Q1 2025 Smartsheet Inc Earnings Call

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Abby: Ladies and gentlemen, good afternoon, and thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Smartsheet first quarter fiscal 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.

Abby: Ladies and gentlemen, good afternoon, and thank you for standing by my name is Abby and I will be your conference operator today.

Abby: At this time I would like to welcome everyone to the smart sheet first quarter fiscal 2025 earnings conference call.

Abby: All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session.

Abby: And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 a second time. Thank you, and I would now like to turn the conference over to Aaron Turner, Head of Investor Relations. You may begin.

Abby: If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.

Abby: If you would like to withdraw your question Press Star one a second time.

Aaron Turner: Great. Thank you, Abby.

Abby: Thank you and I would now like to turn the conference over to Aaron Turner head of Investor Relations you may begin.

Aaron Turner: Good afternoon, and welcome everyone to Smartsheet's first quarter of fiscal year 2025 earnings call. We'll be discussing the results announced in our press release issued after the market closed today. With me today are Smartsheet CEO Mark Mader and our CFO Pete Godbole.

Abby: Great. Thank you Abby good afternoon, and welcome everyone to smart sheets first quarter of fiscal year 2025 earnings call, we'll be discussing the results announced in our press release issued after the market closed today with me today are smart <unk> CEO, Mark Mader, and our CFO He got bull.

Aaron Turner: Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.smartsheet.com. 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.

Abby: Today's call is being webcast and will also be available for replay on our Investor Relations website at investors thought smart sheet Dot com.

Abby: A slide presentation that accompanies pizza prepared remarks, which can be viewed in the events section of our Investor Relations website.

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 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, and we do not assume any obligation to update these statements as a result of new information or future events, except as required by law.

Abby: 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 and other factors, including but not limited to those described in our SEC filings available.

Abby: On our Investor Relations website and on the SEC website at Www Dot FCC Dot Gov, Although we believe that the expectations reflected in the forward looking statements are reasonable our actual results may differ materially and adversely.

Abby: All forward looking statements made during the call. This call are based on information available to us as of today and we do not assume any obligation to update these statements as a result of new information or future events, except as required by law. In addition to the U S. GAAP financials, we will discuss certain non-GAAP financial measures a reconciliation to the most directly comparable.

Aaron Turner: In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. A reconciliation to the most directly comparable U.S. GAAP measures is available in the presentation that accompanies this call, which can also be found on our Investor Relations website. With that, I will turn the call over to Mark. Thank you.

Speaker Change: A 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.

Mark P. Mader: Thank you, Aaron, and good afternoon, everyone. Welcome to our first quarter earnings call for fiscal year 2025. Q1 finished strong and reflected steady improvement as we moved through the quarter. During the quarter, 53 customers expanded their Smartsheet ARR by more than $100,000. We now have 72 customers with ARR over $1 million, up 50% from Q1 last year. We ended the quarter with annualized recurring revenue of $1.056 billion and more than 14.7 million Smartsheet users. In Q1, we expanded with customers including Nestle Purina, Ross Stores, and Sephora, among others.

Mark P. Mader: Thank you Ron and good afternoon, everyone welcome to our first quarter earnings call for fiscal year 2025.

Mark P. Mader: Q1 finished strong and reflect steady improvement as we moved through the quarter in.

Mark P. Mader: In the quarter 53 customers expanded their smart should air or by more than $100000.

Mark P. Mader: We now have 72 customers, where they are over $1 million up 50% from Q1 last year.

Mark P. Mader: We ended the quarter with annualized recurring revenue of $1.156 billion and more than $14 7 million smartphone users.

Mark P. Mader: In Q1, we expanded with customers, including Nestle.

Mark P. Mader: Purina Ross stores in Sephora among others.

Mark P. Mader: We saw a significant expansion with a global media and entertainment company that has experienced growing demand for Smartsheet within its employee base. This expansion is across multiple dimensions, the number of users, geographically from their core US group to teams in Hong Kong, Singapore, and other international markets, and usage across our breadth of premium capabilities. Over the last year, in order to manage the expanding scale of their workloads on Smartsheet, the company's use of Data Shuttle has doubled, and the use of Dynamic View to manage confidential information within the organization has tripled. In EMEA, a technology and consumer electronics company signed a large three-year enterprise deal.

Mark P. Mader: We saw a significant expansion with a global media and entertainment company that has experienced growing demand for smart sheet within its employee base.

Mark P. Mader: This expansion is across multiple dimensions, the number of users geographically from their core U S group to teams in Hong Kong, Singapore, and other international markets and usage across our breath of premium capabilities.

Mark P. Mader: Over the last year in order to manage the expanding scale of their workloads on smart cheat. The company's use of data shuttle has doubled and the use of dynamic view to manage confidential information within the organization has tripled.

Mark P. Mader: In EMEA, the technology and consumer Electronics company signed a large three year enterprise deal.

Mark P. Mader: They were in need of a high-scale data asset management solution to replace a tool built by their agency partners that couldn't meet the growing demands of their business. They saw the value of the brand folder within Smartsheet's workflows and the security, flexibility, and power of this integrated content platform. The company will store millions of brand assets for distribution to their subsidiaries around the world.

Mark P. Mader: They were in need of a high scale data asset management solution to replace a tool built by their agency partners that couldn't meet the growing demands of their business.

Mark P. Mader: The value of brand folder within smart sheets, workflows, and the security flexibility and power of this integrated content platform.

Mark P. Mader: The company will store millions of brand assets for distribution to their subsidiaries around the world.

Mark P. Mader: Going forward, they plan to build out a larger marketing and creative management ecosystem using Smartsheet. This past quarter, we saw a significant expansion that included an upgrade to Advanced Platinum at a major business process service provider. Because much of their work involves providing support to government agencies, our advanced security offering, Smartsheet Safeguard, was key to the deal. Furthermore, Data Shuttle and Data Mesh are crucial to maintaining consistency and standardization of data across their client projects, showcasing the power of Smartsheet's enterprise interoperability.

Mark P. Mader: Going forward they plan to build out a larger marketing and creative management ecosystem using smart sheet.

Speaker Change: This past quarter, we saw a significant expansion that included an upgrade to advanced platinum at a major business process service provider.

Speaker Change: Because much of their work involves providing support to government agencies, our advanced security offering smart chief safeguard was key to the deal.

Speaker Change: Furthermore, data shuttle and data mash are crucial to maintaining consistency and standardization of data across their client projects showcasing the power of smart sheets enterprise interoperability.

Mark P. Mader: The company sees its IT portfolio management solutions, which are built on Smartsheet, as a competitive advantage and is driving value by leveraging our premium capabilities. In Q1, we also entered into a collaboration with KPMG, a longstanding Smartsheet customer who wanted to leverage Smartsheet to enhance their client delivery experience. To support this objective, we teamed with KPMG to develop a globally available standardized service delivery solution to track and manage value realization on strategic business transformation projects.

Speaker Change: The company sees their it portfolio management solutions, which are built on smart sheet as a competitive advantage and are driving value by leveraging our premium capabilities.

