
Speaker 2: Digitization is more important than ever in today's macroeconomic climate. Our customers are faced with difficult operating challenges and continue to search for ways to maximize the return on their investments to achieve their business goals.
Speaker 2: In Q4, we had a milestone quarter of large deals with customers who have complex operations at scale and a breadth of assets such as cranes, tractors, vehicles, and buildings.
Speaker 2: The value of the connected operations cloud is resonating with them as we digitize and combine their infrastructure into a single integrated platform.
Speaker 2: As a system of record for our customers' daily physical operations, the amount of insights and cost savings our platform can generate is tremendous.
Speaker 2: I'd like to share a few stories about some of our large customers who are starting to use Samsara to elevate their safety programs and improve their sustainability and efficiency efforts across their vast operations.
Speaker 2: Let's start with Nutrien Ag Solutions, our largest new ACV transaction ever.
Speaker 2: They're one of the world's largest agriculture inputs and services providers, and the third largest nitrogen producer in the world, with roughly 75,000 assets.
Speaker 2: Nutrient adopted SimSAR's video-based safety solution to prevent accidents, promotes safer driving behaviors through in-cab alerts, and help exonery drivers from false insurance claims.
Speaker 2: Nutrien's goal is to up-level its existing safety programs and mitigate risk through event analysis, education, and training. After completing a pilot with SAMHSA, Nutrien saw significant improvements across driving behaviors.
Speaker 2: Let's now turn to another exciting Q4 win.
Speaker 2: Estes Express lines is the largest privately owned freight carrier in North America, and a top 10 less than truckload carrier with more than 22,000 employees over 45,000 tractors and trailers and 270 terminals. Estes expects the real-time data from SamSara's Connected Operations Club
Speaker 2: will help them increase uptime, reduce costs, and achieve their goal of creating a digital twin of its entire shipment lifecycle to improve the customer experience.
Speaker 2: This way they can provide better visibility to their own customers while removing time intensive paper-based processes for their drivers and operation staff.
Speaker 2: Our video-based safety and vehicle telematics applications can help improve driver's safety by using real-time alerts and help produce idling.
Speaker 2: We project that a 10-15% reduction in idling can save them an estimated $2-3 million in fuel costs annually.
Speaker 2: Additionally, we estimate that saving drivers five minutes per week by automating manual tasks could lead to over $1 million in annual savings.
Speaker 2: Finally, let's cover another Q4 deal this time in the public sector.
Speaker 2: We added a new State Department of Transportation to an existing public sector account, which now exceeds $1 million in error.
Speaker 2: The State Department expanded to use the Connected Operations Cloud to better manage their light duty and off-road assets, giving them data-driven insights to make critical operation decisions in real time.
Speaker 2: They're almost 40 agencies within the state accounting for nearly 11,000 assets.
Speaker 2: By integrating SAMSARS diagnostic data into a statewide enterprise resource planning system, the state can identify which assets require immediate attention and prioritize spending across their expansive operations.
Speaker 2: They can also further the sustainability goals by benchmarking assets that use the most fuel and prioritize those best suited to transition to electric.
Speaker 2: These customer stories represent just a snapshot of the incredible momentum we're seeing among large customers with complex operations, and we're excited to build on this in the coming year.
Speaker 2: As a system of record for physical operations, we help customers solve their toughest challenges by giving them the ability to analyze millions of data points across their expansive operations.
Speaker 2: More importantly, we help our customers achieve their business goals by transforming data into actionable insights.
Speaker 2: We've been investing in the Connected Operations Cloud, which continues to grow and become more sophisticated, with nearly 6 trillion data points flowing in, over 50 billion API files processed, and more than 50 billion miles driven for analysis annually.
Speaker 2: Our partner ecosystem, Samsara's App Marketplace, is also growing and now includes more than 220 integrations.
Speaker 2: Our customers are continuing to plug in additional partners and providers to fully leverage the power of our platform.
Speaker 2: On average, our largest customers are using six or more API integrations, up from four API integrations just last year.
Speaker 2: I'd like to share three specific examples of how our customers across industry are seeing value in rapid ROI from unlocking their data.
