Q3 2024 Smartsheet Inc Earnings Call
Good day and welcome to the Smart cheap third quarter fiscal 2024 earnings call. Today's call is being recorded and I would now like to turn the conference over to Aaron Turner head of Investor Relations. Please go ahead.
Thank you Lisa good afternoon, and welcome everyone to smart sheets third quarter of fiscal year 2024 earnings call. We will be discussing the results announced in our press release issued after the market closed today with me today are smart sheets, CEO, Mark Mader, and our CFO He got bull.
Today's call is being webcast and will also be available for replay on our Investor Relations website at investors that smart she dot com. There is 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 have based these 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 Relations 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 or adversely indoors firstly.
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 and with that let me turn the call over to Mark.
Thank you Anne and good afternoon, everyone welcome to our third quarter earnings call for fiscal year 2024.
<unk> revenue for the quarter exceeded our guidance and grew by 23% year over year to $246 million and billings grew 22% year over year to $268 $5 million in.
In Q3, we generated non-GAAP operating margins of 8% and free cash flow was 11 $4 million.
We ended the quarter with annual recurring revenue of $981 million and more than $13 9 million smartphone users.
In Q3, 89 customers expanded their smart should air or by more than $100000.
256 companies expanded by over $50000.
Additionally, we now have 59 customers with air are over $1 million up from 40, a year ago.
Our strength in the enterprise continued in Q3 with expansions at companies such as Cushman, and Wakefield Cintas Corporation Biotech company, Beijing, and Commvault systems among others.
Q3 was also a strong quarter for our suite of capabilities based products similar to last quarter capabilities. We're present in each of our top 10 expansions.
Smart sheet advance, which is a bundle of our capabilities was included in 250 of our expansions in Q3.
Advanced played a key role in a multi year multimillion dollar deal with a fortune 500 specialty beverage company.
Their expansion to smart sheet advanced gold will help support the company as it executes high impact projects, including new product Rollouts and associated equipment deployments network upgrades as well as new store openings and store improvements.
In Q3, we also saw a significant expansion that included an upgrade to advanced platinum at a major airline.
For a number of years smart chinas powered aspects of the carrier's flight ops flight products and tech ops units.
Due to growing demand for smart heat from other departments, they decided to upgrade to a smart sheet advance.
By implementing the platinum tier of smart sheet advance they were able to consolidate their licenses and bring them all under Ite's purview to give these divisions access to all of our capabilities such as control Center dynamic view and bridge.
This consolidation means that the airline has an opportunity to increase visibility into its spend and empower smartphone users as it brings greater efficiency to critical activities like resource management maintenance and scheduling.
And that resulted in a three year commitment with a total contract value of $4 $5 million and an opportunity to further scale smart <unk> across the organization.
The ability to rapidly scale was also key to an $850000 deal and one of the country's largest quick service restaurant brands the.
The company is in the process of a multi year transformation initiative and selected smart She control center and resource management to help drive its global digital transformation and implement portfolio reporting on day to day and annual operating plan projects for the senior executive team.
By using smart G. The company has been able to enhance and simplify collaboration across over 30000 locations and in doing so rendered a number of other applications obsolete.
Another customer example relating to scale is the significant expansion at a global media and entertainment organization that was looking to streamline its tech stack.
The company was already using control center to manage 14000 projects and 12000 workflows and bridge to track and manage their portfolio of projects.
Because that work went across its retail events theme parks and publishing divisions Smart she was well positioned to win this consolidation.
Going forward the company will extend its use of smart you to other initiatives such as improved speed to market for technology projects efficient head count management cost controls and profit improvement initiatives. This expansion and brought the company's era to over $4 million.
On the product front in Q3, we introduced a new way for our customers to discover and use two of our premium capabilities without the need to first contact to smart sheet Rep or park.
We believe empowering frictionless self discovery of high value smart capabilities will drive greater adoption of these premium offerings and early results have been promising with hundreds of trials started with just within the first few months.
One of those trials occurred at a mid cap biotech company and directly led to the purchase of data shuttle to migrate significant amounts of data into smart heat from legacy clinical storage systems.
While the company has been a customer for years it had never utilized a premium capability.
Once discovering data shuttle the Companys clinical trial team launched automated workflows to import data they used to track the progress of its research on cancer and rare disease therapies.
We continue to make strides integrating AI across the smart sheet platform.
We now have approximately 50000 enterprise users and early access to AI powered skills that allow users to generate formulas and content directly on their sheets.