Speaker Change: In Q1, we also entered into a collaboration with KPMG, our long standing smart sheet customer, who wanted to leverage smart heat to enhance their client delivery experience.

To support this objective we teamed with KPMG to develop a globally available standardized service delivery solution to track and manage value realization on strategic business transformation projects.

Mark P. Mader: As businesses today are under more and more pressure than ever to deliver better, lasting results for stakeholders, Smartsheet enables KPMG and its clients to efficiently track and capture value with real-time collaboration and communication on complex projects. This solution enables Smartsheet to establish deeper engagement within new and existing enterprises as our platform is utilized by the customer going forward. To unlock greater value for our customers in Smartsheet, I am pleased to share that on June 24th, we will be rolling out a new pricing and packaging model. We anticipate it being modestly accretive in the near term and meaningfully accretive in the longer term.

Speaker Change: As businesses today are under more and more pressure than ever to deliver better lasting results for stakeholders smart sheet enables KPMG in its clients to efficiently track and capture value with real time collaboration and communication on complex projects.

Speaker Change: This solution enables smartly to establish deeper engagement within new and existing enterprises as our platform is utilized by the customer going forward.

Speaker Change: To unlock greater value for our customers and smart sheet I am pleased to share that on June 24th we will be rolling out a new pricing and packaging model.

Speaker Change: We anticipate it being modestly accretive in the near term and meaningfully accretive in the longer term.

Mark P. Mader: The new model provides broader access to Smartsheet features to more users and organizations, who will be able to access the entire feature set offered by a plan while providing increased control and greater transparency to administrators. In aggregate, the new model pairs a greater number of licensed users with a lower price per user on business and enterprise plans. New customers will onboard with this model starting on June 24th, while existing annual customers will transition in calendar year 2025.

Speaker Change: The new model provides broader access to smart sheet features to more users and organizations, who will be able to access the entire feature set offered by a plan, while providing increased control and greater transparency to administrators.

Speaker Change: In aggregate, the new model Paris, a greater number of licensed users with a lower price per user on business and enterprise plans.

Speaker Change: New customers will onboard with this model starting on June 24th while existing annual customers will transition in calendar year 2025.

Mark P. Mader: We anticipate this new pricing and packaging model will be foundational for our long-term sustainable growth. A key highlight of this change is shifting from a paid creator model to a free collaborator model in which editors, referred to as members, are licensed.

Speaker Change: We anticipate this new pricing and packaging model will be foundational for our long term durable growth.

Speaker Change: A key highlight of this change is shifting from a paid creator and free collaborator model.

Speaker Change: In which editors referred to as members are licensed.

Mark P. Mader: Users external to an organization, referred to as guests, and internal viewers will continue to access Smartsheet at no cost. Additionally, the first to do so in the category, Smartsheet will launch provisional member access, which enables people within an organization for a limited time to create and contribute to workflows prior to being added to the subscription. This will drive increased virality by enabling organizations to make available to employees the full breadth of the platform in a low-friction manner while allowing system admins to manage their users more effectively.

Speaker Change: Users external to an organization referred to as guests and internal viewers will continue to access smart sheet at no cost.

Speaker Change: The first to do so in the category Smart sheet will launch provisional member access, which enables people within an organization for a limited time to create and contribute to workflows prior to being added to the subscription.

Speaker Change: This will drive increased morality by enabling organizations to make available to employees. The full breadth of the platform in a low friction manner, while allowing system admins to manage their users more effectively.

Mark P. Mader: While existing customers will transition to the new subscription model with their renewal dates in 2025, we anticipate demand from some organizations wanting to benefit from the new subscription model sooner, and we will accommodate them as appropriate.

Speaker Change: While existing customers will transition to the new subscription model with their renewal dates in 2025, we anticipate demand from some organizations wanting to benefit from the new subscription model sooner and we will accommodate them as appropriate.

Mark P. Mader: More information on the near and long-term financial benefits of incremental bookings will be shared as we onboard new customers and as existing customers convert to the new model. We continue to see meaningful adoption of our AI tools as they empower teams to unlock actionable insights from the data stored in the platform. Since Smartsheet AI's GA launch in February, nearly half of our enterprise customer plans have used Smartsheet AI to generate business logic and content with simple, plain language prompts.

More information on the near and long term financial benefit to incremental bookings will be shared as we onboard new customers and as existing customers convert to the new model.

Speaker Change: We continue to see meaningful adoption of our AI tools as they empower teams to unlock actionable insights from the data stored in the platform.

Speaker Change: Since <unk> G. A launch in February nearly half of our enterprise customer plans have us smarter AI to generate business logic and content with simple plain language prompts.

Mark P. Mader: In May, we released the next element of Smartsheet AI, Analyze Data, an AI tool that enables users to inquire and get insights from their data more quickly. Rather than creating custom reports and dashboards, users can get results in seconds, reducing manual work associated with complex data analysis. This type of data analysis is a common need for customers, and Gen-AI is significantly reducing it.

Speaker Change: In May we realize we released the next element of smart sheet AI analyzed data and AI tool that enables users to inquire and get insights from their data more quickly.

Speaker Change: Rather than creating custom reports and dashboards users can get results in seconds, reducing manual work associated with complex data analysis.

Speaker Change: This type of data analysis is a common need for customers and Jane AI is significantly reducing complexity.

Mark P. Mader: Teams can easily track KPIs, make data-driven decisions, and unblock work. Our vision to bring applied AI to every business worker within the enterprise extends these capabilities to unlock insight across portfolios and align the right people with the right work. A Gen-AI Powered Build Assistant will co-create powerful solutions to business challenges so any user can be a power user. FY25 marks a pivotal year for our platform as we unveil our comprehensive modernization of Smartsheet's look and feel. This has been a multi-year investment.

Teams can easily track Kpis make data driven data driven decisions and unblock work.

Speaker Change: Our vision to bring applied AI to every business worker within the enterprise extends these capabilities to unlock insight across portfolios and.

Speaker Change: And aligned the right people with the right work.

Speaker Change: Hey, Jen AI powered build assistant will co create powerful solutions to business challenges. So any user can be a power user.

Speaker Change: FY 'twenty five marks a pivotal year for our platform as we unveil our comprehensive modernization of smart sheets look and feel this has been a multi year investment in April 2024, we launched our timeline view, which is generally available to all users on business and enterprise plans.

Mark P. Mader: In April 2024, we launched our Timeline View, which is generally available to all users on business and enterprise plans. TimelineView offers a modern approach to visualizing and interacting with information stored in Smartsheet. Users can organize work on a horizontal timeline to track progress, communicate status, and collaborate in real-time with stakeholders in a highly visual way. We're pleased to announce that in July, we will launch BoardView, our all-new solution for Agile work management.

Speaker Change: Timeline view offers a modern approach to visualizing and interacting with information stored in smart sheet.

Users can organize work on a horizontal timeline to track progress communicated status and collaborate in real time with stakeholders in a highly visual way.