Speaker 2: Let's start with insurance premiums. Insurance premiums are consistently one of the top expenses for physical operations customers.
Speaker 2: with insurance premiums. Insurance premiums are consistently one of the top expenses for physical operations customers and premiums continue to rise annually.
Speaker 2: RAI models, analyzed driver behaviors and road conditions in real time provide visibility into leading causes of preventable accidents.
Speaker 2: And when a model detects one of those behaviors, we can proactively alert drivers in real time so they can take the appropriate action to prevent a potential accident.
Speaker 2: Safety incidents are saved to our cloud and customers and insurance providers can access this data through APIs.
Speaker 2: Insurance providers can use this data to better underwrite the risk of fleets, leading to reduced insurance premiums.
Speaker 2: Fuel prices also remain top of mind for our customers and can represent 60% of non-personal spend.
Speaker 2: Leveraging SAMHSA's fleet benchmarking solution, our customers can better understand fleet performance, identify areas for improvement, set informed goals, and run their own feedback loops to ensure continuous improvements.
Speaker 2: Another important cost saving priority for our customers is extending the life of their most expensive assets, from front loaders to cranes to tractors or other costly business credit, like, the equipment.
Speaker 2: With maintenance status data flowing to our AI models, real-time diagnostics spot issues and proactively alert mechanics to fix vehicles before major faults take place. We're focused on creating an agile platform that meets our customers most pressing needs.
Speaker 2: We do this through continuous innovation powered by our data platform and customer feedback loop.
Speaker 2: A good example of this is with digital workflows and how it's making an outsize impact in transforming the worker experience.
Speaker 2: By adopting SAMHSARA's customizable digital workflows, our customers reduced time spent on manual written tasks, bringing up valuable time for other business critical work.
Speaker 2: And we've seen tremendous traction within our platform.
Speaker 2: We've seen year-over-year improvements in the number of workflows moving daily to our system.
Speaker 2: including over 110 million driver vehicle inspection reports logged in fiscal year 23, a 70% increase year-over-year. And over 23 million documents digitized, a 60% increase year-over-year.
Speaker 2: Semstar is quickly becoming the system of record for physical operations, and we're excited by the vast opportunity to truly transform the worker experience for our customers.
Speaker 2: I'd like to end with a thank you to our customers, partners, investors and semisareans who are joining us on this journey to digitize physical operations.
Speaker 2: We're looking forward to another year of building the Connected Operations Cloud, and we're excited to see many of you at Beyond, our customer conference and investor conference in Austin, Texas this June .
Speaker 2: I'll now hand it over to Dominic to go over the financial highlights for the quarter.
Speaker 2: Okay, thank you, Sanjit. As a reminder, please refer to our shareholder letter, press release, and investor presentation at investors.samsara.com for additional information on our Q4 results and financial guidance.
Speaker 2: Q4 FY23 was highlighted by strong top-line growth and continued operating efficiency improvements. Our durable and increasingly efficient growth demonstrates the large and growing opportunity for digital transformation across the world of physical operations.
Speaker 2: While global economic uncertainty persists, we exceeded our expectations for key top line and profitability metrics for a few reasons.
Speaker 2: First, we sell into the operations budget, which is large and generally non-discretionary. Second, our customers generate hard ROI savings by deploying SAMSARA,
Speaker 2: Third, our solution has a quick average payback period for customers, often in months.
Speaker 2: And finally, we have a subscription business model that produces highly predictable revenue, and we price based on the number of assets versus seat-based pricing, resulting in lower risk of churn if our customer's hiring slows or contracts.
Speaker 2: Our Q4 ending ARR was 795 million, growing 42% year over year, and Q4 revenue was 187 million, growing 48% year over year.
Speaker 2: Several factors drove our strong top-line performance in Q4. First, we continue to focus on serving large physical operations customers.
Speaker 1: We now have 1,237 100k plus ARR customers, a quarterly increase of 124 or 53% year over year.
Speaker 2: We also saw particular strength within our largest customers.
Speaker 2: We now have 51 $1 million plus ARR customers, a quarterly increase of five or 65% year over year.
Our investments in serving the largest physical operations companies in the world continue to pay off. 100k plus ARR customers represent our fastest growing cohort and make up 48% of our total ARR, up from just 45% one year ago.
