Q4 2024 Smartsheet Inc Earnings Call

Audra: Good afternoon. My name is Audra, and I will be your conference operator. At this time, I would like to welcome everyone to the Smartsheet fourth quarter fiscal 2024 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

Good afternoon. My name is odd right now will be your conference operator today.

Speaker Change: At this time I would like to welcome everyone to the smart sheet fourth quarter fiscal 'twenty 'twenty four earnings conference call.

Speaker Change: This conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at any time, simply press star 1. Followed by the number 1 on your keypad. If you would like to withdraw your question, press star 1.

Aaron Turner: At this time, I'd like to turn the conference over to Aaron Turner, head of investor relations. Go ahead. Thank you, Audra. Good afternoon, and welcome everyone to Smartsheet's fourth quarter of fiscal year 2024. We will be discussing those results announced in our press release issued after the market closed today. With me today are Smartsheet's CEO, Mark Mader, and our CFO, Pete Godbole. Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.smartsheet.com.

Speaker Change: At this time I'd like to turn the conference over to Aaron Turner head of Investor Relations. Please go ahead.

Aaron Turner: Thank you Andre and good afternoon, and welcome everyone to smart sheets fourth quarter of fiscal year 2024 earnings call. We will be discussing the zero results announced in our press release issued after the market closed today with me today are smart sheets, CEO, Mark Mader, and our CFO P garble.

Aaron Turner: Today's call is being webcast and will also be available for replay on our Investor Relations website at investors thought smart Qi Dot com, there's a slide presentation that accompanies pizza prepared remarks, which can be viewed in the events section of our Investor Relations website.

Aaron Turner: There is a slide presentation that accompanies Pete's 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.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially and or adversely. All forward-looking statements made during this call are based on information available to us as of today.

Aaron Turner: 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.

Aaron Turner: 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's website at Www Dot FCC Dot Gov.

Aaron Turner: Although we believe that the expectations reflected in the forward looking statements are reasonable our actual results may differ materially and for adversely all forward looking statements made during this call are based on information available to us as of today, we do not assume any obligation to update these statements as a result of new information or future events, except as required by law.

Aaron Turner: We do not assume any obligation to update these statements as a result of new information or future events, except as required by law. In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. Reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can also be found on our investor relations website. With that, I will turn the call over to Mark. Thank you, Aaron. And good afternoon, everyone.

Aaron Turner: Addition to the U S. GAAP financials, we will discuss certain non-GAAP financial measures reconciliation to the most directly comparable U S. GAAP measures is available in the presentation that accompanies this call, which can also be found on our Investor Relations website with that let me turn the call over to Mark. Thank you Erin and good afternoon, everyone welcome to our fourth quarter earnings call.

Mark P. Mader: Welcome to our fourth quarter earnings call for fiscal year 2024. Q4 was the culmination of a year where we demonstrated our ability to grow in challenging macro conditions while making considerable progress on our profitability and free cash flow. We crossed the $1 billion ARR threshold in Q4, within the original timeframe we set at our first Analyst Day back in 2018, and we achieved this milestone while also expanding operating margins by over 1,500 basis points and achieving Rule of 40 for the second consecutive year. Our performance in Q4 was highlighted by our continued strength in the enterprise, coupled with strong progress in our key growth opportunities. In Q4, 98 customers expanded their Smartsheet ARR by more than $100,000.

Mark P. Mader: For fiscal year 2024.

Mark P. Mader: Q4 was the culmination of a year, where we demonstrated our ability to grow and challenging macro conditions, while making considerable progress on our profitability and free cash flow.

Mark P. Mader: We crossed the $1 billion are our threshold in Q4 within the original timeframe. We set at our first analyst day back in 2018, and we achieved this milestone while also expanding operating margins by over 500 basis points and achieving a rule of 40 for the second consecutive year.

Mark P. Mader: Our performance in Q4 was highlighted by our continued strength in the enterprise coupled with strong progress on our key growth opportunities in Q4, 98 customers expanded their smart sheet AOR by more than $100000. We now have 65 customers, where they are over $1 million up from 45, a year ago, and we ended the quarter with annualized recurring revenue.

Mark P. Mader: We now have 65 customers with ARR over a million dollars, up from 45 a year ago. And we ended the quarter with annualized recurring revenue of $1.031 billion and more than 14.3 million Smartsheet users. In Q4, we expanded with customers such as Nutanix, the University of Southern California, Genesis Motor America, the City of San Jose, and Dairy Queen, among others. This past quarter, we saw significant growth with a multinational information technology company. Smartsheet has been used within the marketing and sales departments of the company for a number of years. After a detailed RFP process for an organization-wide collaborative work management solution, Smartsheet was selected over competitors for enterprise-grade scale and world-class security.

Mark P. Mader: With $1.031 billion and more than $14 3 million smartphone users.

Mark P. Mader: In Q4, we expanded with customers such as new panics University of Southern California, Genesis Motor America, the city of San Jose and dairy Queen among others.

Mark P. Mader: This past quarter, we saw significant expansion with a multinational information technology company Smart sheet has been used within the marketing and sales departments at the company for a number of years. After a detailed RFP process for an organization wide collaborative work management solution Smart. She was selected over competitors for enterprise grade scale and World Class security.

Mark P. Mader: Adoption has been high, with a growing demand for licenses and implementation across marketing operations, M&A, and more. These units have been leveraging the full breadth of premium capabilities of Smartsheet to replace manual processes, increase efficiency, and improve collaboration. We had an expansion deal with a European-based leading global science and technology company. Their need for enterprise-grade security and governance was key to our expansion deal that included an upgrade to advanced gold. The company's IT group underwent an extensive evaluation to consolidate their project management needs under one solution across their three main business divisions of life sciences, electronics, and healthcare.

Mark P. Mader: Adoption has been high with a growing demand for licenses and implementation across marketing operations M&A and more.

These units have been leveraging the full breadth of premium capabilities of smart T to replace manual processes increase efficiency and improve collaboration.

Mark P. Mader: We had an expansion deal with a European based leading global science and technology company their need for enterprise grade security and governance was key to our expansion deal that included an upgrade to advance gold.

Mark P. Mader: The company's I T group underwent an extensive evaluation to consolidate their project management needs under one solution across their three main business divisions of life Sciences electronics and health care.

Mark P. Mader: The company selected Smartsheet and has consolidated their thousands of users under one Smartsheet program in a transformation of our partnership with them. Going forward, the company will extend the use of its Smartsheet platform to other units in their drive towards efficiency and optimization. We saw a significant expansion with a leading global entertainment and ticketing company. Previously, the team relied on very manual processes to market the high-profile and high-budget tours they manage all around the world.

Mark P. Mader: The company selected smart cheat and has consolidated their thousands of users under eight one smart sheet program and a transformation of our partnership with them.

Mark P. Mader: Going forward the company will extend the use of its smart sheet used us to other units in their drive towards efficiency and optimization.

Mark P. Mader: We saw significant expansion with a leading global entertainment and ticketing company previously the team relied on very manual processes to market the high profile and high budget tours, they manage all around the world.

Mark P. Mader: After engaging with our Customer Outcomes Journey Team, the customer discovered how Smartsheet could drive greater value by automating repeatable work, efficiently adapting to changes, and improving communication. Now, the company is using a tailored solution to manage all marketing operations in regards to their concert tours and artists, and benefiting from an integration with their Salesforce-based system of record. Going forward, the company has planned additional phases of implementation to expand the transformation and efficiency already realized with the marketing and tour management solution to other parts of the organization. The ability to rapidly scale was a key element to a recent international expansion at an APJ-based multinational corporation that provides digital transformation consulting to enterprises. A unit focused on their Middle East delivery region needed a scalable solution for reporting on financials across their portfolio of projects, which involve multi-million dollar contracts with their customers.

Mark P. Mader: After engaging with our customer outcomes journey team the customer discovered how smart he could drive greater value by automating repeatable work efficiently adapting to changes and improving communication.

Mark P. Mader: Now the company is using a tailored solutions to manage all marketing operations in regards to their concert tours and artists and benefiting from an integration with their sales force based system of record.

Mark P. Mader: Going forward. The company has planned additional phases of implementation to expand the transformation and efficiency already realized with the marketing and tour management solution to other parts of the organization.

Mark P. Mader: The ability to rapidly scale was a key element to our recent international expansion at an a P. J based multinational corporation that provides digital transformation consulting to enterprises.

Our unit focused on their middle East delivery region needed a scalable solution for reporting on financials across their portfolio of projects, which involve multimillion dollar contracts with their customers.

We worked with the key channel partner to deliver solutions leveraging the smart sheet platform. This initial solution will support one regional delivery team with a plan to scale to all their global delivery teams.

Mark P. Mader: We worked with a key channel partner to deliver a solution leveraging the Smartsheet platform. This initial solution will support one regional delivery team with a plan to scale to all their global delivery teams. FY 24 was a big year for our platform. In the area of Gen AI, our first two AI features became generally available to customers on our enterprise plans at the beginning of last month. The first capability allows our customers to create tailored formulas for their input, speeding up data-driven decisions. The second interprets customer data for clearer text summaries and translations.

FY 'twenty four was a big year for our platform in the area of journey II. Our first two AI features became generally available to customers on our enterprise plans at the beginning of last month. The first capability allows our customers to create tailored formulas familiar input speeding up data driven decisions the second interprets <unk>.

Mark P. Mader: Customer data for clear Tech some recent translations.

Mark P. Mader: Customer response, and usage of Korea has been strong and since the beginning of February more than a third of our enterprise customers have leveraged these new tools.

Mark P. Mader: Also in FY 'twenty four we launched our free plan and the self discovery of our capabilities both continued to perform well.

Mark P. Mader: The customer response and usage for AI has been strong, and since the beginning of February, more than a third of our enterprise customers have leveraged these new tools. Also, in FY24, we launched our free plan and self-discovery of our capabilities, both of which continue to perform well.

Mark P. Mader: And while contribution to our Q4 results was small we are encouraged by the compounding growth rates. We're seeing from these initiatives are free plan, which launched at the beginning of FY 'twenty four has seen steady growth through the fiscal year. Our free plan has grown across thousands of domains and in January we added 500 paying new customers via the free.

Mark P. Mader: Plan, a new monthly record.

Mark P. Mader: And while its contribution to our Q4 results was small, we are encouraged by the compounding growth rates we're seeing from these initiatives. Our free plan, which launched at the beginning of FY24, has seen steady growth. Through the fiscal year, our free plan has grown across thousands of domains, and in January, we added 500 paying new customers via the free plan, a new monthly record. In Q4, over $2 million of capability bookings were the result of self-discovery trials.

Mark P. Mader: In Q4 over $2 million of capability bookings were the result of self discovery trials. This is up from less than $1 million in Q3, and this motion continues to drive exposure of our capabilities to more and more customers.

Mark P. Mader: Nearly half of our Q4 self discovery sales were with customers who purchased the capability for the first time.

Mark P. Mader: Given this success, we will apply this approach to additional capabilities in FY 'twenty five.

Mark P. Mader: As I mentioned earlier, we surpassed $1 billion in <unk> in Q4.

Mark P. Mader: We got to this point by focusing on our customers and building an enterprise grade platform that can scale to their most demanding needs.

Mark P. Mader: This is up from less than $1 million in Q3. And this movement continues to drive exposure of our capabilities to more and more customers. Nearly half of our Q4 self-discovery sales were with customers who purchased a capability for the first time.

Mark P. Mader: I'd like to call out our Chief revenue Officer, Mike Ahrendts, who is retiring today.

Mike Ahrendts: When Mike joins marching over seven years ago, our <unk> was under $100 million, our average customer contributed less than $1000 per year.