Mark P. Mader: BoardView is a Kanban solution that provides teams with superior visibility into the progress of work and organization of assets. Looking further ahead, we'll launch our new Table View by the fall of 2024. This user-friendly experience is designed to be the new hub for project, task, and data management. Both board and table views are the modern successors to our existing views. With an innovative, more intuitive UI and category-leading scalability and performance, we believe that timeline, board, and table views will represent a huge win for customers. On the client engagement front, three weeks ago, we hosted our inaugural EMEA-engaged customer conference in London, during which two customers played a very visible role in our keynote, the International Olympic Committee and Baer Crop Sciences.

Speaker Change: We're pleased to announce that in July we will launch board view, our all new solution for agile work management.

Speaker Change: <unk> view of the Con bond solution that provides teams with superior visibility into the progress of work and organization of assets.

Speaker Change: Looking further ahead, we will launch our new table view by the fall of 2024. This user friendly experience is designed to be the new hub for project tasks and data management.

<unk> Board and table views are the modern successors to our existing views.

Speaker Change: With an innovative more intuitive UI and category, leading scalability and performance, we believe that timeline board and table views will represent a huge win for customers.

Speaker Change: On the client engagement front three weeks ago, we hosted our inaugural EMEA engaged customer conference in London.

Speaker Change: During which two customers played a very visible role in our keynote the international Olympic Committee and Bayer crop Sciences.

Mark P. Mader: As the International Olympic Committee shared at Engage London, they are using Smartsheet to organize the 2024 Paris Summer Olympics, one of the world's most significant live events. Smartsheet has become their single source of truth, streamlining workflows and enabling deeper connection between their teams. Cross-functional sharing is allowing them to onboard their suppliers to Smartsheet so they can use our platform to drive key work efforts. Baer Crop Sciences adopted Smartsheet to help unify its global teams on one centralized work management platform.

As the International Olympic Committee shared and engage London. They are using smart sheet to organize the 2024 pairs Summer Olympics, one of the world's most significant live events.

Speaker Change: <unk> has become the single source of truth, streamlining workflows and enabling deeper connection between their teams.

Speaker Change: Cross functional sharing is allowing them to onboard their suppliers to <unk>. So they can use our platform to drive key work efforts.

Speaker Change: Bayer crop sciences adopted smart you to help unified global teams to one centralized work management platform <unk> has enabled bayer to enhance collaboration and break down silos by giving everyone real time visibility into the data they need.

Mark P. Mader: Smartsheet has enabled Bayer to enhance collaboration and break down silos by giving everyone real-time visibility into the data they need. We're proud to help enable Bayer's stated cultural shift toward shared ownership. And in our Engage press release, we highlighted Amazon as a customer.

Speaker Change: We're proud to help enable Bayer stated cultural shift towards shared ownership.

Speaker Change: And in our engage press release, we highlighted Amazon as a customer for over a decade teams across Amazon have been using smart sheet to manage their work at scale for.

Mark P. Mader: For over a decade, teams across Amazon have been using Smartsheet to manage their work at scale. For example, the AWS Worldwide Public Sector Team uses Smartsheet's business PMO capabilities to standardize processes and create a central source of information. Previously, their data had been spread across several tools, making it difficult to measure the impact of the team's work. Now, team members enter data in one place, and it automatically rolls up to Smartsheet dashboards that leaders have visibility into.

Speaker Change: For example, the AWS worldwide public sector team uses smart sheets business PMO capabilities to standardize processes and create a senator central source of information.

Speaker Change: Previously their data had been spread across several tools, making it difficult to measure the impact of the team's work.

Team members now enter data in one place and it automatically rolls up to smartly dashboards that leaders have visibility into.

Mark P. Mader: Smartsheet is helping drive consistency, productivity, and collaboration across the team. It's also creating better visibility into team members' workloads. In closing, the continued evidence of success within the enterprise, with the convergence of new product innovations, the upcoming launch of our next-gen pricing and packaging model, and a reinvigorated go-to-market strategy, solidifies our conviction around our capacity for long-term, durable growth. Now, I turn the call over to Pete.

Speaker Change: Smart genius, helping drive consistency productivity and collaboration across the team.

Speaker Change: It's also creating better visibility into team members workloads.

Speaker Change: In closing the continued evidence of success within the enterprise with the convergence of new product innovations the upcoming launch of our nexgen pricing and packaging model and a reinvigorated go to market strategy solidifies our conviction around our capacity for long term durable growth.

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

Pete Godbole: Thank you, Mark. Our enterprise segment continues to be the fastest growing segment of our business and generated a significant number of large transactions in the quarter. Regarding the change to our pricing structure that Mark mentioned, we expect a modest contribution this year given the timing of the launch and new customers being relatively small part of our quarterly book. Earlier in the quarter, we also announced that we received board authorization for an initial $150 million share buyback. We expect to commence this buyback within the next few days and expect to substantially complete the share repurchases by the end of Q4 of fiscal year 25.

Pete: Thank you Mark our enterprise segment continues to be the fastest growing segment of our business and generated a significant number of large transactions in the quarter.

Pete: Regarding the change to our pricing structure that Mark mentioned, we expect a modest contribution this year given the timing of the launch and new customers being relatively small part of our quarterly bookings.

Pete: Early in the quarter, we also announced that we received board authorization for an initial 150 million share.

Pete: Share buyback, we expect to commence this buyback within the next few days and expect to significantly complete the share repurchases by the end of Q4 of fiscal year 'twenty five.

Pete Godbole: I will now go through our financial results for the first quarter. 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. Turning now to our quarterly results, first quarter revenue came in at $263 million, up 20% year over year. Subscription revenue was $249.1 million, representing year-over-year growth of 21%, and services revenue was $13.9 million.

Pete: I will now go through our financial results for the first quarter, 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: Yeah.

Pete Godbole: Revenue from Capabilities made up 35% of subscription revenue. Annualized Recurring Revenue, or ARR, grew 19% year-over-year in the first quarter to $1.056 billion. Moving on to our report, the number of customers with ARR over $50,000 grew 20% year-over-year to 4,028. And the number of customers with ARR over $100,000 grew 26% year over year to 1,970. These customer segments now represent 67% and 54%, respectively, of total ARR.

Pete: Turning now to our quarterly results first quarter revenue came in at $263 million up 20% year over year.

Pete: Subscription revenue was $249 1 million.

Pete: Representing year over year growth of 21%.

Pete: Services revenue was $13 $9 million.

Pete: Revenue from capabilities made up 35% of subscription revenue.

Pete: Annualized recurring revenue or <unk> grew 19% year over year in the first quarter to 1.56 billion.

Pete: Moving on to our reported metrics the number of customers with <unk> over $50000 grew 20% year over year to 4028.

Pete: And the number of customers with <unk> over $100000 grew 26% year over year to 1970.

Pete: These customer segments, now represents 67% and 54% respectively of totally at us.

Pete Godbole: The percentage of our ARR coming from customers with ARR over $5,000 is at 92%. Next, our domain average ARR grew 16% year over year to $9,906. We ended the quarter with a dollar-based net retention rate, inclusive of all our customers, of 114%. The full churn rate increased slightly due to the elevated churn rates in our smaller customer segments and rounds down to 4%.