Both these skills will be generally available later this quarter to enterprise customers.
Feedback from early access users confirms that our AI features will help power enterprise processes and make it simple for any user to gain insight into the work being done across teams.
These AI skills are helping customers achieve their desired outcomes, even more rapidly, but this <unk> platform.
We continue to invest internationally in response to increasing global demand to support data residency requirement for our international customers. We launched a smart sheet platform instance, in Germany in 2021, and we will launch an instance in Australia next year.
This new smart sheet region will enable Australian customers to comply with important data residency requirements and offer them the flexibility to choose where they want their content to be hosted.
We will be pursuing Iraq certification, ensuring that it will have the right policies and security controls to meet Australian government information security requirements. This enables <unk> to serve a growing regional customer base, including organizations and agencies with the most demanding governance and regulatory requirements.
Q3 was also a productive quarter for our federal government business in the U S. Reaching some notable milestones we signed a six figure expansion at a large government agency, which brought its air are up to $1 $6 million.
This agency uses smart sheet for critical workflows from purchase management to manage and grant funding to using control center demand or travel budgets and expense management across its multiple regional offices.
Additionally, we now have a presence in all 15 U S cabinet level departments and have two government agencies with RR over $1 million in.
In closing as we approach crossing the $1 billion <unk> milestone this quarter, we remain focused on both product innovation and customer value by continuing to execute as the user preferred enterprise work management leader.
Now, let me turn the call over to Pete.
Thank you Mark.
<unk> performed all aspects of our guidance in Q3.
Similar to previous quarters, our enterprise business continues to perform well, which is reflected in the growth of our higher air our customer cohort tiers and volume of large deals.
We continue to see macro related pressure on our higher velocity transactions and our and on our SMB customer segments.
Given these pressures we are maintaining our prudent approach to our Q4 and full year guidance.
I will now go through our financial results for the third quarter, unless otherwise stated all references to our expenses and operating results arent in a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call.
Third quarter revenue came in at $245 9 million up 23% year over year subscription revenue was $232 $5 million representing year over year growth of 25%.
Services revenue was $13 $4 million.
Revenue from capabilities made up 33% of subscription revenue.
Turning to billings third quarter billings came in at $268 $5 million representing year over year growth of 22% approximately 94% for our subscription billings were annual with about 3% monthly quarter.
Quarterly and semiannual represented approximately 3% of the total.
Moving on to our reported metrics the number of customers with ACD over $50000 grew 26% year over year to 3790 <unk>.
The number of customers with ACD over $100000 grew 32% year over year to 1779.
These customer segments, now represent 65% and 51% respectively of total error.
The percentage of ideas are coming from customers with HCV over $5000 is at 91%.
Next our domain average ACD grew 16% year over year to 9225.
We ended the quarter with the dollar based net retention rate inclusive of all our customers of 118%.
The full churn rate was 4%.
We expect to exit FY 'twenty four with the dollar based net retention rate of around 116%.
Now turning back to the financials.
Total gross margin was 84% our Q3 subscription gross margin was 87% we expect our gross margin for FY 'twenty four to remain at or above 83%.
Overall operating income in the quarter was $19 $4 million or 8% of revenue.
Free cash flow in the quarter was $11 $4 million.
Now, let me move on to guidance for the fourth quarter of FY 'twenty four we expect revenue to be in the range of $254 million to $256 million and non-GAAP operating income to be in the range of 21 million to $23 million.
We expect non-GAAP net income per share to be 17 to 19.
Based on diluted weighted average shares outstanding of $140 million.
For the full fiscal year 'twenty four we now expect revenue of 955 million to $957 million.
Representing growth of 25%.
We expect services to be 6% of total revenue.
We expect our non-GAAP operating income to be in the range of 82 million to $84 million, representing an operating margin of 9%.
And non-GAAP net income per share to be 68 to 69.
For the year based on 138 million diluted weighted average shares outstanding.
We expect our Q4 billings to be $339 million, bringing our FY 'twenty for billings growth guidance to 20%.
This includes the impact of our decision to invest more in our partner network that will include shifting more services delivery to this channel.
The impact of the shift will be a reduction of around $3 million to billings in Q4.
We are raising our free cash flow guidance for FY, 'twenty $4 million to $130 million.
To conclude we are.
<unk> performed all aspects of our guidance in Q3 and are encouraged by the signals. We are seeing from our incremental growth drivers such as self discovery of capabilities and the new AI features.