And while Q4 was a strong expansion quarter, it was an even stronger new logo quarter.
We added a record number of new core customers in Q4, which now total more than 19,000.
New customers represented 51% of NetNew ACV in Q4 up from 44% in the same quarter last year.
And three of the five million dollar plus net new ACV deals in the quarter were new logos, including a leading traffic safety field services company operating across North America that landed with video-based safety, telematics, and equipment monitoring to reduce accidents, leverage data to drive operating efficiencies, reduce fuel and maintenance costs.
and streamline operations.
And finally, multi-product transactions continue to significantly contribute to our top-line growth. In Q4, seven of our 10 largest transactions included subscriptions to two or more products.
More broadly, more than 70% of core customers and more than 90% of large customers subscribe to two or more applications.
and 25% of core customers and more than 50% of large customers subscribe to three or more applications.
In addition to delivering strong top line growth, we continue to focus on driving operating efficiency improvements across our business as we scale. As a result, we saw year-over-year leverage across all major functions.
Q4 gross margin was 74%, approximately flat year over year, and has stabilized above 70% for 10 consecutive quarters.
Q4 operating margin was negative 8%, an annual improvement of more than 40% or 6 percentage points year over year driven by leverage across all functions.
Q4 adjusted free castle and margin was negative 3%, an annual improvement of more than 90% or 37 percentage points year-over-year, primarily from improved operating leverage and working capital improvements.
Efficient growth continues to be a priority, as demonstrated by a 45% rule of 40 in Q4, our second consecutive rule of 40 quarter, and our highest quarter in the last three years. While we're pleased with this accomplishment, our goal is to continue making the necessary improvements that would allow us to achieve rule of 40 consistently on a quarter of the
growth but we continue to operate with discipline while making incremental investments.
Our ARR per employee at the end of FY23 was more than 350,000 in all time high and three times higher than it was three years ago.
Okay, now turning the guidance.
As we enter our second year as a public company, we expect our guidance philosophy will be less conservative than during our first year. However, after analyzing various scenarios, we also believe it is adequately de-risked to account for the potential impact of worsening macroeconomic factors on our business.
For Q1 FY24, we expect total revenue to be between 190 and 192 million, representing your over-year growth between 33 and 35%. Non-GAP operating margin to be approximately negative 15%, and non-GAP EPS to be between negative 5 and negative 6 cents.
assuming 526 million weighted average shares outstanding. For full year FY24, we expect revenue to be between 838 and 848 million, representing year-over-year growth between 28 and 30%. non-GAAP operating margin to be approximately negative 7%.
non-gap EPS to be between negative 5 and negative 7 cents assuming 536 million weighted average shares outstanding.
And finally, a few additional modeling notes. First, we expect non-gap growth margins for FY24 will be in the low 70s percent. Second, we expect to cut last year's negative adjusted free cash flow dollars in half in FY24. And we expect to reach adjusted free cash flow break even in Q4 this year. And finally, we expect to reach adjusted free cash flow.
And finally, we expect FY24 equity dilution to be between 3 and 5 percent, and our longer term goal is annual equity dilution of less than 3 percent. And please note that additional modeling notes for Q1 and FY24 are included in our shareholder letter.
So to wrap up, while we're operating in an uncertain macroeconomic environment, we are very pleased with our performance during our first year as a public company. We are digitizing the world of physical operations, and the connected operations cloud is our customer system of record.
We remain committed to continued operating efficiency improvements on our path to profitability and to making investments in the highest ROI areas of our business.
We believe that with our markets, our platform, and our focus on efficiency, we are well positioned to continue delivering durable growth while improving profitability. With that, I'll hand it over to Mike to moderate Q&A.
Thanks, Ommick. We will now open the line for questions.
When it's your turn, please limit your questions to one main question and one follow-up question.
The first question today comes from Sterling Audie and Moffett Nathanson, followed by Keith Weiss and Morgan Stanley .
Des in you hear me okay.
Yeah, we can hear you. All right, thanks guys. So just curious if you can characterize what sales pipelines look like exiting the quarter versus maybe 90 or 180 days ago, just to help us understand the dynamics of macro impacts versus what you're doing on the sales execution side.