Pete: The percentage of ideas are coming from customers with over $5000 is at 92%.

Pete: Next our domain average <unk> grew 16% year over year to $9906.

Pete: We ended the quarter with the dollar based net retention rate inclusive of all of our customers of 114%.

Pete: The full churn rate increased slightly due to the elevated churn rates in our smaller customer segments and rounds down to 4%.

Pete Godbole: Now turning back to the financials, our total gross margin was 84%; our Q1 subscription gross margin was 88%. Overall operating income in the quarter was $42.1 million, or 16% of revenue. Pre-cash flow in the quarter was $45.7 million.

Pete: Now turning back to the financials. Our total gross margin was 84% our Q1 subscription gross margin was 88%.

Pete: Overall operating income in the quarter was $42 1 million or 16% of revenue.

Pete: Free cash flow in the quarter was $45 7 million.

Pete Godbole: We run the business with an efficiency mindset, managing capital deployment to functions, managing spans and levels, and location of talent. This will be reflected in our updated profitability outlook. Now, let me move on to guidance.

Pete: We run the business with an efficiency mindset, managing capital deployment to functions managing spans and levels and location of tablet.

Pete: This will be reflected in our updated profitability outlook.

Pete Godbole: For the second quarter of FY25, we expect revenue to be in the range of $273 to $275 million, and non-GAAP operating income to be in the range of $38 million to $40 million. We expect non-GAAP net income per share to be $0.28 to $0.29 based on diluted weighted average shares outstanding of $141 million. For the full fiscal year 25, we expect revenue of $1.116 billion to $1.121 billion, representing growth of 16% to 17%.

Pete: Now, let me move on to guidance.

Pete: For the second quarter of FY 'twenty five we expect revenue to be in the range of $273 million to $275 million and non-GAAP operating income to be in the range of 38 million to $40 million we.

Pete: We expect non-GAAP net income per share to be 28 to 29.

Pete: Based on diluted weighted average shares outstanding of $141 million.

Pete: For the full fiscal year 'twenty five we expect revenue of 1.1, $1 6 billion to one $1 billion to $1 billion.

Pete: Representing growth of 16% to 17%.

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

Pete Godbole: We expect services to be around 5% of total revenue. We expect our non-GAAP operating income to be in the range of $157 million to $167 million, representing an operating margin of 14 percent to 15 percent, and non-GAAP net income per share to be $1.22 to $1.29 for the year based on 141 million diluted weighted average shares outstanding. We are raising our FY25 ARR growth estimate to be 14% to 14.5%. Regarding seasonality, we continue to expect quarterly ARR growth rates to follow a similar trend as last year, with higher growth rates at the beginning of the year. We also expect our FY25 free cash flow to be $220 million, representing a free cash flow margin of 20%.

Pete: We expect our non-GAAP operating income to be in the range of $157 million to $167 million.

Pete: Representing an operating margin of 14% to 15%.

Pete: And non-GAAP net income per share to be $1 22 to.

Pete: The $1 29.

Pete: For the year based on 141 million diluted weighted average shares outstanding.

We are raising our FY 'twenty five <unk> growth to be 14% to 14, 5%.

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

Pete: We also expect our FY 'twenty five free cash flow to be $220 million, representing a free cash flow margin of 20%.

Pete Godbole: In closing, our Q1 performance and updated guidance show the power of our business model. This model is highly accretive, and we are rigorous in how we are managing the business, allowing us to significantly increase our margin guidance from what we guided just three months ago. Supporting this profitability improvement is our continued strength in the enterprise. Our $1 million Air Our Customer segment is our fastest growing segment. These customer engagements are highly sticky given the criticality of the workloads we are attaching to and reinforce Smartsheet's position as the enterprise work management leader. Now, let me turn the call over to the operators. Operator?

Pete: In closing our Q1 performance and updated guidance showed the power of our business model. This model is highly accretive and we are rigorous in how we are managing the business, allowing us to significantly increase our margin guidance.

Pete: From what we guided just three months ago.

Pete: Supporting this profitability improvement is our continued strength in the enterprise our $1 million are our customer segment is our fastest growing segment.

Pete: These customer engagements.

Pete: Our highly sticky given the criticality of the criticality of the workloads, we're attaching too and reinforce smart sheets positioned as the enterprise work management leader.

Now, let me turn the call over to the operator operator.

Speaker Change: Thank you.

Operator: And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: And we will now begin the question and answer session.

Speaker Change: If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.

If you would like to withdraw your question Press Star one a second time.

Speaker Change: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

Operator: To be able to take as many questions as possible, we do ask that you please limit yourself to one question and one follow-up question. Again, it is Star 1 if you would like to join the queue. And your first question comes from the line of John DiFucci with Guggenheim Securities. Your line is open.

Speaker Change: To be able to take as many questions as possible. We do ask that you. Please limit yourself to one question and one follow up question.

Speaker Change: Again, it is star one if you would like to join the queue.

Speaker Change: And your first question comes from the line of John <unk> with Guggenheim Securities. Your line is open.

John Stephen DiFucci: Thank you. Thanks for taking my question. So Mark and Pete, you put up better than expected numbers and got them up, which is, you know, normally for software, that'd be great, but that makes you stand out this quarter. So congratulations on that.

John Stephen DiFucci: Thank you thanks for taking my question.

So Marc and Pete you put up better than expected numbers, and you guided up which kind of <unk>.

Speaker Change: Normally for software that'd be great, but that makes you stand out this quarter. So congrats on that but when we try to tease out the new business signed in the quarter. The new IRR. It looks like the growth was about the same as last quarter relative to relative to an easier comp.

Pete Godbole: But when we try to tease out the new business signed in the quarter, the new ARR, it looks like the growth was about the same as last quarter relative to an easier comp, which again, is better than most of our coverage universe. But how are you thinking about, and how should we think about the different parts of the market that you primarily sell into for the rest of this year? So Pete, you talked a little bit about large enterprises.

Speaker Change: Which again this is better than most of our coverage universe, but how should how are you thinking about how should we think about the different parts of the market that you're primarily sell into for the rest of this year. So Pete you talked a little bit about that.

Speaker Change: Large enterprise you Didnt mention much about set a little thing about this this small business that you've talked about a little more about that in the past and maybe even public sector. If you can throw that in there that'd be great.

Pete Godbole: You didn't mention much about, said a little thing about this small business, but you've talked about a little more of that in the past, and maybe even the public sector. If you can throw that in there, that'd be great.

Pete Godbole: John, this is Pete. In terms of your question, I'll talk about the segments and sort of how they performed. That's the genesis of your question. When I think of Enterprise, they were consistent and remained strong for us in Q1. So, it kind of did well for us. On the SMB side of it, our performance followed a consistent sort of trend to prior quarters and played out consistent with what we had said in prior quarters as well. So we saw that as a carryover in terms of the trends we had seen in the past.

John.

Pete: This is Pete in terms of your question I'll talk about the segments and sort of how they performed.

Speaker Change: Genesis of your question when I think of the enterprise.

Speaker Change: Enterprise were consistent and remains strong for us in Q1.