Now, let me turn the call over to the operator operator.
Thank you if you would like to ask a question on the phone lines. Today. Please press star one on your telephone keypad, if you would like to remove yourself from the queue. It is star one again.
Our first question from Scott Berg with Needham.
Hi, everyone really nice quarter here and thanks for taking my questions I wanted to start on the billing side.
You saw some acceleration in the growth quarter over quarter.
Some of the large deal environment, there, but how do we think about kind of pipeline of demand trends going into Q4, and do they like kind of normal and similar to what you've seen last quarter or two or do you see any changes either up or down. Thank you.
Thanks, Scott. This is Pete you know as we've looked at the pipeline. We are seeing basically the same strength in enterprise continuing continue into Q4, obviously depends on the composition of deals and closing those deals and what we're anticipating in Q4 is on the SMB expansion the trend.
We saw in what I would call Q3, which was a degradation in the expansion rate, we're extending that out.
Trended basis into Q4 as well.
Got it helpful. There and then from a follow up perspective.
Your your operating margins have trended lower in the last couple of quarters I know Thats in line with guidance your sales and marketing expense is up a little relative to subscription growth rates that are down a little bit. There is the higher sales and marketing expense is that all related to the partner enablement activities that youre going through or is there some.
Other increased costs, there that we should be aware of.
I think when you think of the sales and marketing expense in Q3, and you look at that trend November sales and marketing Q3 is a function of the event. We had in Q3, which was the engage event that plays into that spending and then there's what I call investments that we're making is needed in the right parts of the sales and marketing machine.
Larry.
Got it helpful. Thanks for taking my questions and congrats on the good quarter.
Thanks Scott.
Yeah.
We will take our next question from Michael Berg with Wells Fargo Securities.
Alright, Thanks for taking my question I wanted to ask on the demand dynamics in a different way anything to point to in the renewable environment outside the us.
Vertical or is it a improving how does it relate to the first half of the year and how is it trending as we look.
Looking to counter 2024, thank you.
I think in general our renewals are staying pretty strong there is no big difference in environment that we've seen between the first half into second half, but remember our business is pretty well diversified across all verticals. So we get the benefit of that but we're not seeing any big changes in the renewal environment.
Helpful. And then one quick follow up on capability that's been in the 30 low to mid <unk> for several quarters now and it seems to be a high value proposition type of product maybe you can help us think about.
Is there anything preventing further incremental adoption of that whether it would be <unk>.
Arriving home the ROI equation budget priorities, just macro and budget scrutiny any way, we can think about.
Dr. Dr. Dr could accelerate.
I think when we look at this is mark when we look at the various phases or elements of driving growth in this area.
One of the big initiatives for us in the second half has been how do we get them more aware to people at the right time. So that was part of the self discovery effort one of the things that we can see in the next year and the years out is how do we not only increased discovery, but also how do we dramatically accelerate the transaction on those types of things. So we see it.
Future in which the entire portfolio is visible to people can be utilized both people and can also be transacted by people in a variety of methods, whether you speak with a partner with you speak with the direct rep or whether you do that online and we continue to see that aperture opening but the first phase of the game is how do you get in front of people and I think we've made really good progress in the second half.
Matt.
Helpful. Thank you.
Thanks.
We'll take our next question from Josh Baer with Morgan Stanley.
Yes.
Great. Thank you I wanted to follow up on capabilities Mark just wondering.
What percent of your customer base do you think capabilities, Ken apply to I think.
The third of revenue is generated by only 6% of your customers just wondering where that number can go.
Yes.
The eternal optimist on this one I think I think this relates to every single person in our community.
We have a wide portfolio it has to do with being able to bring information and data into our system with integrating our system with visualizing our system sharing our system. These are all things that virtually every person on our platform does and I think when you reduce the cost of and reduced the hurdle Hyatt on what it takes.
The experience and give people multiple options and hotter transact.
At a very low cost effective way to start all the way up to really massive enterprise deployment that penetration should go well into the double digits and.
Yes, I think over the next over five year frame I think 50, our median customer should be buying capability from us.
Really helpful.
And then just wanted to dig in one more time on billings Q3, Q4 like you did show some nice upside and acceleration in Q3 off of an easier compare.
The comp gets easier yet again in Q4.
But the guidance implies a little bit of detail like even adjusting for the shift in the partners. So anything else to call out between Q3, and Q4 or is kind of Q4.
Just embedding sort of the normal type of Prudence and guidance. Thank you.