Mike Ahrendts: During mikes tenure or <unk> contributions per customers has grown by 10 X.

Speaker Change: I am grateful for his service and wish him all the best in retirement Michael.

Mark P. Mader: Given this success, we will apply this approach to additional capabilities in FY25. As I mentioned earlier, we surpassed $1 billion in ARR in Q4. We got to this point by focusing on our customers and building an enterprise-grade platform that can scale to their most demanding needs. I'd like to call on our Chief Revenue Officer, Mike Arntz, who is retiring today.

Speaker Change: Mike will remain on as a consultant through mid may to support the transition to his successor.

Speaker Change: As we enter the post $1 billion AOR growth phase of the company the strategy that underpins our go to market and product and innovation will be refined and expanded.

Speaker Change: Executing this strategy will be a leadership team consisting of proven executives each motivated for the next tier of growth and customer success.

Mark P. Mader: When Mike joined Smartsheet over seven years ago, our ARR was under $100 million, and our average customer contributed less than $1,000 per year. During Mike's tenure, our ARR in contributions per customer has grown by 10x. I am grateful for his service and wish him all the best in retirement.

Speaker Change: Today, we announced that Max long has joined <unk> to serve as president of go to market <unk>.

Max Long: Max's over three decades of experience, leading commercial teams for global Tech companies with diversified offerings, including Microsoft and Adobe and most recently net App, where he served as chief commercial officer.

Max Long: We will be unified go to market operations under Max and unifying product and innovation under prior guard newly appointed president of product and innovation.

Mark P. Mader: Mike will remain on as a consultant through mid-May to support the transition to his successor. As we enter the post $1 billion ARR growth phase of the company, the strategy that underpins our go-to-market and product and innovation will be refined and expanded. Executing this strategy will be a leadership team consisting of proven executives, each motivated for the next year of growth and customer success. Today, we announce that Max Long has joined Smartsheet to serve as President of GoToMarket.

Max Long: Prior to joining smart fleet in 2019, <unk> served in leadership roles at Microsoft and Amazon.

Max Long: And under its product leadership with smart sheets, our platform has been recognized as the leading enterprise platform and work management, serving the largest number of sophisticated scale deployments in the category.

Max Long: We're setting the foundation for the next era of profitable growth with proven more efficient go to market motions paired with enterprise grade product innovation informed by decades of data work patterns and customer use cases.

Mark P. Mader: Max has over three decades of experience leading commercial teams for global tech companies with diversified offerings, including Microsoft and Adobe, and most recently, NetApp, where he served as chief commercial officer. We will be unifying go-to-market operations under MAX and unifying product and innovation under Prager Guard, newly appointed President of Product and Innovation. Prior to joining Smartsheet in 2019, Praird served in leadership roles at Microsoft and Amazon.

Max Long: We see a significant opportunity to win additional market share by delivering AI enhanced collaborative workflow solutions for customers I see it as a tremendous opportunity representing multiple vectors of growth.

Max Long: In the enterprise segment product ties and scalable no code workflow solutions are undercutting more expensive slower to deploy alternatives.

Max Long: <unk> list of the macro environment significant demand exists for more efficient solutions to power critical workflows smarter.

Mark P. Mader: And under his product leadership at Smartsheet, our platform has been recognized as the leading enterprise platform in work management, serving the largest number of sophisticated scale deployments in the category. We're setting the foundation for the next era of profitable growth with proven, more efficient go-to-market strategies paired with enterprise-grade product innovation informed by decades of data, work patterns, and customer use cases. We see a significant opportunity to win additional market share by delivering AI-enhanced, collaborative workflow solutions for customers. It is a tremendous opportunity, representing multiple vectors of growth. In the enterprise segment, productized and scalable no-code workflow solutions are undercutting more expensive, slower-to-deploy alternatives. Regardless of the macro environment, significant demand exists for more efficient solutions to power critical workflows.

Max Long: <unk> is well positioned to capture this opportunity due to our category, leading scalability no code platform and enterprise grade security.

Max Long: In an effort to drive performance, particularly in the SMB segment, we will deploy our simplified design pricing and on boarding experiencing during the during the course of the year.

Max Long: We're on a mission to remove friction and maximize self directed experiences for our customers to enable faster time to value.

Max Long: We are taking the right steps to execute our strategy and to bring our enterprise grade work management platform to organizations of all sizes all around the world. We are well positioned for our next phase of growth to $2 billion and beyond.

Max Long: Now, let me turn the call over to Pete.

Pete: Thank you Mark our performance in FY 'twenty for demonstrating our ability to drive durable growth with improving profitability, despite a challenging business environment.

Pete: We outperformed our guidance in Q4.

Pete: However, similar to prior quarters, we continue to see tighter domestic spending tied to the current macro environment negatively impact expansion, particularly in the SMB segment of our business.

Mark P. Mader: Smartsheet is well-positioned to capture this opportunity due to our category-leading scalability, no-code platform, and enterprise-grade security. In an effort to drive performance, particularly in the SMB segment, we will deploy our Simplified Design, Pricing, and Onboarding Experience during the course of the year. We are on a mission to remove friction and maximize self-directed experiences for our customers to enable faster time to value. We are taking the right steps to execute our strategy and to bring our enterprise-grade work management platform to organizations of all sizes all around the world. We are well positioned for our next phase of growth to $2 billion and beyond. Now, let me turn the call over to Pete.

Pete: This served as a headwind to our overall growth rate to.

The macro impact on our SMB segment in Q4 was worst in Q3.

Pete: We are expecting this segment of our business to continue to be under pressure in FY 'twenty five.

Pete: In FY 'twenty, four we took steps to reduce.

Pete: Our use of stock and compensation structure.

Pete: This resulted in our stock based compensation as a percentage of revenue to decline in FY 'twenty four from the previous year.

Pete: We expect our SBC as a percent of revenue to continue to decrease in FY 'twenty five and beyond.

Pete: Additionally, in response to Investor feedback going forward, we will be disclosing in guiding annualized recurring revenue or <unk> rather than billings.

Pete: <unk> provides a better reflection of our quarterly net bookings performance.

Pete Godbole: Thank you, Mark. Our performance in FY24 demonstrated our ability to drive durable growth with improving profitability despite a challenging business environment. We outperformed our guidance in Q4. However, similar to prior quarters, we continue to see tighter domestic spending tied to the current macro environment negatively impact expansion, particularly in the SMB segment of our business. This served as a headwind to our overall growth. The macro impact on our SMB segment in Q4 was worse than Q3.

Pete: One additional called out in the past, we have used <unk> and ACD interchangeably in our non financial metrics star.

Pete: Starting this call we will be standardizing on <unk>.

Pete: I will now go through our financial results for the fourth quarter and the full year unless otherwise stated all references to our expenses and operating results on a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call.

Pete: For the full fiscal year 2004, we ended with total revenue of $958 3 million up 25% year over year.

Pete Godbole: And we're expecting this segment of our business to continue to be under pressure in FY25. In FY24, we took steps to reduce... Our Use of Stock in the Compensation Structure. This resulted in our stock-based compensation as a percentage of revenue declined in FY24 from the previous year.

Pete: And billings of 1.069 billion.

Pete: Up 20% year over year.

Pete: non-GAAP operating income was $109 million.

Pete: Representing an operating margin of 11% and free cash flow was $144 5 million, representing a free cash flow margin of 15%.

Pete Godbole: We expect our SPC as a percent of revenue to continue to decrease in FY25 and beyond. Additionally, in response to investor feedback, going forward, we will be disclosing and guiding annualized recurring revenue, or ARR, rather than billing because ARR provides a better reflection of our quarterly net bookings performance. One additional call out. In the past, we have used ARR and ACV interchangeably in our non-financial metrics.

Pete: Turning now to our quarterly results.

Pete: Fourth quarter revenue came in at $2 $56 9 million up 21% year over year.

Pete: Subscription revenue was $244 million representing.

Pete: Representing year over year growth of 23%.

Pete Godbole: Starting this call, we will be standardizing on ARR. I will now go through our financial results for the fourth quarter and full year. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call. For the full fiscal year 24, we ended with total revenue of $958.3 million, up 25% year-over-year, and billings of $1.069 billion, up 20% year over year. Non-GAAP operating income was $100.9 million, representing an operating margin of 11%.

Pete: Services revenue was $12 9 million.

Pete: Revenue from capabilities made up 34% of subscription revenue.

Pete: Turning to billings fourth quarter billings came in at $341 9 million reps.

Pete: Representing year over year growth of 19% Approx.

Pete: Approximately 95% of our subscription billings were annual with about 2% monthly.

Pete: Quarterly and semiannual represented approximately 3% of the total.

Pete: Annualized recurring revenue or <unk> grew 21% in the fourth quarter to 1.031 billion.

Pete: Moving on to our reported metrics the number of customers with over $50000 grew 22% year over year to 3924.

Pete Godbole: And free cash flow was $144.5 million, representing a free cash flow margin of 15%. Turning now to our quarterly results, four quarter revenue came in at $256.9 million, up 21% year over year. Subscription revenue was $244 million, representing year-over-year growth of 23%. Services revenue was $12.9 million.

Pete: And a number of customers with over $100000 grew 28% year over year to 1904.

Pete: These customer segments, now represent 66% and 53% respectively of total EDA.

Pete: The percentage of IRR coming from customers with over $5000 is at 91%.

Pete: Next our domain average IRR grew 15% year over year to $9672.

Pete Godbole: Revenue from Capabilities made up 34% of subscription revenue. Turning to billing, fourth-quarter billings came in at $341.9 million, representing year-over-year growth of 19%. Approximately 95% of our subscription billings were annual, with about 2% monthly.

Pete: We ended the quarter with a one dollar based net net retention rate inclusive of all of our customers of 116%.

Pete: The full churn rate was 4%.

Speaker Change: Now turning back to the financials.

Speaker Change: Our total gross margin was 85% our Q4 subscription gross margin was 88%.

Pete Godbole: Quarterly and semi-annual represented approximately 3% of the total. Annualized Recurring Revenue, or ARR, grew 21% in the fourth quarter to $1.031 billion. Moving on to our results, the number of customers with ARR over $50,000 grew 22% year over year to 3,924. And the number of customers with ARR over $100,000 grew 28% year-over-year to 1,900.

Speaker Change: Overall operating income in the quarter was $39 6 million or.

Speaker Change: About 15% of revenue.

Speaker Change: Free cash flow in the quarter was $56 2 million.

Speaker Change: Our new quarterly records for our company.

Speaker Change: Now, let me move on to guidance.

Speaker Change: We are electing to remain conservative with respect to our FY 'twenty guidance given changes in our sales leadership the timing of our initiatives aimed at driving incremental growth and the ongoing macro influenced spending constraints.

Pete Godbole: These customer segments now represent 66% and 53%, respectively, of total ARR. The percentage of our ARR coming from customers with ARR over $5,000 is at 91%. Next, our domain average ARR grew 15% year-over-year to $9,672. We ended the quarter with a dollar-based net retention rate inclusive of all our customers of 116%. The food churn rate was 4%.

Speaker Change: For the first quarter of FY 'twenty five we expect revenue to be in the range of $257 million to $259 million and non-GAAP operating income to be in the range of $32 million to $34 million.

Speaker Change: We expect non-GAAP net income per share to be 26 to 2007.

Eastern diluted weighted average shares outstanding of $141 million.

Speaker Change: For the full fiscal year 'twenty five we expect revenue of 111 3 billion to 1.118 billion.

Pete Godbole: Now, turning back to the financials. Our total gross margin was $85,000. Our Q4 subscription gross margin was 88%. Overall, operating income in the quarter was $39.6 million, or 15% of revenue. Pre-cash flow in the quarter was $56.3 million, a new quarterly record for our company.