Speaker Change: So kind of did well for us on the SMB side of fit our performance followed a consistent set of trends to prior quarters.

Speaker Change: And played out consistent to what we had said in prior quarters as well. So we saw that as you know.

Speaker Change: Carry forward in terms of the trends, we had seen from the past.

Speaker Change: Okay.

John Stephen DiFucci: Okay, okay. And I know you've talked about, well, this will be my, my second question, I guess. You've talked about the past. No, I'm not gonna ask that. Let me ask this one. I'm sorry.

Speaker Change: Okay. Okay.

Speaker Change: I know you've talked about this.

Speaker Change: This will be my my.

Speaker Change: Hi.

Speaker Change: Second question I guess, you've talked in the past that I'm not gonna asset let me ask this one.

Speaker Change: Sorry, just the new pricing model, which sounds really interesting does that allow or is there is there sort of a SKU in there that allows users to sort of access whatever you sell.

Mark P. Mader: There's the new pricing model, which sounds really interesting. Does that allow, or is there sort of a skew in there that allows users to sort of access whatever you sell? Or is it still like a la carte? Given some of the different offerings you have.

Speaker Change: Or is it still like Ala Carte.

Speaker Change: Some of the different offerings you have.

Mark P. Mader: So someone who is licensed under the new model has access to the full kit and caboodle. So they get every single AI component, they get every single content generation component, they can create dashboards, reports, what have you. And that's a really big difference from the previous model, which was you have the haves, the creators, the licensees, and the editors, who were limited. And when I think about the maturity of our model, it really had to mature alongside how our platform has matured.

John Mark here, so someone who is licensed in the new model has access to the full kitten caboodle.

Speaker Change: So they've got every single AI component every single content generation component.

Speaker Change: If they can create dashboards reports what have you and Thats, a really big difference from the previous model, which was you have to have the creators the licensees and the editors who were limited.

Speaker Change: Think about the maturity of our model it really had to mature alongside to how our platform has matured and we have some really big things that customers like which had been relegated to a minority of their user population. So this is a great leveling of capabilities, which should drive to higher morality more people, creating work on our platform. So we're.

Mark P. Mader: I mean, we have some really big things that customers like, which have been relegated to a minority of their user population. So this is a great leveling of capabilities, which should drive higher virality and more people creating work on our platform. So we're really encouraged by that. I think it also is quite interesting that with a moderately lower price point, it should spell good performance in the SMB realm as well. So this lower price per user, combined with a higher user count, which we believe will result in a higher average revenue per customer, but I think it will help the leading edge quite a bit.

Speaker Change: Really encouraged by that I think it also is quite interesting with a moderately lower price point. It should spell good performance in the SMB realm as well. So we see this lower price per user combined with a higher user count. We believe will result in a higher average revenue per customer, but I think it will.

Speaker Change: The leading edge quite a bit.

John Stephen DiFucci: Sounds really interesting. We'll see how that goes.

Speaker Change: That sounds really interesting.

Speaker Change: See how that goes but that sounds it sounds great. Thank you very much John.

Mark P. Mader: But that sounds Thank you very much. John, the one piece that you asked about in terms of the capabilities, while we are also refining and simplifying how capabilities are purchased, the notion of a la carte premium offerings as well as bundled premium offerings persists. So the heart of this new model is our core licensing. Our portfolio and our suite, and our cross-selling, that remains alive and well.

Speaker Change: The one piece also that you asked about in terms of the capabilities.

Speaker Change: We are also refining and simplifying our capabilities or purchase the notion of Ala carte premium offerings as well as bundled premium offerings persist. So the heart of this new model is in our core licensing our portfolio and our suite and our cross selling that remains alive and well.

Speaker Change: Okay.

John Stephen DiFucci: Okay. Okay, great. Thank you, Mark. Thanks.

Speaker Change: Okay, great. Thank you Mark.

Pete: Thanks Pete.

Scott Randolph Berg: And your next question comes from the line of Scott Berg with Needham. Your line is open.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: And your next question comes from the line of Scott Berg with Needham Your line is open.

Scott Randolph Berg: Hi, everyone. Nice quarter. Thanks for taking my questions. I guess my first one's kind of a two-parter.

Scott Randolph Berg: Hi, everyone nice quarter, thanks for taking my questions.

Scott Randolph Berg: I guess my first one's kind of a two parter, it's about the new pricing and package packaging.

Scott Randolph Berg: It's about the new pricing and packaging. Mark, I'm going to kind of quote you. You talked about being meaningfully accretive over time. How do we frame that, whether it's the time frame or the magnitude? And then, Pete, when you think about the pricing improvements that can start here in the back half of the year, was any of that contemplated in your prior guidance, or is that contribution a new update to the guidance you gave today?

Scott Randolph Berg: Mark.

Speaker Change: Quote you used you talked about being meaningfully accretive over time, how do we frame that whether it's a timeframe or magnitude and then Pete when you think about the pricing yet.

Improvements that can start here in the back half of the year was any of that contemplated in your prior guidance or is that contribution a new update to the guidance year to date.

Pete Godbole: I'll start, John. I'll let Mark help on the other.

Speaker Change: I'll start John and I'll, let mark help on the on the other cockpit. So first of all our previous guidance did not contemplate this pricing model change and the change we made in <unk>, which we lifted was in part due to the fact that we are launching this for new customers.

Pete Godbole: So first of all, our previous guidance did not contemplate this pricing model change. And the change we made in the ARR, which we raised, was in part due to the fact that we're launching this for new customers. And we expect this to make a modest contribution this year. So that's kind of what's baked in.

Speaker Change: We expect this to make a modest contribution this year. So that's kind of what's baked in.

Mark P. Mader: And Scott, from a moderately, or a meaningful, accretive position on the new model, when I look at what we can do for our customers, and we've actually transitioned a number of our bigger customers to this new model already, so we have some sense of what the behavior is in this new framework. You know, we're looking for things like what we can do as a business to deliver more value to customers, and what can we do that could double our licensed users? as quickly as possible.

And Scott I think from a from a moderately or a meaningful accretive position on the new model when I look at what we can do for our customers and we've actually transitioned a number of our bigger customers to this new model already so we have some sense of what the behavior is in this in this new frame.

Speaker Change: So we're looking for things like what can we do as a business to deliver more value to customers and two what can we do that could double our licensed user base as.

Speaker Change: As quickly as possible and I think until you start to move those customers over.

Mark P. Mader: And I think until you start to move those customers over, you won't be in a position to say it'll happen within 18 or 24, 36 or four months. But what I can say is we have very high confidence that this will lead to much larger user communities that are licensed within our customers. So I feel very confident this new model is more conforming also to what IT groups at large organizations expect, and the pairing of the lower price per user, I think will be only helpful.

Speaker Change: We'll get you wont be able in a position to say it'll happen within 18 to $24 36, or four months, but what I can say is we have very high confidence that this will lead to much larger user communities that are licensed within our customers. So I feel very confident that this new model is more conforming also towards groups at <unk>.

Speaker Change: Organizations expect and the pairing of the lower price per user I think will be only helpful.