So Josh you know our approach this year, it's been very consistent the performance every quarter sort of irrespective of direction Hasnt materially changed our view of the year within a quarter. There is many reasons some variability in the timing of billings is the lumpiness of deals.
Seasonal variances, which tend to sort of offset over a full year term.
Provided commentary based on actual set of data, we see in the quarter, but we've been very constant and our view of the year and the way we see it is.
Given our performance over the past two quarters, we like to set up in Q4 to hit our 20% full year Billings guide. So that's the way we see it.
Okay, great. Thanks Pete.
No problem.
Okay.
We will take our next question from Jacob Broberg with William Blair.
Hey, Thanks for taking the questions Mark now you've had those AI solutions data for a few months and in the hands of customers. What's what's been the early feedback on those and are there any features and that you are really seeing outsized demand for.
It's interesting as I talked to peer Ceos, who have launched AI features into the wild I think what what the market is seeing is that I think people are signing higher value, but lower frequency lower usage to some of these things. So when I look at a company, saying, Hey, we really assigned Val.
<unk> two the ability to generate configurations through advanced formula lesser content generation. It's.
It's not something where we see this being hammered away at 10 5100 times per day, we're seeing a configuration at our large domains sort of a configuration being created daily.
So it's not like every single year excuse me. This all day long, but it's actually quite encouraging because people or people are utilizing it consistently and I think as the as the surface area grows not only from creating a logic, but then having an assistant and having the ability to do insights and having the ability to find templates through an <unk> mechanism.
I think that frequency will climb, but I would say pretty consistently across the peers that I speak with.
A lot of investments are out there and I think the frequency of usage is probably a little bit lower than people had anticipated, but when I look at the feedback we've received across favorable neutral or negative.
Almost exclusively neutral or positive.
And Thats, a really good leading indicator that tells us continue to invest in this area.
Heading into Q1 will be the first time, where we have something available in our enterprise product, which can really be presented to a business user that they can associate to very cleanly like in the past very often the enterprise plans tayo to security features and things that <unk> and governance really values. This will be the first foray into giving the business user something there.
We are excited about so again super early days I'm really pleased to see the neutral or positive feedback on this and it's like it's the first inning of this game.
But again no definitely the game is being pursued fully.
Very helpful. And then I know a lot of the solutions are still in beta today and will obviously take some time to roll out, but just in terms of that timeline, what do you view as the kind of the biggest product hurdles you have left before getting these solutions really GAA and lives in the hands of customers and really starting that upsell motion.
I think especially in this arena there are two factors one.
For many people. This is their first time interacting with an AI experience so the importance of being.
Correct, having giving the customer high confidence in that interaction we care deeply about that so as we think about leaving some of these things in the oven. If you will for an extra month or two we think it's a really smart move so we're getting the first two skills out at that before the end of Q4.
And I think with each of these skills, it's important to really understand what the feedback and interaction with that scale as opposed to doing a drag right and say well it worked well for the first three skills, let's just do that for the next five I think you really have to prosecute these independent of one another.
The other piece of this equation is what the posture of the buyer is so when I look at some of our largest organizations. We have about 5000 organizations in the early adopter program spending tens of thousands of users. There are some organizations, even with our approach to AI, which is unbelievably contained like we don't ship data across the boundary even in those situations.
<unk>.
The procurement teams and secured Haynes, who are taking extra care to really understand what their internal policies are so we've actually had some of our largest clients who were taking an uber conservative approaches that we will wait until its out of EAP as theyre getting their internal controls defined and I think a lot of customers are being very prudent in that approach.
Great. Thanks for taking the questions.
We will take our next question from John Doe Fucci with Guggenheim.
Thank you.
Yes.
I appreciate the prudence in guidance relative to the SMB expansion deterioration peaks, but can you comment at all on the linearity in this quarter and just give us any kind of read into how November in the beginning of December seem to be tracking.
Yes. So the first thing is we always have seasonality in the quarter. Our first month is the smallest.
Compared to all three months so as we went through the quarter, we did see what I call. It strengthens the enterprise buildup and then on the other side of that token we did see the SMB expansion continue to be impacted by expansion pressures, we saw that trend in SMB expansion pressures continue into November.
<unk> and on the enterprise side of it November was per our expectations. So that's a little bit of the how the quarter played out.
Okay.
That's helpful.
Mark You mentioned the example in your prepared remarks on self discovery.
Advanced features.
Can you give us any metrics at all on how we should be thinking about that as far as traction moving forward.