Speaker Change: Representing growth of 16% to 17%.

Speaker Change: We expect services to be around 5% of total revenue.

Speaker Change: We expect our non-GAAP operating income to be in the range of 135 million to $145 million, representing an operating margin of 12% to 13%.

Pete Godbole: Now, let me move on to guidance. We are electing to remain conservative with respect to our FY25 guidance. Given changes in our sales leadership, the timing of our initiatives aimed at driving incremental growth, and the ongoing macro-influenced spending constraints, for the first quarter of FY25, we expect revenue to be in the range of $257 million to $259 million, and non-GAAP operating income to be in the range of $32 million to $34 million. We expect non-GAAP net income per share to be between $0.26 and $0.27, based on diluted weighted average shares outstanding of $141 million.

Speaker Change: non-GAAP net income per share to be $1 $6 <unk> to $1 13.

Speaker Change: For the year based on $142 2 million diluted weighted average shares outstanding.

Speaker Change: We expect our FY 'twenty five <unk> growth to be 14%.

Speaker Change: Regarding seasonality, we expect quarterly <unk> growth rates to follow a similar trend as last year with higher growth rates at the beginning of the year.

Speaker Change: Based on the relationship between dollar based net retention rate in <unk>, we expect our net retention rate to follow a similar trajectory as IRR through the course of the year.

We also expect our FY 'twenty five free cash flow to be $200 million.

Pete Godbole: For the full fiscal year 25, we expect revenue of $1.113 billion to $1.118 billion, representing growth of 16% to 17%. We expect services to be around 5% of total revenue. We expect our non-GAAP operating income to be in the range of $135 million to $145 million, representing an operating margin of 12% to 13%, and non-GAAP net income per share to be $1.06 to $1.13, for the year based on 142.2 million diluted weighted average shares.

Speaker Change: To conclude in FY 'twenty four we made significant progress on our profitability and free cash flow, while navigating a difficult economic climate.

Speaker Change: Moving into FY 'twenty five we're laser focused on growing our enterprise leadership position and further expanding profit margins.

Speaker Change: This next phase of growth will be driven by an energized team committed to streamlining our go to market efforts.

Speaker Change: And compelling product innovations now.

Speaker Change: Now, let me turn the call over to the operator operators.

Operator: Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Pete Godbole: We expect our FY25 ARR growth to be 14%. Regarding seasonality, we expect quarterly ARR growth rates to follow a similar trend as last year, with higher growth rates at the beginning of the year. Based on the relationship between the dollar-based net retention rate and ARR, we expect our net retention rate to follow a similar trajectory as ARR through the course of the year. We also expect our FY25 free cash flow to be $200 million.

Speaker Change: We'll take our first question from Terry Tillman at Trust Securities.

Terrell Frederick Tillman: Great. Thanks for taking the question. This is <unk> on for Jerry first one for me would love to get an update on the roadmap for new and upcoming scalability slash infrastructure enhancements. This year, particularly the 5 million silver sheet enhancement related to that are there some potential near term expansion opportunities with larger customers that could come out of those improvements and then I have one follow up thank you.

Pete Godbole: To conclude, In FY24, we made significant progress on our profitability and free cash flow while navigating a difficult economic climate. Moving into FY25, we're laser focused on growing our enterprise leadership position and further expanding profit margins. This next phase of growth will be driven by an energized team committed to streamlining our go-to-market efforts and delivering Compelling Product Innovation. Now, let me turn the call over to the operator. Operators, Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then number one. We'll take our first question from Terry Tillman at, Thanks for taking the question. This is Bobby Dion for Terry.

Speaker Change: Yes, we've had a multiple of those mark multiple milestones achieved in the past year, we're well on our way to hitting those.

Speaker Change: <unk> done a really nice job of setting commitments with prospects and customers that <unk> been able to fulfill and I would say that was reflected in some of the big enterprise experiences we've had in the past year.

Speaker Change: The good news is on some of those upper bounds that we set for ourselves we're actually going beyond those we're really getting to a point where the changes that we're doing today are sort of decade long impact changes. So we're really getting to a model where.

Speaker Change: Those upper bound constraints are really.

Getting to a point, where youre talking about well north of 10 X capacity of what we have today and when you look at the largest companies in these industries that we serve.

Speaker Change: It's always remarkable and see how far they want to push it and I think it's really a combination of both scale, but also scale as it relates to administration and the ability to govern so it's not always in the context of cell lengths in seat counts and dashboard supported its also can we manage these huge engage populations within these <unk>.

Mark P. Mader: This one is for me, related to that. Yeah, we've had multiple milestones achieved in the past year; we're well on our way to hitting those. The team has actually done a really nice job of setting commitments with prospects and customers that they've been able to keep, and I would say that was reflected in some of the big enterprise expansions we've had in the past year. The good news is that on some of those upper bounds that we set for ourselves, we're actually going beyond those; we're really getting to a point where the changes that we're doing today are sort of decade-long impact changes. So we're really getting to a model where those upper-bound constraints are really getting to a point where you're talking about well north of 10x the capacity of what we have today. And when you look at the largest companies in these industries that we serve, it's always remarkable to see how far they want to push it. And I think it's really a combination of both scale and scale as it relates to administration and the ability to govern.

Speaker Change: <unk> so.

Speaker Change: Kudos to the team for both building the feature set and also the tooling required to administer these.

Speaker Change: Yes.

Speaker Change: That's great I appreciate the color and then nice to see the strong cash flow guide for FY 'twenty five I'm curious how you all are thinking about capital allocation moving forward and even potential M&A any platform areas, where buy versus build can be attractive. Thank you.

Speaker Change: So you don't need the fairly thoughtful political capital allocation strategy, and we start with sort of where we wanted to deploy capital.

Speaker Change: Obviously, a buyback remains in our strategic consideration set.

Speaker Change: We're focusing our balance sheet right now on adding to the.

Speaker Change: The strength of it since we deal with the largest companies in the world.

Speaker Change: I think we will consider potential we want to have some flexibility to drive potential M&A that may be adjacent to where we are and that will be a part of the consideration set.

Mark P. Mader: So it's not always in the context of cell links and sheet counts and dashboard support; it's also how can we manage these huge engaged populations within these environments. So kudos to the team for both building the feature set and also the tooling required to administer these.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: We will take our next question from Ryan Macwilliams at Barclays.

Ryan Patrick MacWilliams: Hi, Thanks for.

Ryan Patrick MacWilliams: My question this is Steven.

Ryan Patrick MacWilliams: Ryan Mcwilliams.

Ryan Patrick MacWilliams: Just look at your implied trajectory of guidance throughout the year.

Pete Godbole: Curious. So, you know, we have a fairly thoughtful, what I call capital allocation strategy, and we start with sort of where we want to deploy capital. Obviously, a buyback remains in our strategic consideration set, but we're focusing our balance sheet right now on adding to, you know, its strength since we deal with the largest companies in the world. I think we will consider the potential. We want to have some flexibility to drive potential M&A that may be adjacent to where we are. That will be a part of the consideration. Thank you.

Ryan Patrick MacWilliams: A slight slowdown Joseph quite 25. So if you can just add some color on what youre, what youre seeing in the macro and what your guidance implies for how the year looks in terms of SMB enterprise demand you can get there would be helpful.

Speaker Change: I think you were cutting out a little bit, but I think I think your question is about the composite of our guide and how we're thinking about the world I think I'll start there. So the guide is a composite so it starts with what we experienced in Q4. So when you think of what we experienced in Q4, our enterprise <unk> growth rates were strong.

Speaker Change: Over 120% the SMB did worse than in Q4, and as you think of that and Dr. Worsening. It was close to zero. So we expect this trend to continue in FY 'twenty five.

Pete Godbole: We will take our next question from Ryan MacWilliams at Barclays. Bye, thanks for taking- Ryan MacWilliams, I just want to look at your implied trajectory of guidance throughout the year. It's probably a slight slowdown throughout FY25, so if you can just add some color on what you're seeing in the macro and what your guidance implies for how the year looks in terms of S&B enterprise demand. I think, you know, you were cutting out a little bit, but I think I think your question is about the composite of our guidance and how we're thinking about the world. I think I'll, I'll start there. So this guide is a composite.

Speaker Change: So that's kind of the first part of it and as we see this trend progressing through essentially we're thinking about the enterprise business. We obviously, it's a very backend loaded business into visibility grows as we go through the year, so of being sort of prudent with our initial guide.

Speaker Change: And the last part of it is we're focused on we've looked at embedding some level of incremental conservatism given the new sales leadership that Mark just talked about.

Speaker Change: That makes sense and then just a follow up really pleased to hear all the AI commentary.

Pete Godbole: So it starts with what we experienced in Q4. So when you think of what we experienced in Q4, our enterprise NDRR growth rates were strong, over 120%. The SMB did worsen in Q4, and as you think of that NDRR worsening, it was close to zero.

Speaker Change: Im pretty positive, especially when in terms of when you think about upjohn customers just maybe mark what are you seeing on the AI front, what are customers looking to utilize smart sheets AI products floor.

Pete Godbole: So we expect this trend to continue in FY25. So that's kind of the first part of it. And as we see this trend progressing through, essentially, we're thinking about the enterprise business. Obviously, it's a very back-end-loaded business, and the visibility grows as we go through the year. So we're being sort of prudent with our initial guide, and the last part of it is that we're focused on, and we've looked at embedding some level of incremental conservatism given the new sales leadership that Mark just talked about. That makes sense.

Speaker Change: How are you feeling about AI flowing through this year.

Mark P. Mader: Yes, it's really on two primary dimensions, one is on being able to configure logic into the smart sheet solutions. So how quickly and simply can someone do that in a big part of our value proposition velocity.

Mark P. Mader: So the AI that we've enabled that I spoke to in our Formula is that is that is part of how you configure workflows and automate automated automation and logic into these solutions on the second side. It's about the analysis, how can I derive insights from the things that I'm tracking the resident seeing a third of our enterprise customer.

Mark P. Mader: And then just to follow up, I'm really pleased to hear some of the AI commentary. I think that's pretty positive here, and especially in terms of when you think about upcharging customers. So maybe Mark, what are you seeing on the AI front? What are customers looking to utilize Smartsheet's AI products for? Just how are you feeling about AI rolling through this year? Yeah, it's really on two primary dimensions. One is being able to configure logic into the Smartsheet solution. So how quickly and simply can someone do that?

Mark P. Mader: Orders within weeks of its announcement using it or at least using it I was really pleased to see that I would say what youll see with the AI skills coming forward Youll see that we will continue to shift in release features that I would say are in high higher use high frequency use experiences. So when we released the AI scale on the dashboard and the <unk>.

Mark P. Mader: Insights, which is a really popular area of our application Isd I expect the count of interactions to go up materially.

Mark P. Mader: So it is all about enabling and improving the experiences that they are very familiar with today.

Mark P. Mader: And a big part of our value proposition is velocity. So the AI that we've enabled, which I spoke about in our formulas, that is part of how you configure workflows, automations, and logic into these solutions. On the other side, it's about analysis. How can I derive insights from the things that I'm tracking?

Mark P. Mader: Next phase that Youll see is really around how we can get people to understand how to exploit new use cases on the platform. So how can I with an initial intent.

Mark P. Mader: The state My case stayed my objective and be presented with a composite solution of dashboards and forms and automation that is the second phase, but what we're really doing right. Now is is enrolling people into the capabilities alongside things they understand and we think thats a strategy that served us pretty well so far.