Scott Randolph Berg: I found it very helpful. And then from a follow-up perspective, Mark, you also talked about improvements throughout the quarter. Um, so it's kind of a nice follow-up to John's question just a moment ago about, you know, kind of the demand of the business through the different segments. If that S and B behavior is saying kind of consistent quarter after quarter, how should we view that? Uh, you know, that comments on the improvement throughout the quarter. Thank Yeah, I think the

Got it very helpful. And then from a follow up perspective, Mark you also talked about improvements throughout the quarter.

So that's kind of a nice solid to John's question, just a moment ago about kind of the demand in the business through different segments.

Speaker Change: <unk> behavior has been kind of consistent quarter to quarter, how should we view that.

Speaker Change: That comments on the improvement throughout the quarter. Thank you.

Mark P. Mader: Yeah, I think the improvement stemmed from a couple things. One, we had Max join us mid-quarter. I think his presence and his immediate impact on the team was favorable. So that was a benefit to us partially in March and then in April. On the SMB side, as Pete said, we saw pretty consistent performance quarter to quarter. I'm really looking forward to later this quarter when we get to introduce our new offering, and we get almost immediate signals on what happens at the leading edge. Now, that's not going to result in a huge amount of bookings out of the gate, but we will have very, very quick feedback on whether the new model can draw more significantly in that lower segment.

Speaker Change: Yes, I think the improvement stemmed from a couple of things one we had Max join US mid quarter I think his presence and his immediate impact on the team was favorable.

Speaker Change: So that was a benefit to us or partially in March and then in April.

Speaker Change: On the SMB side as Pete said, we saw pretty consistent performance quarter to quarter I'm really looking forward to later. This later this quarter when we get to introduce our new offering and we get almost immediate signal on what happens with the leading edge, although I'm not going to result in a huge amount of bookings out of the gate, but we will have very very quick feedback on whether the new model can draw.

Speaker Change: More significantly with that lower segment.

Scott Randolph Berg: understood. Thank you for taking my questions.

Speaker Change: Understood. Thank you for taking my questions. Thanks.

Joshua Phillip Baer: And your next question comes from the line of Josh Baer with Morgan Stanley. Your line is open.

Speaker Change: And your next question comes from the line of Josh Baer with Morgan Stanley. Your line is open.

Speaker Change: Great Congrats on the quarter and thanks for the question.

Joshua Phillip Baer: stick on the new pricing and packaging, and I'm just wondering what gives you confidence that the slightly lower price or lower pricing, higher user count equation you know results in a creative nature. Any signals from as far as customer behavior or key assumptions that's aligned to that optimistic commentary, and then I have a follow-up.

Joshua Phillip Baer: I wanted to stick on the new pricing and packaging.

Joshua Phillip Baer: Just wondering what gives you confidence that the <unk>.

Speaker Change: Slightly lower.

Speaker Change: Lower pricing higher user count equation.

Speaker Change: And.

Speaker Change: Accretive nature.

Speaker Change: Any signals from as far as customer behavior or key assumptions that's aligned to that.

Optimistic commentary and then I have a follow up.

Mark P. Mader: Yeah, I think some of the proof points come directly from customers who have already moved to the new model. So it's not a research project; it's actually what happened in real life with some of these firms. Interestingly, as we test both at the super large organizations, as well as the SMB, there's been a favorable reaction to both. And when I think about sales productivity, one of the things that I'm very eager to do, and when I think about how someone responds when you say, Mark, what does it cost to license Smartsheet? The first two things out of my mouth can't be, it depends.

Speaker Change: Yes, I think the some of the proof points come directly from customers, who have already moved to the new model.

Speaker Change: It's not a research project, it's actually what's happened in real life with some of these firms interestingly as we test both that the super large organizations as well as the SMB theres been a favorable favorable favorable reaction to both and when I think about sales productivity one of the things that I'm very eager to do this year is <unk>.

Mark P. Mader: How do you delete complexity from the business and when I think about how someone responds when you say mark what is the cost of licensed smart heat. The first two things that are announced can't be it depends so the clarity in this new model is super Super High and I think oftentimes smaller organizations are actually less patient.

Joshua Phillip Baer: So the clarity in this new model is super, super high. And I think oftentimes, smaller organizations are actually less patient to learn, and they actually want a more clear model to immediately act on. The larger organizations sometimes have longer decision cycles where they can learn and understand more deeply. So I think this will be quite favorable at both ends of the spectrum.

Mark P. Mader: To learn and they actually want a more clear models to immediately act on the larger organizations have sometimes longer decision cycles, where they can learn and understand more deeply. So I think this will be quite favorable at both ends of the spectrum.

Pete Godbole: Very clear. And then I just wanted to ask if you expect any changes to gross margin from these changes in pricing impact. Josh, we do not.

Speaker Change: Very clear and then I just wanted to ask if you expect any changes to gross margins from these changes to pricing and packaging.

Pete Godbole: Josh, we do not. We think we are going to maintain the gross margin levels we have because gross margins are a function of the total revenue at the top line, and we view that over time to be meaningfully accretive.

Speaker Change: Josh we do not.

Joshua Phillip Baer: We think we are going to maintain the gross margin levels. We have because gross margins are a function of the total revenue in the topline and we view that over time to be.

Joshua Phillip Baer: Meaningfully accretive.

Speaker Change: Okay, great. Thank you.

Joshua Phillip Baer: Okay.

Terrell Frederick Tillman: And your next question comes from the line of Terry Tillman with Truist Securities. Your line is open.

Speaker Change: And your next question comes from the line of Terry Tillman with Jewish Securities. Your line is open.

Terrell Frederick Tillman: Yeah, thanks for taking my questions. Hi Mark, Pete, and Aaron. Maybe the first question for you, Mark?

Terrell Frederick Tillman: Yes, thanks for taking my questions, Hi, Mark Pete and Erin.

Mark P. Mader: I've actually asked this repeatedly over the years as the business has grown and scaled. If we take a step back, there was a magic quadrant that came out that seemed like an important milestone. You're talking about KPMG, which seems like a GSI partner potentially going forward. You are starting to see, and I don't want to put words in your mouth, so tell me if I'm just absolutely wrong on this. Are you starting to see bigger enterprises where they had been using different work management tools start to take a step back, and whether it's an RFP or some sort of strategic vendor consolidation play, maybe because of the macro, the more strategic CIO, or just C-level purchasing or expansion?

Terrell Frederick Tillman: The first question for you Mark on our SaaS us repeatedly over the years as the business has grown in scale. If we take a step back there is a magic quadrant that came out that seemed like an important milestone youre talking about KPMG, which seems like a GSI partner potentially going forward are you starting to see I don't want to put words in your mouth. So tell me if I'm just absolutely wrong on this are you starting to see bigger enterprise.

Terrell Frederick Tillman: And then I had a follow-up.

Speaker Change: <unk>, where they had been using different work management tools start to take a step back and whether it's an RFP or some sort of strategic vendor consolidation play maybe because of the macro some more strategic CIO or just C level purchasing our expansion and then I had a follow up.