Hi, John I think we'll probably provide more texture on that as we give the paint the picture for the upcoming year with our Q4 results mean right now we're looking at this contributed nearly $1 million of bookings in the quarter is a great green shoot we have really positive feedback in terms of how people are seeing new things, but I would say, it's still pretty early innings, we're talking about.
Hundreds of trials with conversions again, accumulating to a little less than 1 million Bucks.
But I mean, I think with another quarter under our belt, we will feel more confident and be able to frame that in the year ahead for the year ahead.
Great and nice nice job that they are in billings to learn a lot.
People thought you guys would do this.
Joe.
Thanks, John.
We will take our next question from Steve <unk> with Citi.
Okay, great. Thanks for thanks for taking the question.
And I want to ask about the international opportunity.
Seeing an expansion into Australia, and Australia for our data residency, but how are you thinking about I guess kind of broader international initiatives and is there going to be any kind of further.
Better market investments marketing campaigns.
<unk> asset to kind of go after that opportunity.
Steve This is Pete so we think of international as a huge opportunity for us, it's 16% of our revenue and clearly one of the areas. We go after but we think of it as a combination of all the changes, we're making on the product with BSG and making it easier to have this product be found to be able to explore.
And all of those things and the other side, we are investing in the go to market capability as well combined with how customers that we deal with with one day data to be treated so think of it as go to market with data centers. So we will continue to invest in the international dimension, but just like our business year, it's going to take a while because <unk>.
<unk> with a start small and then they expand with us. So that's the trajectory you should see.
Okay perfect.
That's helpful context.
And then on the net retention and I think a little bit of a downtick at least for how youre thinking about for <unk>.
Sure.
For the fiscal year guide.
Anything to call out what's kind of the incremental difference there.
And then I guess secondarily, how should we be thinking about where that could potentially bottom bottom out at.
Yes, so Steven when we think of the net dollar retention rate generally things were pretty much consistent between quarters. The only difference was the incremental SMB expansion, which is what youre seeing in the in the number we've laid out that's included in there now that's the first part and the second part.
Part of what you asked for what's the direction of this we've got a big Q4 to go kind of go execute on.
Not just in terms of total dollars, we need to go through but these green shoots that mark talked about we want to see how those play out all of that combined with the environment. We see in Q4 was really inform what we think net dollar retention rate will look like in FY 'twenty five.
Okay perfect. Thanks for taking the questions.
Promptly.
We will take our next question from pendulum Bora with J P. Morgan.
Oh great.
Congrats on the quarter and thanks for taking the questions.
Mark can I ask you based on your conversations with customers. How do you think kind of the enterprise budgets are getting set for 2024, so far do you think.
Strings might open up a bit or not so much.
I think it's largely a function of a provider's ability to connect the value and helping understand how they realize that value.
And this goes back starting in a really pronounced way of probably three years ago, where the higher regard and in an organization and the bigger the bigger project, we were talking with them about the greater the need was to connected to a prioritized pursuit that they have and be able to articulate how they could within a certain timeframe realize that bench.
Great.
So when I think of where we're investing not just from a product standpoint, or a partner standpoint, but our articulation of how we deliver value that is a direct tie into whether a per string gets tighter or gets more loose.
And so I think there are absolutely macro things that one needs to be aware of but there are a whole litany of things that are within one's control that can help adjust that.
Understood. Thank you and one follow up how are you thinking about the sales capacity going into next year do you have the capacity.
For your plan do you expect to build capacity higher and then how should we kind of think about that in context of potential margin margin improvement for next year.
So PJ. This is Pete so when do you think of sales capacity and you think of needing sales capacity. We think of it is we have a pretty well trained team of sales professionals. We've hired we've continued to invest and making them capable. That's the effort we've been on for several quarters, we see the first set of.
The first shot as the just the capacity and the productivity of those reps improving that's the fundamental now will be add resources as we enhanced the sales process and specific growth, we will but I don't think it'll be a huge drag on the margin. So as you look at.
FY 'twenty five and you look at margins.
We're not giving guidance on that yet, but the way I would describe it as overall margins you should see those continue to improve what what a slope ingredient that improvement takes will be a function of what growth expectations. We have.
Understood very clear thank you.
Youre welcome pendulum.
We will take next question from Taylor Mcginnis with UBS.
Hi, Thanks, so much for taking my question sorry to press on billings again, but just one follow up one of the questions that was asked earlier. So Pete I think you mentioned that there could be quarter variability in timing, which I know we all appreciate in Berlin, but just given the strength in <unk> did you see any renewals that pulled forward from <unk> into <unk>.