Mark P. Mader: The resonance, seeing a third of our enterprise customers within weeks of its announcement using it or releasing it, I was really pleased to see that. I would say what you'll see with the AI skills coming forward, you'll see that we will continue to shift and release features that I would say are in higher use, high-frequency use experiences. So when we release the AI skill on the dashboarding and insights, which is a really popular area of our application, I expect the count of interactions to go up materially. So it's all about enabling and improving the experiences that they're very familiar with today. The next phase that you'll see is really around how we can get people to understand how to exploit new use cases on the platform.

Mark P. Mader: Okay.

Speaker Change: Got it thank you.

Speaker Change: Yes.

Speaker Change: Our next question comes from John <unk> at Guggenheim.

John: Thank you for taking my question.

John: <unk>.

So when I look here Theres, a lot of changes here right and.

John: And Mike Arent, she has been with the company since before the IPO and has led a lot of the changes needed as you scaled so mark I guess, what do you anticipate or some of the areas that Max may address to accommodate your next phase of growth.

Mark P. Mader: So how can I, with an initial intent, state my case, state my objective, and be presented with a composite solution of dashboards and forms and automations? That is the second phase, but what we're really doing right now is enrolling people into the capabilities alongside things they understand, and we think that's a strategy that's served us pretty well so far.

Mark P. Mader: Hey, John I think I think a few of the traits that I was looking for was somebody who had deep experience with international understood partner ecosystem, it's very well with Super fluent and our multi product catalog and how you cross sell when we think about the rise of capabilities in a world with less.

Mark P. Mader: Thank you, and John DiFucci at Thank you for taking my questions. Um, So when I look here, there are a lot of changes here, right? And Mike Arntz has been with the company since before the IPO and has led a lot of the changes needed as you scaled. So Mark, I guess, what do you anticipate are some of the areas that Max may address to accommodate your next phase? Hey, John.

Mark P. Mader: Fewer than 10% of our customers buying something from us other than a seat is a huge portion of our growth strategy. So really trying to find someone who had that experience space and also it's pretty when you think of who we serve genre. We serve everybody from the SMB all the way up through the largest companies in the world finding somebody.

Mark P. Mader: I think a few of the traits that I was looking for were somebody who had deep experience of international business, understood partner ecosystems very well, and was super fluent in a multi-product catalog and how you cross-sell. When we think about the rise of capabilities in our world with fewer than 10 percent of our customers buying something from us other than a seat, it is a huge portion of our growth strategy. So I was really trying to find someone who had that experience base.

Mark P. Mader: Who has comfort and an informed point of view on how to go to market on both dimensions.

That is a really important thing I was looking for and I think Max as experiences across Microsoft Adobe and net App is a pretty good collection of past experiences that he is going to bring to bear.

Mark P. Mader: And that makes a lot of sense, especially the opportunity well across everything.

Mark P. Mader: You led with international which just seems like such a big opportunity here I guess, if I could just ask a follow up for Pete.

Mark P. Mader: And also, when you think of who we serve, John, right, we serve everybody from the SMB all the way up through the largest companies in the world. Finding somebody who is comfortable and has an informed point of view on how to go to market on both dimensions is a really important thing I was looking for. And I think Max's experiences across Microsoft, Adobe, and NetApp are a pretty good collection of past experiences that he's going to bring to bear. And that makes a lot of sense, especially the opportunity, well, across everything, but you led with international, which just seems like... a big opportunity here. I guess if I could just ask a follow-up question for Pete,

Mark P. Mader: Listen <unk> is going to fail fail.

Pete: So similar trends as.

Pete: <unk> through the year.

Pete: That implies a continues to decline.

Pete: Can you talk a little bit more about this because.

Pete: The way I understand the IRR metric next 12 month metric and you could actually see on a quarterly basis, an inflection point, where things tend to get a little better near the end of the year and you wouldn't necessarily see the net debt that metric right away I guess I'm just trying to sense with this to guide us because I think thats the thing that I have.

Pete: People are.

14% growth in IRR is the thing that people are sort of questioning right now.

Pete Godbole: Listen, NRR is going to follow, and follows similar trends as ARR through the year. That implies it continues to decline. Can you talk a little bit more about this? Because the way I understand the NRR metric, it's a next 12-month metric, and you could actually see on a quarterly basis an inflection point where things tend to get a little better near the end of the year, and you wouldn't necessarily see it in that metric right away.

Speaker Change: Do you think is just gets continues to get worse throughout the year is that is that what you're sort of a plan. I know you gave all the reasons why you're being prudent I am glad you said that but do you think it actually could get better throughout the year at some point or is it or.

Speaker Change: Even stabilize or that it's going to get just get worse through the year, yes.

Pete Godbole: I guess I'm just trying to sense what the guide is because I think that's the thing that people are sort of questioning right now. Do you think it just continues to get worse throughout the year?

Yes. So if you think of the you're absolutely right John in terms of the net dollar retention rate conversation is it's a look back through our full year.

Pete Godbole: Is that what you're sort of implying? I know you gave all the reasons why you're being, quote, prudent. I'm glad you said that. But do you think it could actually get better throughout the year at some point? Or does it even stabilize?

Speaker Change: But remember the underlying underpinnings of that or what's happening in the enterprise and what's happening in SMB.

Speaker Change: I called out in SMB that we don't expect it to do.

Speaker Change: These stable we expect it to continue to worsen so thats going to be a drag on that on the net dollar retention rate and a revision to the composite now could it get better.

Pete Godbole: Or that it's going to just get worse through the year? Yes, so if you think of the, you're absolutely right, John, in terms of the net dollar attention rate conversation, it's a look back for a full year. But remember, the underlying underpinnings of that are what's happening in the enterprise and what's happening in SMB. I called out an SMB that we don't expect it to stay stable. We expect it to continue to worsen, so that's going to be a drag on the net dollar retention rate, and it will build into the composite. Now, could it get any better?

Speaker Change: We're doing many things ourselves which are.

Speaker Change: Things, we've launched in the water, but we always guide based on what we can see and what we have visibility to and Thats. What we are consistent about so that's what we're doing instead of here as well.

Speaker Change: I appreciate that.

Speaker Change: The results of social good and we'll see how that all year.

Speaker Change: Year progresses. Thank you.

Speaker Change: Thanks, John.

George: Our next question comes from George ironic at Oppenheimer.

George Michael Iwanyc: Thank you for taking my question.

George Ironic: Mark.

George Michael Iwanyc: Maybe could you give us more color on the traction youre seeing with self discovery and as you start to rollout new capabilities, how should we think about the pace of that.

Pete Godbole: I think we're doing many things ourselves, which are things we've launched in the water. But we always guide based on what we can see and what we have visibility of. That's what we're consistent about. So that's what we're doing sort of here as well. I appreciate that.

George Michael Iwanyc: School year.

George Michael Iwanyc: The self discovery, we have there are two aspects of it one is the ability to for someone to experience a feature in the product without having to engage with someone from our team to actually utilize it the second part of that actually fulfilling it from a bookings standpoint is the other portion so what we have.

Mark P. Mader: Listen, the results themselves look good, and we'll see how the year progresses. Thank you, George Iwanyc at Op-Ed. Thank you for taking my question. Mark, maybe you could give us more color on the traction you're seeing with self discovery. And as you start to roll out, how should we think about the pace of that? Yeah, self-discovery. We have, there are two aspects of it.

George Michael Iwanyc: Done today. It is we have enabled thousands of comp tens of thousands of companies be able to utilize these tools and we're seeing really good progression quarter, our quarter around people exploring those and Trialing knows the second chapter of this is actually marrying a self discovery motion with a transaction motion.

Mark P. Mader: One is the ability for someone to experience a feature in the product without having to engage with someone from our team to actually utilize it. The second part of that, actually fulfilling it from a booking standpoint, is the other portion. So what we have done to date is we have enabled thousands of companies, tens of thousands of companies, to utilize these tools. And we're seeing really good progression quarter on quarter around people exploring those and trialing those. The second chapter of this is actually marrying the self-discovery motion with a transaction motion. So we are skating to a place where those lower value SMB small startup customers can not only see them but also transact on them. We have not yet set markers in terms of in which quarter that we will convert to that commerce element, but we are focused on getting elements within our content realm, our people realm, which is our resource management realm, and our work realm exposed to the market.

George Michael Iwanyc: So we are we are scaling to a place where those lower value SMB small starting customers cannot only see them, but also transact on those we have not yet set our markers in terms of in which quarter that we will convert to that to that commerce element, but we are focused on getting elements within our content realm.

George Michael Iwanyc: Our people realm, which is a resource management realm, and our work realm.

George Michael Iwanyc: Exposed to market. So a few weeks ago, we released our resort our advanced resource management capability.

George Michael Iwanyc: Prior to releasing that prospect or a customer would have to engage with our customer success. Our sales team to enable that that is now fully automated zero setup required and the weeks in performance we've seen have been.

Extraordinarily positive in terms of the number of people, who have been able to engage with that and to utilize it. So we are moving to a place where we want.

George Michael Iwanyc: Almost the entire portfolio available for someone to see without it being gated by a human being on our side and when I think about driving long term efficiency into our go to market I think it's built on the back of this and how do you get more of your people and your success in your journey teams focusing on your mature growing super large customers.

Mark P. Mader: So a few weeks ago, we released our resource, our advanced resource management capability. Prior to releasing that prospect, or a customer, they would have to engage with our customer successor sales team to enable that. That is now fully automated, with zero setup required.

George Michael Iwanyc: And letting your early stage growing customers move as quickly in a self directed way as possible. So it's <unk>.

Pete Godbole: And the weeks of performance we've seen have been extraordinarily positive in terms of the number of people who've been able to engage with that and utilize it. So we are moving to a place where we want almost the entire portfolio available for someone to see without it being gated by a human being on our side. And when I think about driving long-term efficiency into our go-to-market, I think it's built on the back of this. And how do you get more of your people and your success and your journey teams focusing on your mature, growing super large customers and letting your early stage growing customers move as quickly in a self-directed way as possible? So you will see releases this year of self-directed features across our existing capabilities.

George Michael Iwanyc: You will see you will see releases this year in self directed features across our existing capabilities you will see our digital asset management come into a self directed motion in the later in the first half of this year and as I said the people dimension. Our resource management was released to market in a self directed way just a few weeks ago.

George Michael Iwanyc: Yes.

Speaker Change: Okay. Thank you for that and peak one question for you could you give us some perspective on how youre prioritizing the investment. This year is it leaning more towards sales and marketing or is it really balanced across R&D personnel.

Speaker Change: I think our investments are pretty balanced we're not making large investments in field capacity. We were fortunate to have an experienced and sort of what I call highly savvy field already in place, we've complemented that with things, which mark talked about helped take our most experienced customers did.

Pete Godbole: You will see our digital asset management come into a self-directed motion in the first half of this year. And as I said, the people dimension of resource management was released to market in a self-directed way just a few weeks ago. Thank you. And Pete, one question for you. Could you give us some perspective on how you're prioritizing this year?

Speaker Change: The next level. So we've made some targeted investments there and in the R&D side, we focused on kind of getting a series of new and massively modernize core application experiences out there.

Speaker Change: And we sort of invested in taking the self directed capabilities and extending them to other products. So short answer balanced across both sales and marketing as well as R&D.

Pete Godbole: Marchwood, marketing or, You know, I think our investments are pretty balanced. You know, we're not making large investments in field capacity. We were fortunate to have an experienced and sort of what I call highly savvy field already in place. We've complemented that with things which Mark talked about that helped, you know, take our most experienced customers to the next level. So we've made some target investments there, and on the R&D side, we've focused on kind of getting a series of new and massively modernized core application experiences out there. And we've sort of invested in taking these self-directed capabilities and extending them to other products. So, a short answer balanced across both sales and marketing as well as R&D. We'll move next to Jacob Roberge at... Hi, thanks for taking the questions.

Speaker Change: Thank you.