Sure, I'll answer that. We're not seeing a lot of change to sales pipeline. We called out some elongated sales cycles in Q2. We saw that persist in Q3 and Q4. But we're not seeing necessarily a change in the overall pipeline or the conversion of that pipeline or the win rates. But we do continue to see customers look at.
longer free trials really validating the ROI analysis elevating decisions higher up within the organization. You know but we're pleased with the you know the pipeline that we saw exiting the quarter.
Excellent. And then Dominic, you'd also mentioned gross margins in the low 70s. You had a nice real sequential uptick in gross margins here in Q4. Can you remind us what are some of the dynamics that are going to ebb and slow that that numbers throughout fiscal 24?
You're really not seeing a lot of leverage out of Gross Margin again on Q4 is approximately flat, you know, year over year and even as we look into next year that most of the leverage in this business and that's going to drive better operating margins and better free cash margins are really going to come below Gross Margin. I think there's room to do some better optimizations and things like our cloud and so
Our next question comes from Keith Weiss at Morgan Stanley , followed by Matt Bough at William Blair
Excellent. Thank you guys so much for taking the question. And really, really nice to a strong year. And what is still a difficult environment out there? Kind of a two-part question. It does seem like the value proposition and the strong ROI of the platform is coming through to customers.
Are you seeing evidence of that in terms of your customer conversations, in terms of pipeline conversion? And then number two, the other sort of really striking part of what we've seen throughout this year and you guys definitely kept it off in this quarter is not just like 100k customers, but getting some of those largest
potential customers out there, like the top 10 transportation companies and the like, what is it that really turned on for you guys is you're what's working that that's enabling you to sort of get up to that class of customer and be so successful there.
Hey Keith, this is Sandra. I'll take the first part. So from an ROI perspective, it's absolutely a strong case. We have multiple opportunities to provide value to our customers on the safety side when it comes to helping exonrary drivers from accidents or even reduce risk to avoid accidents in the first place.
That's really compelling and for these large scale complex physical operations customers it can save them millions of dollars on a yearly basis. Similarly for fuel it's a it's the same story. Coaching drivers to operate a little more fuel efficiently and then optimizing the assets and the workloads and the routes to be fuel efficient can save these customers millions of dollars a year.
So that ROI case is really strong and that pipeline conversion remains strong In spite of what Dominic mentioned where you know, there is a bit of elongation on the sales cycle So I think we feel good that we've got a compelling value proposition the wind rates continue to be stable And it's a very very large market. We're talking about tens of millions of commercial vehicles here in the US
even more in Western Europe . So I think just in terms of our core market, our core value proposition, the ROI is there, and customers are very much tuned for this as they think of ways to save money in this environment.
Keith and Stalman, I call it an answer the second part. I think, you know, for the large deals, you know, Q4 is typically our largest net new ACV quarter in terms of seasonality. So that definitely played a role in this. But we've been making investments in the enterprise segment or large customer segment.
for many years now and we're starting to find the yield on some of those investments. We've made a lot of investments in R&D, so making sure that the platform is enterprise grade, building the required integrations as we talked about. On average, these customers are using six integrations now, up from four.
that it's got the right scalability, inflexibility, and security all built into the product are big time investments that we've made for these for these large customers. And then we've made a lot of sales investments as well. The go-to market motion is very different than mid-market. The sales cycles can be a lot longer.
And we've made a lot of investments there to go along with the R&D investments. And we're now starting to see some real consistent results out of the largest customers.
We've made a lot of investments there to go along with the R&D investments and we're now starting to see some real consistent results out of the largest customers. Excellent. Thank you guys.
Thank you. Our next question comes from Matt Fowt. Willem Blair followed by Alex Zugin at Wolf. Matt, are you there?
Okay, let's keep moving. So our next question, let's go to Alexu Kanat at Wolf.
Thank you guys. Can you hear me okay?