And then maybe you can talk about like the bookings linearity, you're seeing so far and if thats trending to be more backend loaded and if that if there is any assumption of that embedded in the guide.
So there was nothing unusual in the quarter every quarter always has the normal pulls and pushes that happen, but nothing unusual this quarter that played out I would go back and say, we're seeing sort of bookings linearity being very consistent there is no big trend to report out there.
I'd say the only delta in bookings that we're seeing which I called out a little bit was on the SMB expansion side of it. So we're seeing some degradation that we had in Q3 on these expansions and we're extending that trend forward into Q4, the assumption that that trend continues.
Got it that's really helpful and one last one for me. So I appreciate that there can be timing quarter really variability into billings and sometimes that that metric can be noisy, but I guess, if you look on a trailing 12.
Trailing 12 months, it's been growing somewhere in the low twenties, but <unk>.
Growth has been hanging in there.
Mid Twenty's, maybe low end of that.
Think about.
What's the underlying business is doing and the momentum you guys are seeing and when we look forward any thoughts on which is the better leading indicator. How we think about the difference between these two metrics.
I think when you think of billings in the IRR I think.
They both are different but they both lead you to the same answer when you finished the year they are pretty close to even if it's not an identical answer so when I'm thinking about quarterly changes I tend to rely more on <unk>.
<unk> because it has a better sense of the timing elements or a little less pronounced but when you think of the full year, they're both the same.
Great. Thanks, so much.
Youre welcome Taylor.
We will take our next question from Keith Bachman with bank of Montreal.
Hi, Good evening. Thank you I wanted to ask.
Two things that are related and Pete ones on micro and then a bigger picture.
Excuse me question.
On the micro when you talk about.
SMB and you assume that degradation continues but just to be clear.
Are you assuming it gets worse or just stays the same.
Then for my follow up question I'll, just ask them successfully.
When you think about the Jay <unk>.
Jen AI opportunity.
And I was out in Seattle for your customer events seem like a lot of excitement.
Can it contribute to our growth in billings growth in and what would be fiscal year ended January 25, do you see that actually being a contributing factor to potential growth or is it still you think going to be more discovery.
At that point and Pete anything else you want us to think about as we're building our models for FY 'twenty five from a demand perspective, you already address the margins, but anything else you want us to keep in mind.
In advance of giving the formal guidance. Thank you.
So Keith I'll answer your questions. As you asked the first question you had was on SMB expansions and we are assuming that there is a continued degradation in Q4. So we.
We have assumed a moderately worsened in Q4, okay, taking that trend lines. So that's the first part of it.
The second part of your question on journey AI opportunity in the <unk> assumptions in FY 'twenty five.
It's a little early to call it out because we've got a few customers sitting within the in the EAP program. We've got good positive feedback, but I think after we get through another quarter of that feedback and as we get ready to put this into what I call GE I think we'll start to get a little bit of sense of.
What that looks like so I think it's a little early to call out.
Okay anything else that you want us to think about as we model the demand side in FY 'twenty five.
No I think it's a little early to talk through 'twenty, five, but nothing specific to call out at this time.
Okay. Many thanks.
Thanks Keith.
We'll take our next question from Terry Tillman with sure list.
Yes, good afternoon nice job on the earnings in the quarter.
And the cash flow one quick question I had maybe Mark first for you on self discovery I think you gave us a nugget there in terms of $1 million of bookings or billings and you call. It like an early green shoots.
Just given the work Youre doing there and then all of the.
The trials Youre doing there are initially I mean, do you expect that though to ramp pretty notably from the 1 million level in <unk> and then how would that happen is it you just got to put more kind of seeds in the ground with more trials or youre working through the flow of the existing trials or maybe even add more capabilities in the self discovery and then I had a follow up.
Yes, it's multifaceted Terry it's how do you.
Not only serve up the capability to some under utilized but then how do you.
Hell prosecute that with with the existing customer right. It's moving it from being utilized to being transacted upon and and those are those are the motions that were learning. So for these first deals that have closed or are there. Some things were like Wow, we got that totally right and we have also found other things where we can further reduce the friction and as we scale that from tens of thousands of people.
Who've been exposed to it to well over 100000 organizations.
I would expect that friction to reduce so I would be.