Jacob Birds: We'll move next to Jacob birds at William Blair.

Jacob Birds: Hi, Thanks for taking the questions.

Jacob Birds: I understand we're still in a bit of an uncertain macro, especially on the SMB side of the house and obviously gone through the go to market transition this year.

Jacob Birds: But if you take a step back what do you think there is some of the factors that could help stabilize later this year and potentially reaccelerate growth in the business heading out over the longer term.

Jacob Birds: So the factors that could stabilize NR in my mind are some of the initiatives that Mark mentioned and those gaining traction. So we talked about these are you know we're launching them, we're launching a totally modernized core application experience that's coming through we have launched the first part of it this quarter, but that's the early <unk>.

Jacob Birds: Talk to it the lift that comes from that experience could be could be large, but it's going to take a while to sort of assess that out.

Pete Godbole: I understand we're still in a bit of an uncertain macro environment. But if you take a step back, what do you think are some of the factors? re-accelerate the growth. So the factors that could stabilize NRR, in my mind, are some of the initiatives that Mark mentioned and those gaining traction. So we talked about, these are, you know, we are launching them. We're launching a totally modernized core application experience. That's coming through. We launched the first part of it this quarter, but that's an early start to it.

Jacob Birds: The second thing we would I would think of is think of our largest customers then taking the enterprise grade features that we can get.

Jacob Birds: Get these customers to deploy our portfolio is really rich if I can get our most experienced median customer to our top quartile customer that's an opportunity and that's where I think the leadership for Max to bring his experiences to bear will be helpful. So those are some of the upside elements out there.

Pete Godbole: The lift that comes from that experience could be large, but it's gonna take a while to sort of assess that out. The second thing we should think about is thinking of our largest customers and taking the enterprise-grade features that we can sort of get these customers to deploy. The portfolio is really rich.

Jacob Birds: One I'd be remiss not to mention as AI. That's in early stages. If you will but as I said, it's a little bit of a wildcard and how that plays out.

Speaker Change: Okay helpful. And then I know there are a good portion of revenue, but with capability still being less than.

Speaker Change: 10% penetrated in the entire base, what do you think the unlocked will be to get those solutions deeper into the customer base is that all going to be self discovery driving that or is there anything differently. You can do on the direct go to market side that could help drive more traction with those solutions.

Pete Godbole: If I can get our most experienced median customer to our top quartile customer, that's an opportunity. And that's where I think the leadership of Max to bring his experiences to bear will be helpful. So those are some of the upside elements out there. The one I'd be remiss not to mention is AI.

Pete Godbole: That's in the early stages, if you will. But as I said, it's a little bit of a wild card and how that plays out. Okay, helpful.

Mark P. Mader: And then I know they're a good portion of revenue, but with capabilities still being less than 10% penetrated across the entire base, what do you think to unlock? Is that all going to be self-discovery driving that, or is there anything differently you can do on the direct go-to-market side that could help drive that? Yeah, I love the question. You're absolutely right.

Speaker Change: The question is Youre, absolutely right its much more than just self discovery one of the things that we're working on from a packaging standpoint is how do we enable the median customer to get into a paid stayed with us on a discovery on a on a premium capability.

Speaker Change: In a ramped fashion and what I mean by that is to date many of our capabilities sales have come in the context of fairly substantive solutions like we go in we work with a mid size or large customer.

Mark P. Mader: It's much more than just self-discovery. One of the things that we're working on from a packaging standpoint is how do we enable the median customer to get into a paid state with us on a premium capability in a bundled fashion. And what I mean by that is, to date, many of our capability sales have come in the context of fairly substantive solutions. Like, we go in, we work with a midsize or a large customer, and we discuss a high-value solution that's delivered. We see a huge opportunity within the tens of thousands of organizations we serve, which start really small. So how can I consume a capability for sub-$5,000? Sub $1,000.

Speaker Change: And we discuss a high value solution. That's delivered we see a huge opportunity within the tens of thousands of organizers.

Speaker Change: Since we serve which start actually small so how can I consume a capability at sub $5000 sub.

Speaker Change: <unk> $1000 and it's I think planting a bunch in CS is how we built this business over 19 years, and we had our capabilities really married to an assisted sales motion. So when we think of packaging how do you get that Sam <unk> motion that we have with our seats introduced on our capability and you should.

Mark P. Mader: And it's, I think, planting a bunch of seeds. It's how we built this business over 19 years, and we had our capabilities really married to an assisted sales motion. So when we think of packaging, how do you get that same PLG motion that we have with our seats introduced into a capability?

Speaker Change: We expect from US this year to release mechanisms for allowing people to step into capabilities much more quickly. So I would see the penetration rate of capabilities to go up significantly and then put us in a position to be able to build on that as they consume more and more of those so again, one is building them having them the others.

Mark P. Mader: And you should expect from us this year to release mechanisms for allowing people to step into capabilities much more quickly. So I would see the penetration rate of capabilities go up significantly, and then we would be in a position to be able to build on that as they consume more and more of them. So again, one is building them, having them, and the other is making them available and discoverable. The third is, how do you have a monetization strategy that caters to the people who are starting out with them and those who are using them at a massive scale? Very helpful. Thanks for taking the time to answer the question. Thank you.

Speaker Change: Making them available and discoverable. The third is how do you have a monetization strategy, which caters to the people who are starting out with them and those who are using them at massive scale.

Speaker Change: Very helpful. Thanks for taking the questions.

Speaker Change: Thanks.

Speaker Change: We will take our next question from Michael Berg at Wells Fargo Securities.

Michael H. Berg: Hi, Thanks for taking my question I wanted to follow up on the capabilities discussion here.

Pete Godbole: We'll take our next question from Michael Berg at Wells Fargo. Hi, thanks for taking my question. I want to follow up on the capabilities discussion here. It's growing nicely, if my calculations are correct, and you know, still 30%, but seems down pretty meaningfully from the rest of the year. Maybe there is something under the hood?

Michael H. Berg: <unk> growing nicely as buyer calculations are correct still 30% that seems down pretty meaningfully from the rest of the year. Maybe is there anything under the hood, what's going on there is there incremental budget constraints, because I kind of think of those as being more enterprise type solution and how do you think about those potential <unk>.

Pete Godbole: What's going on there? Are there incremental budget constraints? Because I kind of think of those as being more enterprise-type solutions. And how do you think about those potentially re-accelerating news, building off of the last question? Thank you.

Speaker Change: Our news building off of the last question. Thank you.

Speaker Change: I would say that we were pretty satisfied with the performance of our capabilities and I think that the draft youre seeing in year on year growth rate is just a sign of the macro that customers have experienced it just as simple as the conversation around.

Pete Godbole: You know, I would say that we were pretty satisfied with the performance for capabilities. And I think that the draft you're seeing in year-on-year growth rates is just a sign of the macro that customers have experienced. It's just as simple as the conversation around people wanting a capability, but do they buy a composite set in a package in advance, or do they buy it a la carte?

Speaker Change: People wanting the capability, but didn't do they buy a composite set in a package in advance or do they buy them all la carte so that does affect the dollar than that.

Speaker Change: That pushed through if you will.

Speaker Change: But I think in general the demand for capabilities continues to be robust and continues to grow so I would say I leave it there.

Speaker Change: Helpful. And then a quick follow up on that same topic as you think about those large opportunities at hand.

Pete Godbole: So that affects the dollars that we push through, if you will. But I think, in general, the demand for capabilities continues to be robust and continues to grow. So I'd say I'd leave it there, helpful.

Speaker Change: Is it reasonable to conclude that capabilities will at some point be the majority of the revenue just given the value proposition tied there. It seems like that's underappreciated part of the none of the products, but the overall story. Thanks.

Pete Godbole: And then a quick follow-up on that same topic. As you think about these large opportunities, is it reasonable to conclude that capabilities will at some point be the majority of the revenue, just given the value proposition tied there? It seems like that's the underappreciated part of not only the products but the overall story.

Speaker Change: So I think my belief is and Mark and I shared this is Ivy wanted to keep both growth. So it's sort of like this.

Speaker Change: The trace where as you start with seats and you are adding capabilities on top of it but it continues in that way. So I think we've got a huge.

Speaker Change: What I call potential in the low end of the market with these modernized core application experiences. So think of that is the piece that boost the seat part of the portfolio now that doesn't mean, it's only see you get to sell discover capabilities as well, so I think that percentage I wouldnt view it as being lopsided.

Pete Godbole: So I think my belief is, and Mark and I share this, is that we're going to see both grow. So it's sort of like this race where you start with seats and then you're adding capabilities on top of it, but it continues in that way. So I think we've got a huge sort of what I call potential in the low end of the market with these modernized core application experiences. So think of that as the piece that builds the seat part of the portfolio. Now that doesn't mean it's only seats.

Speaker Change: <unk> capabilities are viewed as being balanced and growing over time.

Speaker Change: I do think capabilities will be an increase.

Speaker Change: Increasingly growing part of the mix.

Speaker Change: Helpful. Thank you.

Speaker Change: We'll go next to potential and Bora at J P. Morgan.

Pete Godbole: You get to self-discover capabilities as well. So I think that percentage, I wouldn't view it as being lopsided towards capabilities. I view it as being balanced and growing over time. I do think capabilities will be an increasingly growing part of the mix. Helpful. Thank you. You'll go next to Pinjalim Bora at... Oh, great.

Potential: Oh, great. Thanks for taking the questions. Pete can you talk about kind of the demand trends going into Q1 February March. So far are you seeing the SMB weakness can deteriorate as it being similar to Q.

Pete Godbole: Thanks for taking the questions. Pete, can you talk about kind of the demand, the SMB weakness kind of deteriorated as it was similar to Q4 and any way to understand kind of the headwinds on ARR for the full year? So I'll give you my text here on February. So February, you know, was, we continue to see the pressure on SMBs in the month of February. So that pressure actually continued.

Bora: Q4 in any way to understand the headwind to IRR for the full year FY 'twenty four from from <unk>.

Bora: SMB softness.

Pete: So I'll give you my texture on February so February.

Pete: We continue to see the pressure on Smbs in the month of February so that pressure actually continued so we've seen that in play and that's what's informed our guide. If you think of Q4, we saw that worst in Q3, we saw that pressure continue further worsen in February so we're extrapolating that to.

Pete Godbole: So we've seen that in play, and that's what informed our guide. If you think of Q4, we saw that worse than Q3. We saw the pressure continue further worse than in February.

Pete Godbole: So we're extrapolating that to say that that continues all through the year. And that's the headwind to the other part of the business, which is pretty strong, which is the enterprise business, which had another good quarter in Q4. And we'll sort of continue in that vein. The second part of your question, what's the size of each one?

Pete: Say, that's what continues out through the year.

Pete: And thats the headwind to the other part of the business, which is pretty strong which is the enterprise business, which had another good quarter in Q4 and will sort of continue in that way. So that's the assumption going in to the second part of your question. What's the size of each one I think it's hard to call I remember at just to give you an order of magnitude.

Mark P. Mader: I think it's hard to call out. Remember, just to give you an order of magnitude size, SMBs are roughly a quarter of our business, and as I mentioned earlier, if you looked at the net dollar retention rate, which is a measure of our expansion, it was down to close to zero in Q4. So you can see the pressure in that segment playing forward. 1, kind of allowing every, Do you think that could accelerate the adoption of paid seats within your existing enterprise tier? Time for Power Users! Maybe mix in the average.

Pete: Size Smbs are roughly a quarter of our business and as I mentioned.

Pete: Earlier, if you looked at the net dollar retention rate, which is a measure of our expansion.

Pete: It was down to close to zero in Q4. So you can see the pressure in that segment playing forward.