Yep. Congrats on another excellent quarter. I guess one thing that struck me, Sanjit, from both the letter and the script, your comments about the insurance, opportunity were really interesting. And I just want to unpack that a little bit and understand about how much that could become almost a channel opportunity or a partner opportunity for some sort of...
so closely aligned with these insurers. Our products are helping these physical operations, customers reduce risk out in the field. And in the case of exoneration, it helps resolve claims much more quickly. So we have a number of large insurers that have signed up with us. The logos are available in the same SAR app marketplace if you wanna take a look. And to kinda get to your question, it is absolutely an important area that we're investing in from a channel on partnerships perspective.
Typically speaking insurers don't sell this kind of technology or resell the technology. So today they're mostly referral partners of ours, but the partnerships are going really well. We're getting introduced to both large and mid-size fleet customers and other types of customers through that. So I think it's an area we're going to continue to invest in because there's so much value and value alignment. So now we need to expand ?????.
Perfect. And then on the bottom line, you guys continue to find efficiencies in the business for multiple quarters now, the incremental margins continue to look solid. Maybe just lean in a little bit about your expectations for sales hiring and quota carrying capacity for the coming year.
And also maybe just remind us at least from a, I know it's for illustrative purposes, but if you exclude the hardware costs associated with the business, what would kind of the adjusted pre-cash flow margin be in that case and how to think about that metric over the course, you know, even exiting next year?
Sure. So I think, you know, we made a lot of investments in overall headcount in FY23 growing, you know, 40%. You're over your while being able to improve our overall ARR for employee. As I look into FY24, we continue to hire. We have, you know, more than 200 or around 200.
Open Rucks on our website right now. And so I expect the the overall head count growth to still be going into in the next year in a subcomponent of that will obviously be sales capacity. We really look at.
Productivity metrics to really drive our investment decisions. If we see productivity, net new ACV per ramp rep improving, that gives us confidence that we can continue to hire. If we see it go down, then that means we probably need to pull back and we're cutting territories and accounts too quickly. So we'll really continue to use that data to monitor how we're going to hire in the next year, but I do expect that we'll continue to build.
you know, on our IoT devices and on inventory. And so with a minus 3% free castle margin, our free castle margin, Sands, dollars going out the door for inventory would have been positive 18%. So we recognize that obviously a significant component of our service are IoT devices.
But I think that that goes to show investors just the overall kind of leverage in this business longer term in the efficiency in which we're operating.
Perfect. Thank you guys. Congrats again.
Yeah, thank you.
Let's go back to Matt Fowett, I will emblare. Follow by Derek Wood at TD Cowan. Hey, hey, thanks. Wanted to ask about being used more and more as a system of record with your customers as customers use more APIs and corporate view more on your workflows. I assume that makes them stickier. But what do you see?
in terms of potential monetization opportunities as that happens. So Matt, I'll take that. So we are seeing a lot of momentum. We talked about this in the shareholder letter. In terms of API calls, we had about 50 billion API calls last year. And that increased 4x year over year. And overall, the other software-based features that we've added to the system, whether it's workflows or digital documents are also growing 16...
So that's ultimately what makes us essential as a system of record is to be that source of data, to have high quality clean data, and that has value for the customer and then we can also do things like better train AI models and other benchmarking data sets behind the scenes with that.
Great, and along those same lines, are you seeing OEM integrations become more important? And I know that was called out in the largest deal that you signed in the quarter.
We are. So on the OEM front, we're seeing OEMs of all different kinds of equipment integrate connectivity directly into the assets themselves. And so that's just been a long term build for us is partnering with OEMs, whether it's light duty, heavy duty, other kinds of equipment manufacturers like John Deere, Caterpillar and others. So that's an area that I think will take a couple of years to really get.
mixed rising in this kind of economy where it's often harder to sign new deals, especially ones that are larger in size. So that's great to see those metrics. And I just wanted to try to unpack that a little bit more. I mean, obviously, we know your value prop, your ROI is so compelling, but
It does seem like new customer activity at markets accelerating and just wondering is that more brand recognition is that more feed on the street and effective selling is that more legacy solutions aging out. You could just highlight a couple key factors. That'd be great.
Yeah, hey, Derek Stomach. I think, you know, as you mentioned, in the quarter 51% of net new ACV came from new logos, 49% came from expansion. So it was very balanced, but in Q4 last year, it was only 44% of net new ACV was new logos. I think maybe just adding a little bit of color, you know, our overall goal is just to drive more net new ACV and
right now over the last several quarters we've had a really good balance. A good, you know, almost half coming from New Logos and the other half from expansions pretty consistently.