I'll bet the over on things continuing to improve in this camp and and I think the other pieces as we look at getting more and more of the portfolio and we're going to have more at bats. So when an organization trials of the capability you have multiple opportunities to trial its not one organization, it's people within that organization. So.
Even if you Miss on the first opportunity with an individual in the organization their neighbor can start trialing that capability. So it's a repeated opportunity to sell into an organization and to deliver value. That's one of the things I really like about this opportunity.
Got it thats great to hear.
The betting on the over.
Then my follow up question I don't know if this is for European but in terms of the services. The partner enablement, we see where some of the billings are going to go to partners. So it's explainable I'm actually curious about sales enablement. So I'll build on this question.
Over the last year your million dollar customers have expanded quite a bit 59, that's a lot you've got customers paying you $4 million I think you mentioned on the quarterly call. It takes you a bigger ones and that to me that starts to seem interesting to a partner ecosystem, whether it's <unk> and others. So I would like to hear more about how sales enablement and influencing new business is going with potential different type.
Some partners. Thank you.
Yeah, Terry I really see two very two very different elevations of partnering and one is the broad base be hundreds of partners, who came to engage and wanted further clarity on what our intentions were to build our service line versus supporting them explicitly that's a really exciting growth opportunity both in the states as well as in.
Countries, which are partner first oriented I view that as very different than our go to market motion with the GSI as many of whom are huge customers of ours. How we go to market with them is both as a customer as well as getting smart chief utilized as they deliver their services to their clients and if so it's really a multi.
Pronged relationship, where we serve them as a client we team with them to get it introduced to their clients and then figuring out ways, where they can build a book of business on the back of the <unk> platform to continue that relationship that's really different than the next newest partner in a remote region, which is targeting SMB, which is still valuable to them, but again.
Different motion so we have different folks within our enterprise team within our services team, which are targeting <unk> and we have the broad based partner program, which is catering to a much larger population.
Okay.
And we will take our next question from Alex Zukin with Wolfe Research.
Yes.
Hey, guys. This is Ethan Roth on for Alex here again, and thank you for taking my question Congrats on the nice numbers.
I think question is kind of we're looking to <unk> at the biggest renewal period I'm just curious if youre seeing any.
Change in customer behavior.
Let's go turning smaller expansions.
Jenny is playing a little bit more to this upturn that renewal just I know when we guide for the 116 for 14 Skus, how those conversations are circuit and fulfill.
Okay.
Ethan I don't think those expansion conversations and the renewal conversations are going any differently. I think there is nothing unusual about it because journey and all of that is pretty early stage. You remember, it's an EAP with a limited number of customers. So thats not playing into the conversation yet because when you.
Think of renewals and you think of all those things that ties directly to what am I going to do with their talented going to come into my environment.
A little bit removed from that that spot at the present time.
I gotcha.
Thank you and then I guess.
No youre not getting explicitly for next year, but I guess as we think about EMEA.
Maybe a conservative way to think about next year and you kind of help us frame numbers for the third.
Like I guess, the biggest away for that kind of the billings outlook is kind of below what is implied in your <unk> guide.
I think as I said before it's a little early to call out next year, just because Q4 is a big quarter. We got to go execute it I think we're all heads down trying to make sure we get the best outcome, we can Ken in Q4.
That's one part of it and the other part is clearly the fact that.
A lot of the things we've put into play I'd like call. It just recently in the Pan If you will so we've got to let those things play out see what those do really to be able to really able to put a perspective on it.
FY 'twenty five looks like.
Great well, congrats again and thank you guys.
Thanks Ethan.
We will take our next question from DJ Hynes with Canaccord.
Hey, good evening, guys out Mark because I think back to the IPO I remember we used to talk about five K is the threshold at which you would typically see customer spend start to inflect up in <unk>.
Maybe that's still true, but obviously, it's a much different and scaled business today as you look into the midmarket or blow enterprise. However, you want to qualify it is our spend spend.
Threshold in that cohort or any other signal that you see where spend typically starts to inflect up again or is it is it more linear progression higher up.
Isn't it interesting how our frame of reference changes from five years ago.
I was talking to Pete yesterday about.
Our average time to progressive customer from half a million dollars.
And again, so radically different from what we've talked about on the IPO and.
I will I will stay away from pointing to one inflection point because there are so many phases to this game. We are seeing an acceleration of our moves from <unk> 5 million 2 million, we're seeing again, almost a double up over 1 million customers. So I think whenever a company gets tempted to focus on an inflection point. It's also known as a missed opportunity.