Pete: Understood helpful and one for Mark Murphy and hard from some of your customers that <unk> will be like similar generator could help reduce the reliance on power users kind of allowing average users to do more complex tasks.

Mark P. Mader: We think that could accelerate the adoption of paid seats within your existing enterprise tier accounts says it frees up the time for power users one in Maggie maybe mix the average user much more productive and engaged.

Mark P. Mader: I do, that's part of the thesis, and some of the things that we're able to see as leading indicators of that are we looked at our enterprise segment, the number of inquiries we had to our support desk in these areas, and we're already seeing a step down in that. Usage up, inquiry down, good dynamic. So I do think that that is something that will exist. I think as we get AI introduced to other elements that are super commonly used by analysts who are doing dashboard building, trying to derive insights from data sets, I think that word will start to spread within organizations. And I think a lot of times the way folks work within these companies, they want to see a data point. They want to see an example of someone in a neighboring group achieve success. Again, we are weeks into this being available, so I would expect as we get a couple months under our belts to start seeing this pattern emerge. Mm hmm. We'll move next to Alex Zutkin at Wolfe. Hey guys, this is Ethan Bruck on for Alex Duking.

Mark P. Mader: I do that's part of the thesis and some of the things that we're able to see as leading indicators of that as we looked at our enterprise segment. The number of inquiries, we had to our support desk in these areas and we're already seeing a step down in that usage up inquiry down good good dynamic. So I do think that that is something.

Mark P. Mader: That will exist I think as we get the AI introduced two other elements that are super commonly used by analysts who are doing dashboard building trying to derive insights from data sets I think that work will start to spread within organizations and I think a lot of times the way the way folks work within these companies they want to see a data point they want to see an example from someone.

Mark P. Mader: And in neighboring group achieved success.

Mark P. Mader: Again, we are weeks into this being available I would expect as we get a couple of months under our belt to start seeing this pattern emerge.

Speaker Change: Thank you very much.

Speaker Change: We'll move next to Alex Zukin at Wolfe Research.

Hey, guys. This is Ethan Brooklyn throughout Keith and thanks for taking the question.

Mark P. Mader: Thanks for taking the question. I guess maybe a bit more of a high level. As we think about the percent of customers that are using capabilities, is that number, you know, kind of inches up from single digits, you know, between 20% over As you embed generative AI and self-discovery as an accelerant, what does success look like for you over the next... where the ROI for all those ROI for R&D. I think the R&D is paying off well today. I think what I'd like to see us reach is a much broader penetration. I think on an earnings call one or two times ago, someone asked, "So Mark, what's your expectation?". And I very quickly snapped back to 50%.

Alex Zukin: Immediate a bit more of a high level of need for market. Just as we think about the percent of customers that are using capabilities is that number you know kind of inches up from single digits.

Alex Zukin: 20% overtime as you embed.

Alex Zukin: <unk> AI self discovery as accelerant.

Alex Zukin: A successful look like over the next few years I'm like where those amount of customers using your dad capability can go.

Alex Zukin: As you think about.

Alex Zukin: Monetizing that.

Alex Zukin: Food functionality.

Alex Zukin: Where do you need to see adoption to go forward all those ROI in Boston.

Alex Zukin: R&D to pay off basically.

Speaker Change: I think the R&D the R&D is paying off well today I think what I'd like to see us see us reaches a much broader penetration I think on an earnings call one or two times ago someone thats. So mark what's your expectation and I very quickly snapped back 50%, Yes. My expectation is the median customer at smart sheet should be able.

Mark P. Mader: You know, my expectation is that the median customer at Smartsheet should be able to derive value from multiple products that we sell. So again, back to why I chose to partner with Max on Go-To-Market. You know, when you look at the largest software companies in the world, they're not one-trick ponies.

Speaker Change: To derive value from multiple products that we that we sell so again back to why I chose to partner with Max on go to market.

Mark: When you look at the largest software companies in the world, they're not one trick ponies, they offer they offer value to their customers on multiple dimensions and what our job is to make that is accessible to as many many companies as possible and their users and I think part of that is what you offer them and then the other part of that is how you make it available to them through our price.

Mark P. Mader: They offer value to their customers on multiple dimensions, and what our job is to make that as accessible to as many companies as possible and their users. And I think part of that is what you offer them, and then the other part of that is how you make it available to them through a pricing and packaging standpoint. So a big driver will be how we judge the percent penetration of our portfolio into those organizations. The other important part is, what's the contribution per organization?

Mark: And packaging standpoint, so a big driver will be how we judge the percent penetration of our portfolio into those organizations. The other important part is what's the contribution per organization, but I think right now we're not confused on our on our remit, which is make these things available get them into the hands as many people and.

Mark P. Mader: But I think right now we're not confused about our remit, which is to make these things available and get them into the hands of as many people and organizations as possible. When you look at the retention dynamics of the companies that are deeply embedded with multiple products, good things from an NDRR standpoint happen when people are connected on multiple fronts. So again, this is, and it's not simply done by hiring more people; this is about letting the product pull for you, and it's one of the reasons R&D is working so hard on making this happen. Yeah, no, it's incredibly cooching.

Mark: <unk> is possible when you look at the retention dynamics of the companies that are deeply embedded with multiple products.

Mark: Good things from an <unk> standpoint happen when people are connected on multiple fronts. So again this is and it's not simply done by hiring more people. This is about letting the product pull for you and it's one of the reasons R&D is working so hard on making this happen.

Speaker Change: Yes, incredibly cogent got it it makes perfect sense and then maybe for Pete as you think learning that we've talked about the different layers of conservatism embedded into the guide, but if you stack rank, where you would see some of the biggest areas of outperformance of how you think about the between just better macro it seems its go to market.

Pete Godbole: Perfect. And maybe for Pete, as you think about I know we've talked about the different layers of conservatism embedded into the guide, but if you were to stack rank where you would see the biggest areas of performance, like how do you think about better macro to the market? http://TheBusinessProfessor.com So I think... You know, if you think about what, how I might stack the upside of the different drivers. You know, I'm most excited about the product portfolio that we're launching through the year. We started with a launch of the modernized core application experiences this quarter, and I'm sort of bullish on that. I'm bullish on the next one, which is the leadership that Max brings to bringing efficiency to our sales and marketing theaters that allows us to go out and make our median rep operate like our top rep and get that forward. And the third one I would describe is the wild card, which is all these self-directed experiences as we open them up to more products. How is that going to play out in terms of the upside it produces? So those are my top three.

Pete: Execution above expectations.

Pete: Right.

Pete: So I think.

Pete: You know as you think about what <unk> might stack the upside of the different drivers.

Pete: Excited about the product portfolio that we're launching in the through the year, we started with the launch of the modernized core application experiences this quarter.

Pete: And I'm sort of bullish on that.

Pete: I'm bullish on the next one which is the leadership that Max brings in bringing efficiency in our sales and marketing theatres that allow us to go out making our median rep operate like our top trip.

Pete: Getting that forward.

And the third one I would describe is the wildcard which is all.

Pete: All these sales directed experiences as we open them up to more products.

Pete: How is that going to play out in terms of the upside. It produces so those are my top three the macro is a wildcard, which none of us can actually quite exactly predict in putting a weight on it. It's always the biggest one could make a change it could but I look at the parts and the parts of the positive and the pieces, we can drive and control.

Pete Godbole: The macro is a wild card, which none of us can actually quite exactly predict, and putting a weight on it, it's always the biggest one. Could it make a change? It could.

Pete Godbole: But I look at the parts of the puzzle and the pieces we can drive and control. Thank you, guys. I appreciate it.

Speaker Change: Got it. Thank you guys appreciate it.

Speaker Change: <unk>.

Operator: Mm-hmm. Next, we'll move to Joshua Baer at Morgan Stanley. Great, thanks for the question. I wanted to dig in a little bit as we talk about macro and SMB, you know, what exactly is going on, it looks like from customer accounts and full churn disclosures, like we're not talking about logo churn, just want to confirm that and then kind of dig in between, you know, is it just seat contraction or less expansion? And like, what are the actual behaviors of these SMB customers? Yes, so I'll describe it to you in terms of rank order so you can sort of stack it up.

Speaker Change: Next we'll move to Joshua <unk> at Morgan Stanley.

Joshua: Great. Thanks for the question I wanted to dig in a little bit as we talk about macro and SMB and what exactly is going on it looks like from customer counts and full churn disclosures like we're not talking about logo churn just wanted to confirm that and then kind of dig in between.

Joshua: Is it just seat contraction or less expansion in like what are the actual behaviors of these SMB customers.

Joshua: Yes.

Speaker Change: I'll describe it to you in terms of rank order. So you can sort of stacking up the number one driver is gross expansions with these customers like the amount of propensity they have to buy in the current environment, they're operating in.

Pete Godbole: The number one driver is gross expansions with these customers, like the amount of propensity they have to buy in their current environment they're operating in. The lesser one after that is that we are seeing reductions tick up, but that's not the major driver. That is a contributor to it, but not on the scale of the first one I mentioned. Okay, that's helpful. And then, I guess with both of those in mind. Like, what is it? Are those users within an organization using other tools?

Speaker Change: The lesser one after that is we are seeing reductions pick up but that's not the major driver that is a contributor to it but not in the scheme of the first one I mentioned.

Speaker Change: Okay. That's helpful and then I guess with both of those in mind.

Speaker Change: Like what is it.

Speaker Change: Are those users within an organization using other tools like I know there might not be a direct competitive replacement perspective, but like when faced with tougher budgets and <unk>.

Pete Godbole: Like, I know there might not be a direct competitive replacement perspective, but when faced with tougher budgets and, you know, having less gross expansion or some reductions, like what are those users? So I would describe it as being, remember the biggest driver is people buying in gross expansion. So that's just companies deciding there isn't a budget for small companies and saying, I'm not adding another seat. Things that used to happen, we called them our transactional business. People would pop in and say, "I need another seat."

Speaker Change: Having less gross expansion or some reductions like what are those users.

Speaker Change: Using.

Speaker Change: Okay.

Speaker Change: So I would describe it as being the remember the biggest driver is people.

Speaker Change: People buying in gross expansion. So that's just companies deciding there isn't a budget and small companies and saying I'm not adding another seat things that used to happen, we called our transactional business people that pop in and say I need another seed everything in these smaller enterprises and expansion is going through a more detailed review process and frankly, that's the.

Pete Godbole: Everything in these smaller enterprises and expansions is going through a more detailed review process. And frankly, that's the part of the business that's suffering. Now, what happens where there's a reduction?

Speaker Change: Part of the business that's suffering now what happens when there's a reduction I think in some ways people are leveraging the model to make decisions around can I convert somebody from being created to our collaborators can I look.

Pete Godbole: I think in some ways, people are leveraging the model to make decisions around, can I convert somebody from being a creator to a collaborator? Can I look at people on the platform and say, who actually absolutely needs it? That's the smaller driver in this equation, but that's what generally happens. It is not a switch to a different product most of the time. It's a, can I do without this person on the platform? Okay, that's helpful. All next to Taylor McGinnis at... Yeah, hi, thanks so much for taking my question.

Speaker Change: Look at people in the platform and say actually absolutely needs. It that's the smaller driver in this equation, but that's what generally happens it is not a switch to a different product most of the times. It's a can I do without this person of the platform.

Speaker Change: Okay. That's helpful. Thank you Pete.

Speaker Change: We'll go next to Tyler Mcginnis at UBS.

Taylor Anne McGinnis: Yeah, hi, thanks, so much for taking my question. So can you comment or quantify what youre seeing so far in quarterly <unk> at the start of this year. I know you said enterprise was strong, but just curious if that mean stable or what that exactly means and then as a follow up it seems like in order to get to.