Mark P. Mader: We are, and it's really what I'm noting with customers is that there is much higher fluency in the category. So the types of questions we're getting, the types of analysis we are doing around, not just what's your core feature set, how does that feature set perform at scale? This notion of how to do plan management across a highly diversified set of business units, being able to apply corporate governance and policy.

Speaker Change: We are and Thats really what im noting with customers that there is a much higher fluency in the category. So the types of questions. We're getting the types of analysis to doing around not just whats. Your core feature set how does that features have perform at scale.

Speaker Change: This notion of how to do planned management across a highly diversified set of business units being able to apply corporate governance and policy. These are things that five years ago never even came up in conversation and Theyre almost present every single time now so that so again, how much are we getting more yield today from our enterprise strengthened.

Mark P. Mader: These are things that five years ago never even came up in conversation, and they're almost present every single time now. So again, are we getting more yield today from our enterprise strength and features? I would say yes. The median customer, I would say, is becoming the highest of the high-end customers. Everyone's asking these questions now.

Speaker Change: Features that I would say yes.

Speaker Change: The median customer I would say is developing the highest of the high end customers everyone's asking these questions. Now there is not a single customer that I've seen who is just Willy nilly approaching it on a feature set dimension. So that plays to our plays to our strengths I would say the the conformity and customers choosing to.

Terrell Frederick Tillman: There's not a single customer that I've seen who is just willy-nilly approaching it on a feature-set dimension. So that plays to our strengths. I would say conformity and customers choosing to consolidate are still more grounded in future investment and where the next allocation of capital is going as opposed to, "we need to eliminate all other tools from our environment." I think CIOs are recognizing that it is a diverse environment. There will be multiple tools, but where they're placing their bigger bets, they are doing that in fewer places.

Speaker Change: Consolidated is still more grounded in future investment in whereas the next allocation of capital going as opposed to we need to eliminate all of the tools from our environment. I think <unk> are recognizing that it is a diverse environment, there will be multiple tools, but where they're where they're placing their bigger bets, they're doing that in fewer places.

Pete Godbole: Thanks for that, Mark. And I guess, Pete, this last quarter, you kind of split the NRR dynamics across enterprise and SMB. I think you had said 120% for enterprise and then basically 0% expansion or 100% NRR for S&B. Could you give an update on how that played out in one queue between the two businesses? And are there any updated thoughts on how they individually would play out the rest of the year?

Speaker Change: Thanks for that market I guess, Pete just last quarter, you kind of split the NR dynamics across enterprise and SMB I think you had about 120% for enterprise and then basically zero percent expansion or a 100%.

Speaker Change: And our our for SMB hits could you give an update on how that played out in <unk> between the two businesses and is there any updated thoughts on how they they individually would play out the rest of the year. Thank you.

Pete Godbole: So, the enterprise net dollar retention rate stayed over 120%, and from the SMB side of it, you know, it dropped a couple of points, still staying over 100%. So, kind of that's how it played out. And when you asked about the outlook, the way I would describe it is if you leave this year out of it and you extend it to when our customers go on to the new pricing and packaging model, I view that as an opportunity to turn that NDRR in the future as we start to gain more value from customers, and they gain more value from our platform.

Pete Godbole: Thank you. So the...

Speaker Change: So the enterprise.

Speaker Change: Net dollar retention rate stayed over a 120%.

Speaker Change: From the SMB side of it.

Speaker Change: It dropped a couple of points still staying over a 100% so kind of that's how it played out.

Speaker Change: And when you asked about the outlook.

Speaker Change: The way I would describe it is if you leave this year out of it the new extended into when our customers go onto the new pricing and packaging model.

Speaker Change: I view that as an opportunity to turn that <unk> in the future.

Speaker Change: As we start to gain more value from customers and dig in more value from our platform.

Speaker Change: Okay. Thank you.

Terrell Frederick Tillman: And your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is open.

Speaker Change: Your next question comes from the line of Rishi <unk> with RBC capital markets. Your line is open.

Speaker Change: Okay.

Rishi Nitya Jaluria: It was wonderful. Thanks so much for taking my question.

Rishi: Wonderful. Thanks, so much for taking my question I wanted to start going back to that changes in pricing and packaging totally appreciate the potential upside from here I guess historically, when we've seen companies make changes to pricing and packaging there can sometimes be disruption in the near term.

Speaker Change: Walk us through what is your plan to minimize or mitigate any potential disruption from that and then I've got a quick follow up.

Rishi Nitya Jaluria: I wanted to start going back to the changes in pricing and packaging. I totally appreciate the potential upsides from here. I guess, you know, historically, when we've seen companies make changes to pricing and packaging, there can sometimes be disruption in the near term. Can you maybe walk us through what is your plan to minimize or mitigate any potential disruption from that? And then I've got a quick follow-up.

Speaker Change: Yes, I think we were really thoughtful about the timing and we said straight out of the gate, new new customers Onboarding will conform to the new model and as you heard we're really not expecting our existing customers to have to move until the renewal date in 2025 that gives significant time for them.

Mark P. Mader: Yeah, I think we were really thoughtful about the timing. And we said, straight out of the gate, new customers onboarding will conform to the new model. And as you heard, we're really not expecting our existing customers to have to move until the renewal date in 2025.

Mark P. Mader: That gives significant time for them to understand the model plan. If there's a budgeting need, they can do that, and engage with us in multi-year conversations. Time is really important.

Speaker Change: To understand the model plan, if theres a budgeting need they can do that engage with us in multiyear conversations.

The time is really important and talking to that my peers, who have undergone pricing changes, but one thing. They made a very big point of was when you released new pricing to new customers recognize that every single existing customer will be asking you about the impact of them. Even if they don't have to move immediately so when we launched in the 'twenty four very good education Makena.

Mark P. Mader: In talking to my peers who have undergone pricing changes, the one thing they made a very big point of was that when you release new pricing to new customers, recognize that every single existing customer will be asking about the impact on them, even if they don't have to move immediately. So when we launched on the 24th, we provided very good education and communication to the new prospects and customers, and very good and robust communication to the existing base.

Speaker Change: Communication to the new prospects and customers and very good and robust communications into the existing base people want to understand what the modeling, but the value is not just what the price differences. So a lot of that is communications can do volumes for your efficacy and bringing people across and then late be close to your customer we have a big engaged account manner.

Mark P. Mader: People want to understand what the model and what the value is, not just what the price difference is. So a lot of that communication can do volumes for your efficacy in bringing people across. And then be close to your customer. We have a big, engaged account management and field sales team. We're going to be right there with our customers.

Pete: But in the field sales team, we're going to be right with with our customers Pete what would you add.

Pete Godbole: Pete, what would you add?

Pete Godbole: You know, I would add that the other part is customers have, when you think of pricing changes and model changes, customers need flexibility in how they manage. So when you think of how that flexibility comes about, customers get to classify their existing population into members, guests, or viewers. And that flexibility and consultative nature with us really makes this model less, what I call, attuned to any variability.

Pete: I would add that the other part is customers have when you think of pricing changes and model changes customers need flexibility in how they manage so do you think of how that flexibility comes about customers get to classify their existing population into members guests viewers and that flexibility and consultative nature with us.