<unk> been focusing at a higher inflection point. So we're really trying to as I just spoke to in terms of how we're viewing the partner ecosystem recognize that there are multiple points at which you can exert energy or deliver value to the customer, which will compel them to move higher and faster and don't view that as one but view that as you have one of your very large enterprise why don't you emerged.
Enterprise one of your Midmajor wanted your emerging customer and treat those always important. So it's I think we've learned over the last five years and I think we're trying to in a range of our capital and our resources to go after those.
Okay makes sense and then maybe a quick follow up to Terry's question on.
The self discovery, so you kind of alluded to in the answer to his question that you would roll more capabilities into that motion just from a technical perspective, it would be easier to enable the next product for self discovery now that you've already done a couple of them.
Yeah, absolutely and I think when we think of ourself discovery, it's not simply the enablement of a feature it's how do you give the people who are responsible for managing that environment, the confidence the visibility or the ability to control those elements. So we're creating these frameworks and these heads up displays within the administration console.
So that the administrators in the budget holders can have very high confidence and very efficiently manage these situations.
Once that framework is set adding that next one.
To rebuild our infrastructure, we're making we're building that in a modular way.
And building upon sort of those early those early foundational investments.
Yes, Okay I appreciate the color. Thank you guys.
Thanks.
We'll take our next question from Brent Thill with Jefferies.
Okay.
Hi. Thank you. This is John again frequent sale first question was.
As you've noticed they had very good activity with the micro enterprises into a plan I am wondering if there are any notable drivers to call out and then you can do really helped out any sort of unusual tailings from the engage conference.
So I think your question is about the strength in the enterprise I think it's compelling.
Compelling nature of the solutions and the enablement, we've done with the field.
And sort of building that out these deals that happened in Q3 Werent. The result of just what happened in Q3 or just or just what happened at engage is a series of place to start with an opportunity build a compelling value for the customer and then grow that opportunity over time, and then find the right way to describe that value to close a transaction.
<unk>. So that's what we've seen I don't think it's.
Special Magic bullet, but just running through it.
Okay. That's helpful. And then in terms of follow up for in your guidance comments, you talked about enabling services to do.
Multi service working in having a 4 million dollar impact on billings wondering what was that.
Embedded already in the previous full year guide of 20% growth or was that kind of maybe a little bit newer development.
It's a newer development because we specifically called it out and so think of that as incremental to prior guidance.
Great. Thank you.
Youre welcome.
We will take our next question from Rishi Galeria with RBC capital markets.
Hi, This is Chris on for Richard you, Larry Thanks for taking our question.
So you mentioned a really large expansion deal in the prepared remarks and that there is still further opportunity to do more with that organization. So I was just wondering what features are they still evaluating or what really drives that next leg of expansion with the customer of that size.
The key driver there is we're serving a subset of their employee population.
And one of the things that we've done and doing a multimillion dollar multiyear deal with them is not do a discounted by 90% give away all the users, but really being thoughtful about how we grow with them over the years and when I look at that customer and how they started with US as you know a five or $6000 customer years ago, and where they are today.
We're seeing medicine upper trajectory for many years to come but the key driver. There is there are still very nice large populations, who are not yet utilizing the <unk> platform and the nice thing is once you have a flight ops and the product teams using it you have these examples and you can show these adjacent teams and when you are.
Speaking the language of that carrier the likelihood of them, having higher confidence in following suit I would argue goes up that's what we've seen with our other very large accounts.
That's helpful. Thank you and just a quick follow up going back to the macro environment on the SMB side.
The industry is to call out that have.
Remained more pressure in or on the flip side I'm starting to show some green shoots.
I think when I think of the vertical focus what.
What we've seen is we've seen good strength in sort of what I call. The retail the education vertical and some of the Gov. Obviously.
Pretty good quarter, Q3 is a pretty big quarter for Gov.
And in the what I call, where we've seen some level of what I call pressure, it's come in energy utilities deck.
Vertical slices, we see but in general across the SMB, we've seen really good logo growth all through the year that stayed.
<unk>, we have seen depression SMB expansions, so just to make sure it's parsed out.
Okay, great. Thank you Pete.
Youre welcome Chris.
And that concludes today's presentation I would like to turn the call back over to Aaron Turner for any additional or closing remarks.
Great. Thanks, Lisa and thanks, everyone for joining us today speaking with you again next quarter.
Yeah.
Thank you that concludes today's presentation. Thank you for your participation you may now disconnect.
Okay.
[music].
Yeah.