Pete Godbole: So can you comment or quantify what you're seeing so far in quarterly DBNR at the start of this year? I know you said enterprise was strong, but just curious if that means stable or what that exactly means. And then as a follow-up, it seems like in order to get to ARR growth of 14% for the year, you'd have to assume a pretty significant deterioration in DBNR. So it's the assumption that SMB and enterprise quarterly DBNR continue to deteriorate throughout the year. Yes, Taylor, I'll answer your question in these parts as you go through it. The first one is our enterprise, you know. Our dollar-based net retention rate for Q4 is over 120%. So we were pleased by how that turned out.

Taylor Anne McGinnis: A growth of 14% for the year you'd have to assume a pretty significant.

Taylor Anne McGinnis: The deterioration in <unk>. So is the assumption that F&B and enterprise quarterly D D.

Taylor Anne McGinnis: <unk> continue to worsen throughout the year.

Speaker Change: Yes, So Tyler I'll answer your question in the in piece parts as you went through it the first one is our enterprise.

Speaker Change: Dollar based net retention rate for Q4 was over 120%. So we were pleased by how that played out that's the first part of it. The second part of it is our assumption is we'll be making is the SMB portion of that remember I told you. The SMB DNR was close to zero so was it about.

Pete Godbole: That's the first part of it. The second part of it is our assumption is what we're making is the SMB portion of that. Remember, I told you the SMB DBNR was close to zero. So, you know, it wasn't significantly over 100%.

Speaker Change: Wasn't significantly over 100, we've assumed that that continues to worsen as we go through the year. What we're doing is essentially taking a more conservative approach to the way the macro might rollout and how the trends might evolve as one part of it and we're also dealing with an element of what we think of the enterprise portion of it.

Pete Godbole: We've assumed that this continues to worsen as we go through the year. What we're doing is essentially taking a more conservative approach to the way the macro might roll out and how the trends might evolve as one part of it. And we're also dealing with an element of, as we think of the enterprise portion of it, enterprise sales cycles are back-end loaded, as is the total bookings. We're early in the year, so we're being a little more thoughtful and prudent as we make those determinations on how big those enterprise bookings and DBNRs could be. Got it. Thanks so much.

Enterprise sales cycles are backend loaded as is the total bookings were early in the year. So we're being a little more thoughtful and prudent as we make those determinations and how big those enterprise.

Speaker Change: Bookings in <unk> could be.

Speaker Change: Got it. Thanks, so much and then just as a quick follow up I think you mentioned earlier that there might be some initiatives in place.

Mark P. Mader: And then just as a quick follow-up, I think you mentioned earlier that there might be some initiatives in place to potentially prevent, you know, some of the weakness that you're seeing or help curb some of the weakness that you're seeing in the S&P segment. Can you just walk us through, you know, what some of those initiatives might be? Yeah, there are three things that we're doing. One is at the leading edge, which is about lowering friction on the signup and getting started.

Speaker Change: Essentially provided.

Speaker Change: Some of the weakness that Youre seeing are help curb some of the weakness that youre seeing in the F&B segment can you just walk us through what some of those initiatives might be.

Speaker Change: Yes, there are three things that we're doing one is.

Speaker Change: Leading edge, which is about lowering friction on the sign up and getting started so that's widening the funnel I would say the other pieces that have been in flight for a number of quarters now the first of which is being released later this quarter.

Mark P. Mader: So that's widening the funnel. I would say the other pieces that have been in flight for a number of quarters now, the first of which is being released later this quarter, is, you know, we've gotten a lot of feedback from both the sell side and the buy side, as well as customers, on how we really like the power of your platform, but boy, could we modernize it a little bit, please. And one of the big new views that we've been working on, it's actually been in evaluation with over 1,000 of our large customers for coming up on five months now, and I believe that it is going to ship this quarter. It's a new view. It's beautiful and it's fast. People love it.

Speaker Change: We've got a lot of feedback from both the sell side buy side as well as customers on we really like the power of your platform, but boy could we modernize that little bit please and one of the big new views that we've been working on it's been actually in evaluation with over 1000 of our large customers for.

Speaker Change: Coming up on five months now I believe that is going to ship this quarter. It's a new view, it's beautiful it's fast people love. It it helps on understanding your data and smart she'd better that drops this quarter. That's available to every single business plan every single enterprise plan. When we think about stabilization and we think about resonating with the.

Mark P. Mader: It helps with understanding your data and Smartsheet better. That drops this quarter. That's available to every single business plan, every single enterprise plan. When we think about stabilization and we think about responding to the SMB buyer, they want new stuff. They want beautiful stuff.

Speaker Change: <unk> buyer they want new stuff they want beautiful stuff they want a packaged in a way that's accessible so as we look at our guide one of the conservative things as the new view hasn't released yet the massively modernized existing views, we have which shipped this year haven't launched yet.

Mark P. Mader: They want a package in a way that's accessible. So, as we look at our guide, one of the conservative things is that the new view hasn't released yet. The massively modernized existing views we have which shipped this year haven't launched yet. Do I think those are going to pull harder than what we've had? Yes, I do.

Speaker Change: Those are going to pull harder than what we've had ESI due and until I see a quarter, where I see the reaction to those things both in terms of initial conversion rate engagement of existing users which drives it.

Mark P. Mader: And until I see a quarter where I see the reaction to those things, both in terms of initial conversion rate and engagement of existing users, which drives an IT administrator's ability to continue to grant them that license or revoke the license, these are all things that I view as potential tailwinds. What I can say is we've been uber-disciplined on shipping those things when they're ready. So, that first view that launches later this quarter, that thing will be ready, and I know customers love it. And again, part of our job will be to report back to you on a quarterly basis when they drop, what happens in terms of engagement. We're doing that on AI right now.

Speaker Change: Administrators ability to continue to grant them that license or revoke the license. These are all things that I view as potential tailwind what I can say is we've been Uber disciplined on shipping those things when they are ready so that first view that launches. Later. This later this quarter that thing will be ready and I know customers love It and again what.

Speaker Change: Part of our job will be is to report out to you on a quarterly basis now when they dropped what happens in terms of engagement, we're doing that on AI right. Now we'll report out on views and I would expect because of the the vastness of the lead flow we get from that SMB lower end of the market it'll be really interesting to see how those new.

Mark P. Mader: We'll report out on views, and I would expect, because of the vastness of the lead flow we get from that SMB lower end of the market, it'll be really interesting to see how those new experiences drive conversion. The conversion one is sort of a hero metric, but I think the retention piece is the more nuanced one, and I think these can play as big a role in retention as they do in initial conversion.

Speaker Change: Experiences drought conversion there.

Speaker Change: The conversion one is sort of a hero metric, but I think the retention piece is the more is the more nuanced one and I think these can play as bigger role in retention as they do an initial conversion. So those are the ones that I am really keying off of in terms of improved performance.

Speaker Change: And one of the things I'll add to what Mark said is the fact that remember our guidance philosophy is based on things. We can see we have experienced so the part that Mark mentioned are not included in our guide because we need to see the experience as the flu sale. These features come to bear in market.

Pete Godbole: So those are the ones that I'm really keying off of in terms of improved performance. And one of the things I'll add to what Mark said is the fact that our guidance philosophy is based on things we can see and we have experience with. So the parts that Mark mentioned are not included in our guide because we need to see the experience as the full set of these features come to bear.

Speaker Change: Thanks, so much.

Speaker Change: Youre welcome.

Speaker Change: Yes.

Speaker Change: Our next question comes from Steve Enders at cities.

Pete Godbole: Thanks so much. You're welcome, Taylor. Our next question comes from Steve Enders. Okay, great. Thanks for taking the question. I guess when you're talking about trying to bake in more conservatism with new sales leadership coming in, I guess what does that mean mechanically to the model? And I guess how much kind of flexibility are you kind of building in for, you know, incremental spend or, you know, incremental marketing initiatives to help support that change there? So Steve, you know, we've, as a part of our plan, irrespective of a new leader arriving, always have dollars set aside to explore opportunities where we think there are good, solid returns. That's a part of the thinking playbook we go through. That's already built into our plan today. It's not incremental conservatism on the margin side that's different.

Steven Lester Enders: Okay, great. Thanks for thanks for taking the question.

Steve Enders: <unk>.

Steven Lester Enders: I guess when you when you are talking about.

Steven Lester Enders: <unk> gained more conservatism with new sales leadership coming coming in I guess, what does that mean mechanically to the model.

Steven Lester Enders: I guess, how much of that profitability of accountability for.

Steven Lester Enders: The incremental spend or incremental.

Steven Lester Enders: Marketing initiatives to help support that.

Steven Lester Enders: What changed there.

Speaker Change: So Steve you know.

Steven Lester Enders: We as a part of our plan irrespective of the new leader, arriving we always have dollars set aside to explore opportunities where we think they're a good solid returns that's a part of the thinking on playbook. We go through that's already built into our plan today, it's not incremental conservatism on the margin side that's different.

Pete Godbole: So that's what we've guided. And then as far as it relates to sort of how we've built in conservatism for the transition in sales leadership, I'd say, you know, it's not that one item has a certain value, but all the items I described have a cumulative effect that's built into the guide we provided. Okay, that's, that's helpful.

Steven Lester Enders: That's what we've guided to.

Steven Lester Enders: And then as far as it relates to sort of how we built in conservatism for the transition in sales leadership I see it's not a one item has a certain value, but all of the items I described of accumulative effect, that's built into the guide we provided.

Steven Lester Enders: Okay.

Speaker Change: Thats helpful.

Pete Godbole: Um, and then I think in the prior comment about, you know, what the change means, I think there's more focus on international and partner relationships. And I guess part of me is thinking about, you know, potentially increasing the investment in those areas, and what potentially could be built out more, more fully with this change.

Speaker Change: And then I think in the prior comment about what.

Speaker Change: Change means I think there is more focus on an international and partner then.

Speaker Change: Pardon me thinking.

Speaker Change: Potentially increasing the investment in June and in those areas.

Speaker Change: What potentially can be built out more more fully.

This change.

Pete Godbole: So as you think about the areas which Mark talked about, which are important to the company, and Max brings into the picture, if you will, we're making investments in those areas already. We're making important investments. For example, on the international side of things, we're launching a data center in Australia by the end of the year.

Speaker Change: So as you think about the areas, we check which mark talked about which are important to the company and Max brings into the picture if you will.

We're making investments in those areas already we're making important investments for example in the international side of things, we're launching a data center in Australia by the end of the year, we're building out our market in Japan. So all of those investments are progressing with sort of the same mindset. So thats already built into the plan.

Mark P. Mader: We're building out a market in Japan, so all of those investments are progressing with sort of the same mindset. So that's already built into the plan. What we would incrementally look at if things came out are opportunities that come from those same investments that Max would have a perspective on and the team would have a perspective on. Mark, anything to add on that one?

Speaker Change: <unk> incrementally look as if things came out or opportunities that come from those same investments that Max would have a perspective on and the team would have a perspective on mark anything to add on that one yes, I think the area of investment as we look at shifting some.

Mark P. Mader: Yeah, I think the area of investment, as we look at shifting some capital from a direct sales team into the partner-enabled channel, I think there's some real return opportunity there. One of the examples I gave in terms of customer success on this call or in my prepared remarks was a large global services firm. That deal would not have happened without the partner.

Speaker Change: Some capital from a direct sales team into the partner partner enabled channel I think there's some real return opportunity there one of the examples I gave in terms of customer success on this call or in my prepared remarks.

Was a large global services firm that deal would not have happened without the partner the partner was essential based on their industry expertise their know how on our platform. We are going to be doubling the capacity of people who are enabling our channel.