Got it. Makes sense. And I guess, Dom, another one for you. I saw your comments around
seasonality with respect to the AR build and how you're expecting it to be a bit more back end loaded because of engaging more with larger companies that I suspect have more seasonal budgets. But, you know, this has been a motion that's been pretty consistent for you guys for a while. So what's different for this year? And perhaps does it contemplate the macro and longer sales cycles? Is that is that part of the reason for more back end?
that pay less than 5K of ARR where you see more
you know, steady bookings throughout the year. It's much more consistent. And so as we expect that trend to continue into FY 24, that would lead to a little bit more, you know, back-end ARR, Net New ARR linearity than what we've seen. We don't expect it to be extreme, but that's a trend that we expect to continue to happen.
Great, congrats on a great call. Thanks. So our next question comes from Matt Hedberg at RBC, followed by Cash Rangan at Goldman text.
Hey guys, thanks for taking my questions all off for my congrats as well. Sanjay, you called out the million dollar state government deal as well as a bunch of other public sector wins in your shareholder letter. That's super exciting to me. I guess my question is, how big of a vertical is public sector for you? And I think once you win one large state contract, it looks almost like a standardization. Could that create a bit of a domino effect as in what's good for one state could be good for the others?
they have also different pieces of software they integrate with that we don't see as often out with commercial customers. So we're in the process of building out our public sector team and also all the sort of necessary integrations. But for us, we believe it could be a top 10 industry vertical for us and we're excited to continue to invest. And within government, I should highlight, it's really state and local is the largest opportunity for us because the operations are so distributed. And that's not just here in the US, but also in international markets.
tighter economy today.
Yeah, I mean, renewal motion is was newer for us in FY23 given that, you know, we're eight years old and we signed these three to five year contract, the amount of renewal ACV and FY23 was almost 5X what it was in FY22. So we're learning a lot. You know, fortunately, we're seeing really good renewal rates. They're very consistent.
And anecdotally, we're seeing that as well as we go in and replace legacy incumbents, we're replacing some solutions that have been embedded for decades. And so we know that we can get in there and add value and would expect to continue to see strong renewal rates. And we're doing a good job of
terms and price increases and all of those things that go into the renewal conversation. We're very pleased with the performance of that in FY23.
terms and price increases and all of those things that go into the renewal conversation. We're very pleased with the performance of that in FY23. Thanks, Lecahs.
Our next question comes from Cash Rangan at Goldman Sachs, followed by Kirk Meturn at Ebbacore. Great, thank you very much. Congrats on the quarter. One for Sanjid, one for Dom. When you look at these customer workflows that are increasing, getting more sophisticated, there's a lot more documentation being stored on the system. Your product is getting deeper.
into aspects of the enterprise applications topology within your customers. So, these workflows leading you to new product opportunities or pricing models that could be somewhat picked to consumption, although the word consumption is not a great thing on Wall Street these days, but regardless.
What are these workflows leading you into other avenues of growth within your customer base? And one for you, Dom, when you look at the growth of the company, it's
in part to win by multiple vectors, but one which is new customer acquisition. So if you want to keep up the growth, you got to have a new customer acquisition. Is there any way, and that entails obviously working capital requirements with the inventory buildup, etc. Is there a way you could get the best of both words? You could still continue to drive and grow and not have to slow down?
growth in order to attain the free gas flow levels that you are capable of generating? Or is there no way around it? You have to keep growing and ultimately at some point when things do settle down way into the future that we should be able to get the scale because the inventory requirements will become smaller as a percentage of the recurring ARR base. Thank you so much.
I'll take the first part and it'll actually link I think maybe to the second part of your question. So on the workflows front, we are seeing great traction with the digital workflows that we offer these customers. We talked about this in the shareholder letter and prepared remarks. We saw about 110 million driver vehicle inspection reports get filled out digitally using smartphones and tablets. That was up 70% year.
of value and these companies are basically moving from pen and paper clipboards to digital process. That's an exciting area for us to deliver value to the customer. Today we're focused on the areas that I talked about earlier but we are thinking more generally about...