Mark P. Mader: The partner was essential based on their industry expertise and their know-how on our platform. We are going to be doubling the capacity of people who are enabling our channel. And that is a; when we think about our international markets, we have some where we team up with partners. Those are the areas where we have our existing sales teams and success teams. And then we're also formalizing our partner first regions where we are really bolstering the enablement capabilities, the lead allocation to those regions. And that is something which is really gonna come online in those regions for the first time in the company's history. Now, are those gonna be a massive, meaningful contributor to bookings this year? I doubt it, but we're planting a lot of seeds.

Speaker Change: And that is when we think about our international markets. We have some where we team up with partners. Those are the areas, where we have our existing sales team success teams and then we're also formalizing our partner first regions, where we are really bolstering the enablement capabilities the lead allocation to those regions and that is something which is.

Really going to become come online in those regions for the first time in the Companys history now are those going to be a massive meaningful contributor on bookings this year I doubt it but we are planning a lot of seats. We have those markets identified we have a number of partners already secured and enabled and.

Speaker Change: We will as I look at the shifting of our people to those higher value higher leverage positions, whether it be enterprise our partner channel I think its one of the things that we've done pretty well as we enter this year.

Speaker Change: Okay perfect. Thanks for taking the questions.

Mark P. Mader: We have those markets identified. We also have a number of partners already secured and enabled. And we will, as I look at the shifting of our people to those higher value, higher leverage positions, whether it be enterprise or partner channel, I think it's one of the things that we've done pretty well as we enter this year. Thanks for taking the questions and adding the added context there. Go next to Brent Thill.

Speaker Change: Next there.

Speaker Change: Thanks.

Speaker Change: We will go next to Brent Thill at Jefferies.

Brent John Thill: Hey, Mark.

Brent John Thill: The magnitude of the T cell.

Brent John Thill: I think everyone's kind of scratching our head a bit why you won't show a little more margin improvement.

Brent John Thill: This year and I am curious if you could just comment why we shouldn't see more leverage given that the growth rate.

Brent John Thill: Hey, Mark, you know, the magnitude of the Rev-D cell. I think everyone's kind of scratching their heads a bit, why you wouldn't show a little more margin here, and I'm curious if you could just comment on why more leverage given the growth rate, falling pretty considerably. QuickPaw, What was on the margin side? What was the reference there?

Brent John Thill: Following pretty considerably and then I had a quick follow up for <unk>.

Speaker Change: Well on the margin side, what was the what was the reference there sorry, I missed that I missed that part of the question.

Speaker Change: Their revenue deceleration.

Speaker Change: Not offset by the increase in margin your margin improvement is obviously very modest why why not get more margin improvement given the massive deceleration of growth.

Pete Godbole: Sorry, I missed a part of the question....your revenue deceleration...not offset by the increase in margin; your margin improves, obviously very modest. Why not give more margin? The Massive Deceleration of Growth. I'll answer that one.

Speaker Change: I'll answer that one if you look at the guide we provided the start of the year. It's always a balance when you think of where we started last year.

Speaker Change: Because we sort of start the year with a set of things. We think we can do well and we go through the year and continue to optimize as we sort of deliver and go through the operational rigor of what we need to do so our initial guidance 12% to 13%.

Pete Godbole: You know, as you look at the guide we provided at the start of the year, it's always a balance. So when you think of where we started last year, you know, we sort of start the year with a set of things we think we can do well, and we go through the year and continue to optimize as we sort of deliver and go through the operational rigor of what we need to do. So our initial guide is, you know, 12 to 13 percent off-margin. It's probably a reasonable starting point for this journey.

Speaker Change: Op margin is probably a reasonable starting point for the journey. So we've ended the year with a rule of 40 for FY 'twenty four if you look at where we started in FY 'twenty started at about 34, 35% rate and build through the year to where we needed to get to.

Speaker Change: Yes, I think the other thing that I'd add to that in terms of how we plan for the year, we set our budgets we set our plan and we also have certain stage gates that we expect our teams to deliver against so as we go through Q1, we have certain opportunities that we're looking to drive on AI. Some of these new capabilities. We are launching to market. We expect performance to come on the back of that and if those stage gates are met.

Pete Godbole: So we've ended the year with a rule of 40 for FY 24. If you look at where we started in FY 24, we started at about a 34-35% rate and built through the year to where we needed to get there. Yeah, I think the other thing that I'd add to that in terms of how we plan for the year, we set our budgets, we set our plan, and we also have certain stage gates that we expect our teams to deliver against. So as we go through Q1, we have certain opportunities that we're looking to drive on AI, some of these new capabilities we're launching to market. We expect performance to come on the back of that, and if those stage gates are met, then we continue to invest according to our plan. And Pete has the right to inform us of a pullback in a couple of those areas to add more margin if those stage gates aren't hit.

Speaker Change: Then we continue to continue to invest per our plan and <unk> has the right to to inform us of a pullback in a couple of those areas to add more margin if those stage gates arent hit so I like the fact that we still have this mindset of investment and I do think some of the investments we have an opportunity to demonstrate contribution beyond what we have in our plan today.

Speaker Change: Okay, and then just a real quick follow up on SMB.

Speaker Change: One of the theories of why maybe you're seeing the weakness that youre seeing is that you are spending a lot more time going up market.

Speaker Change: Many of our questions.

Mark P. Mader: So I like the fact that we still have this mindset of investment, and I do think some of the investments we have have an opportunity to demonstrate a contribution beyond what we have in our plan today. Okay, and then just a real quick follow-up on that. One of the theories of why maybe you're seeing the weakness that you're seeing is that you are spending a lot more time going up market. Many have questioned whether this is more execution and more of a competitive issue rather than...

Speaker Change: This is more execution than more of a competitive issue rather than blaming S&P's for not spending.

Speaker Change: Yes, I think part of the things that we're looking to do one of the reasons, we're trying to get the lowering lowering of friction getting people to discover things on a self directed way. If you don't want to spend a lot of human capital getting those thousands and thousands and thousands of trailers to appoint where they want to buy I think are really good.

Speaker Change: To cater of continued progress as we head of our 500 companies new organizations, who moved from the free plan to a paid state. This in January one month.

Brent John Thill: .. .. .. .. ....

Mark P. Mader: I think part of the things that we're looking to do, one of the reasons we're trying to lower the friction of getting people to discover things in a self-directed way. It's like you don't want to spend a lot of human capital getting those thousands and thousands and thousands of trialers to a point where they want to buy. I think a really good indicator of continued progress is that we had, of our 500 companies, new organizations who moved from the free plan to a paid state in January, one month. Those are very self-directed movements.

Speaker Change: Those are very self directed motions those are not like heavy enterprise selling and we're trying to get the open the aperture of getting that lead flow bigger and then positioning our offerings in a way where people can connect and purchase part of that is features part of that is pricing and packaging part of that is the instantiation of a free plan a year ago.

Speaker Change: And when I look at when I look at the performance of new logos coming in at that leading edge. It remains very healthy we have tens of thousands of or who do not payers today engaged on the free platform today and the conversions coming out of that now we launched a pre plan a year ago. So could you say well some of that demand is.

Mark P. Mader: These are not like heavy enterprise selling. And we're trying to open the aperture up, get that lead flow bigger, and then position our offerings in a way where people can connect and purchase. Part of that is features, part of that is pricing and packaging, part of that is the introduction of the free plan a year ago. And when I look at the performance of new logos coming in at that leading edge, it remains very healthy. We have tens of thousands of organizations who do not pay us today engaged on the free platform today, and the conversion is coming out of that. Now, we launched that free plan a year ago. So could you say, well, some of that demand isn't converted, it rests in free, and there's a bit of an air gap now where we're waiting for that demand to build? Yeah, you absolutely can drop that model and convince yourself of that.

Speaker Change: As rest didn't converted rescue free and there is a bit of an air gap now we're waiting for that demand to build yes, you absolutely can draw you can drop that model and convince yourself of that I think the <unk> sorry, the conversion rate on new.

Speaker Change: On those on those SMB customers is heavily influenced by what you serve up to them and one of the reasons. We're making these investments is because we think there's an opportunity to dramatically improve that and we're doing that alongside of the enterprise focus it's not like we're moving student body right, saying, it's all about enterprise, it's enterprise grade offer.

Speaker Change: Rings that should work for both our leading edge SMB as well as a really large company out there and it's again, we look forward to reporting on improvement on this.

Speaker Change: And you mentioned that the competitive element.

Speaker Change: Will that was your follow up if you just looked at it we talked about sort of what SMB.

Mark P. Mader: I think the NDRR, sorry, the conversion rate on new, those SMB customers is heavily influenced by what you serve up to them. And one of the reasons we're making these investments is because we think there's an opportunity to dramatically improve that. And we're doing that alongside of the enterprise focus. It's not like we're moving student body rights and saying it's all about enterprise.

Speaker Change: <unk> are doing if you look at or any of the competitive <unk>, they're taking our endear.

Speaker Change: The strongest in the peer set so when you look at it the business has to go somewhere if it's an expansion nobody seeing it so I would describe it as being it's more of a function of the buyer in that market and how they're sort of prosecuting incremental add in what they wanted to do that as simple as it is.

Speaker Change: Yes.

Speaker Change: Great. Thanks, gentlemen.

Mark P. Mader: It's enterprise-grade offerings that should work for both a leading edge SMB as well as a really large company out there. And it's, again, we look forward to reporting on improvement on this. And you mentioned the competitive element, if you will, that was your follow-up. If you just looked at it, we talked about sort of what SMBs, you know what I call NDRRs, are doing. If you look at any of the competitive in-peer NDRRs, they're taking our NDRRs as probably the strongest on that peer set. So when you look at it, the business has to go somewhere if it's an expansion. Nobody's seeing it. So I would describe it as being it's more of a function of the buyer in that market and how they're sort of prosecuting incremental ads in what they want to do.

Speaker Change: Thanks, Brett.

Speaker Change: We'll move next to Scott Berg Needham <unk> company.

Speaker Change: Yeah.

Speaker Change: Great items as Rob Reilly on for Scott. Thanks for taking my question just a high level one here with budget scrutiny continuing through to provide any insight on how consolidation trends impacted this quarter, particularly on the enterprise side and weather continues to be a net benefit or headwind.

Speaker Change: Maybe how you anticipate it plays a role into 2005.

Speaker Change: I think consolidation remains.

Speaker Change: <unk> present, an enterprise settings, where people have hundreds of thousands of dollars of investment we haven't really seen a dramatic change though in rate of frequency.

Speaker Change: Customer examples that I said in my prepared remarks, David come via a review by an organization that is trying to standardize but when you look at the Grand scheme of transactions in the quarter, it's still a very very small percentage.

Pete Godbole: That's as simple as it is. Great. Thanks, gentlemen. Thanks. Hi, this is Ron Morelli. I'm for Scott. Just a high-level one here, you know, with quite a discrimination.

Speaker Change: Got it appreciate that question.

Speaker Change: Question.

Speaker Change: Thanks, so much thanks.

Speaker Change: Yeah.

Speaker Change: And that does conclude our question and answer session. At this time I would like to turn the conference over to Aaron Turner for closing remarks.

Mark P. Mader: Thanks for watching, and weather continues to be a problem. I think consolidation remains more present in enterprise settings where people have hundreds of thousands of dollars of investment. We haven't really seen a dramatic change, though, in rate or frequency. A couple of customer examples that I said in my prepared remarks did come via a review by an IT organization that is trying to standardize, but when you look at the grand scheme of transactions in the quarter, it's still a very, very small percentage.

Aaron Turner: Great. Thank you all for joining us this quarter and we'll chat with you again next quarter.

Speaker Change: And this concludes today's conference call. Thank you for your participation you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Operator: Thanks, much. Thanks. And then there's, Great. Thank you all for joining us this quarter, and we'll chat with you again next quarter.