Can these workflows work at the beginning of a shift or an end of a shift? Can they be used for safety? Are there other use cases and applications? So you'll see us continue to invest there. And at some point, we may break that out. Today it's available as part of our existing product family. But if we start to see users that gets decoupled from the asset-based licensing model that we talked about earlier, the three to five years.
view growth and free cash at this point is relatively decoupled. We are growing as fast as we can and putting inputs into the business to drive growth as quickly as we can. At the same time, we're getting incredible leverage out of the business in driving working capital improvements. Those things are relatively decoupled.
And you know what and what expect that to be the case going forward. We're going to continue to get more and more leverage out of of OPEX and we're doing a better job of optimizing our working capital, including the dollars that we spend on IoT devices and supply chain and cash collections and the like. So we think that we can continue to
That was actually a peter, both way on both the YouTube profile form. We're not in a corner and we uh, we actually speciestaken the time, export some questions. So that may be just do a couple quick ones for you. First off, I'm just curious that.
You know, no senior shareholder letter, NRR for the large customer segment sort of stand above that 125 range, but then you know Forward looking next year sort of assuming you know it's slightly climbed out of the 120. So I'm just curious that this is mostly about You know continue choppy macro or if there's a wall of large numbers on the market play And I any thought you could add there and then just my second one would just be
You know, you also mentioned you got to have a sort of less conservative approach to guidance this year. You know, while it's still being adequately de-risk, if the medical were to deteriorate. So, just want to get you get out of any color there. I mean, is this presuming, you know, a change on top of one all or better conversion rates or just very, you know, in terms of that guidance methodology with what's changed? Sure. Yeah. So, on the net retention one for Q4, we are...
earlier that you know, we don't actually incentivize sales reps differently for new logos, or for expansions, Q4 happened to be a really strong new logo quarter, Q3 was a stronger expansion quarter. And so we're really just looking at the overall balance. And again, it was 51% of net new ACV came from new logos 49% from expansions in Q4. And so we're seeing good balance and that's ultimately what
52% growth. So that entailed beats of 8%, 7%, 9%, 9%, and Q123 and 4. What we're saying for FY24 is we're starting the guidance at 28 to 30%.
We will not have those same level of beats in FY 24, so it is less conservative than that initial FY 23 guide. There is a lot of obviously macro uncertainty. If we see a lot of those headwinds, we won't need to reduce our guidance. That is that is why we call it de risk. We do not think we will go below 28 to 30%. If we don't see those headwinds, we will have the opportunity to move that guidance up throughout the year.
Similar to what we did in FY23, but we do not expect the same magnitude of of beats. And so that's really the point that I was I was trying to drive home more and that kind of load amid single digit, you know, revenue beats on a quarterly basis. If we do not see any sort of, you know, macro macro uncertainty.
Make that, thank you. Our next question comes from David Ungert-Walls Fargo, followed by Alexi Gogelib at JPMorgan.
Hi, can you hear me okay? Yeah, we can hear you. Okay, thanks. Just a couple of minutes. Can we just talk about the competitive environment and you changes your seeing over the past year? And then just looking ahead to the long term with efficiency again, just which line do you think could be the most meaningful opportunity for you for the long term? Thank you.
So, David, I'll take the competitive question. I would say the competitive environment remains pretty consistent with what we've seen. Most of our customers are familiar with the number of the legacy incumbents that have been in this marketplace for some time. They offer point solutions, you know, products that either just do GPS tracking or just do driver safety and so on. And we're differentiating ourselves by being a modern platform, a platform where...
the majority of our customers now are using multiple apps, which is exciting to see. And it's also, we're differentiated in the sense that we're open in the number of integrations that we offer, which is now up over 220. So just a kind of quick summary there is I would say the competitive environment remains very consistent with what we saw in previous years. And I'll take the second question kind of on the leverage point. I would say, again, gross margins, we think longer term can be in the mid 70s. I think at the IPO and the long term model, we had 74 to 76.
to make there. And then G&A is another area where we'll get more and more leverage as we scale. Obviously, as a first year public company, there was an inflection in public company costs. I don't expect those costs to grow at the same rate as revenue in future periods.
Next one, congratulations. Thank you. Our next question comes from Relaxia JP Morgan, followed by Dan Jester at BMO.
Thank you, Mike. Can you hear me okay? Yeah, we can hear you.
Great, thank you. I was wondering if you could provide a bit more detail on the relationship that you have with your suppliers from time on. Maybe give us some details on how many there are and if relationships are exclusive. But more importantly, have you considered how you are going to meet customer demand?
manufacturers that manufacture product for multiple customers. And it's a thriving ecosystem. So the good news about that is we have a selection of multiple suppliers and multiple manufacturers we can work with. And we also maintain direct relationships with the key component suppliers. In other words, the key chipset suppliers that we use upstream. So in that sense, we have pretty good visibility. We have very strong relationships.
provide some thoughts on your productivity per employee. I mean, I completely see that it has significantly increased on three years ago, but versus last year, based on the figure of 40% growth, it looks like it remained broadly unchanged.
that's ARR per employee. So just wondering, you know, when you think that added sales capacity and improving productivity is going to kick in.
Yeah, I'll take that. So yeah, ARR per employee was up again 3x over the last three years and was up in FY 23 over where we ended FY 22 We did grow headcounts in FY 23 by 40% and the and the subcomponent of that that is sales capacity or that will drive more sales capacity
the all headcount cost is not created equal. I think we've started to do a much better job of hiring and lower cost regions and really broadening our aperture of where we're hiring from. And so not all headcount cost is created equal, but it is just a high level proxy that we use to ensure that we're hiring at an appropriate pace. Great, thank you.
All right, our last question today comes from Dan Jester at BMO. Dan? Great. Thanks for taking the question. Just two real quick ones. First, you know, you obviously want to improve in profitability and the rule of 40 metric, which you mentioned. I guess what's going to get you comfortable with saying that that's the new framework that we should be thinking about is it just...
scale is macro, what needs to get put in place for comfort there. And then secondly, on the API growth, if you mentioned, especially along with large customers, is there any similarities in terms of where they're investing most in the ecosystem from an app's perspective? And what are you doing in the your head to?
sort of make sure the ecosystem growth is as strong as possible to keep that dynamic growth going. Thanks. Yeah, I'll take the first one on rule of 40. So I think it's important to understand that the free cash flows of a portion of that that calculation and it is it's very seasonal for our business. So you know, it will likely be worse in the first half of the year and it will improve in the second half of the year similar to what we saw on FY 23. That's why we're confident that we can get that.
adjusted free castle break even in Q4 and so I think as we move beyond that and we're starting to see free cash flow at that level more consistently that will obviously have a bigger impact on rule of 40 and being able to also see that metric at or above 40.
consistently so again more likely in the in the back half of the year we do have a few additional expenses that come through cash outflows in the first half of the year.
Great, and I'll take the API growth question. So as I mentioned earlier, we saw 50 billion API calls in the last year, and that's up 4X year over year. So a lot of what we're doing today is to simply enable our customers to take advantage of these APIs and get more value from the data. Many of these physical operations companies are early in their digital transformation life cycles. So they're...
Now starting to adopt business intelligence tools and tie this real-time data into the ERPs and improve their end customer experience through real-time notifications, those sorts of things. So we have some great teams internally that help with that enablement process early in the customer journey. And then we are also continuing to invest in partnerships. So as I mentioned earlier, we have about 220
partners on the SAMHSAW app marketplace. Some of those are insurance companies which we talked about as well. We have payroll system providers, ERPs, OEMs that we've integrated with to get even more data. So we're going to continue to invest in technology partnerships. But I think for us, the real unlock has been that the customers are now waking up to this opportunity are starting to really pull on how do we get this APS?
same-sales-connected operations cloud and continued customer momentum. We're only getting started, and we look forward to updating you on our progress as we pursue the big opportunities that lie ahead. Before I let you go, I have a few short announcements. First, we'll be attending the Morgan Stanley Technology Media and Telecom Conference on March 6th and the Wells Fargo Software Symposium on April 12th. So we hope to see you in person at one of those events. Second, we are hosting our investor day on June 22nd in Austin.