Pete: Really makes this model less what I call attuned to any any variability.

Rishi Nitya Jaluria: Got it. Thank you. That's really helpful.

Speaker Change: Got it. Thank you that's really helpful and then peak for you.

Speaker Change: Okay, I recognize we're shipping to <unk> as a metric and set of billings on maybe can you just help us bridge the delta between.

Speaker Change: <unk> and <unk> this quarter it was a pretty big range, maybe help us understand what went on in the quarter to explain that Delta and just how to think about the delta between the two going forward. Thank you.

Pete Godbole: So Rishi, what everyone is aiming to get at when you think of a metric like ARR or billings is estimated implied bookings. Um, and what we've experienced in the past was that billings is impacted by prorated bookings and the associated renewal dates that go with it. A much better metric is ARR, which is why we shifted to providing guidance on ARR.

Rishi Nitya Jaluria: And then, Pete, for you, look, I recognize we're shifting to ARR as a metric instead of billings. Maybe can you just help us bridge the delta between billings and ARR this quarter? It was a pretty big range. Maybe help us understand, you know, what went on in the quarter to explain that delta and just how to think about the delta between the two going forward. Thank you.

Speaker Change: So rishi.

Rishi: What everyone is aiming to get that when you think of a metric like <unk> or billings is estimated implied bookings.

Speaker Change: And what we've experienced in the past was that billings is impacted by prorated bookings and the associated renewal dates that go with it.

Speaker Change: Much better metric is <unk>, which is why we shifted could providing guidance on IRR.

Pete Godbole: And this quarter is a great example of that. When you look at the bookings that came this quarter from those which had proration associated with future quarters, that was a bigger effect. That's why the billing number looked like a different growth rate. And that's why the true measure is ARR, which we've guided to and reported.

Speaker Change: And this quarter is a great example of that when you look at the bookings that came this quarter from those which had proration associated with previous.

Speaker Change: Future quarters that was a bigger effect and that's why the billings number to look like a different growth rate and thats why the true measure is <unk>, which we've which we've guided to and reported.

Speaker Change: That's helpful. Thank you.

Aleksandr J. Zukin: And your next question comes from the line of Aleks Zukin with Wolf Research. Your line is open.

Speaker Change: And your next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

Aleksandr J. Zukin: Hey guys, thanks for taking my question, and I'll kind of.., go down the some of the same themes that we've been talking about in prior questions. I guess if we think about the linearity of bookings in the quarter, can you maybe just talk about how it looked and felt, and if that was the same or different, just given all the kind of macro noise we hear? And then, was the headwind more from elevated SMV churn or a lack of seed expansion? And again, how do we model those net new ARR trends as we go through the year? Kind of. Is it similar to last year, or is it even more seasonal?

Speaker Change: Hey, guys. Thanks for taking my question.

Alex Zukin: I'll kind of.

Alex Zukin: Go down the some of the same themes that we've been.

Ron: As in prior questions Ron.

Ron: I guess, if we think about the linearity of bookings in the quarter.

Ron: Can you maybe just talk about how it how it looked in salt and if that was the same or different just given all the kind of macro noise. We hear and then was the headwind more from elevated SMB churn or a lack of seat expansion and again, how do we model those net new IRR trends as we go through the year kind of visit similar to last year.

Ron: Here or is it even more seasonal and then I've got a quick follow up.

Pete Godbole: No problem. So Aleks, you know we started February slow, and it's sort of traditionally enterprise pipeline building time, but as we went through the quarter, we saw our momentum really shift up, and we finished April strong with a solid Q1. That's the way I'd describe the full quarter.

Alex Zukin: No problem so Alex.

Alex Zukin: We started February slow and it's sort of traditionally.

Alex Zukin: Enterprise pipeline building time, but as we went through the quarter, we saw our momentum really shift up and we finished April strong with a solid Q1.

Alex Zukin: So we I would represent the full quarter.

Pete Godbole: Now in terms of what we saw in the quarter, I think I stated before that the SMB trends we saw were fairly similar to what we had seen in the past. And that was, you know, the enterprise stayed fairly consistent and strong. We reported on the large number of deals we did and the number of additions to the 100K cohort, so strong on all fronts. And then the trend in AR that we expect is we expect it to trend down as we go through the year. And that's what we noted in the prepared remarks we went through.

Alex Zukin: Now in terms of what we saw in the quarter.

Alex Zukin: I stated before that the SMB trends, we saw were fairly similar to what we had seen in the past.

Alex Zukin: And that was the.

Alex Zukin: Enterprise stayed fairly consistent strong reporting all of the large number of deals we did in the number of additions to the 100 K cohort. So strong on all fronts and then the trend in air that we expect is we expect it to trend down as we go through the year and Thats, what we noted in the prepared remarks.

He went through.

Aleksandr J. Zukin: And What about Net New ARR? Sorry. Just a clarification.

Speaker Change: And what about net new <unk> sorry.

Speaker Change: Just a clarification.

Pete Godbole: Yeah, Net New ARR essentially was, if you think of it, up. And if you think of how that played out, when I think of Net New ARR, you're thinking of it as bookings. So essentially, if you think of bookings, it was a good quarter for us in terms of bookings.

Speaker Change: Yes, net new we are essentially was if you think of it was up and.

Speaker Change: And if you think of how that played out.

Speaker Change: But I think as net new IRR youre thinking of it as bookings. So essentially if you think of bookings it was a good quarter for us in bookings.

Aleksandr J. Zukin: Okay, and then maybe my follow-up for Mark, I think if we look at some older disclosures historically, I think about 80% of the users have been unpaid. So, as we look at the contribution going forward, what does success look like over the next year, two years, and changing that kind of user-free versus paid mix? And given the modest impact on this year, how should we think about the NRR dynamics over time as we kind of go through this model transition?

Speaker Change: Got it Okay, and then just maybe my follow up for Mark.

Speaker Change: I think if we look at some older disclosures historically I think like 80% of the users have been unpaid so as we look at the contribution.

Speaker Change: Going forward, what does success look like over the next year, two years and changing that kind of user free versus paid mix and given the modest impact on this year.

Speaker Change: Should we think about the MLR dynamics.

Speaker Change: Over time as we kind of go through this model transition.

Mark P. Mader: Yeah, I think we're going to learn a lot as that first big group of customers goes through and does that management that Pete spoke about a second ago about classifying their people as members, guests, and viewers. We will really be able to quantify that well. We do have very good visibility into how many millions of people are on our platform monthly making edits and contributing.

Pete: I think we're going to learn a lot as that first big group of customers goes through and does that management that Pete spoke to a second ago about classifying their people as members guests and viewers, we will really be able to quantify that well. We do have very good visibility into how many millions of people are on our platform monthly, making edits and contributing.

Mark P. Mader: When the new model gets released, again, those admins will need to go through that assessment and see who's in and who's out. The good thing is that, in the old model, where that licensing decision hinged 100% on creation, it's much more straightforward now. If you're contributing to a process and you're within an organization, you are licensed.

Pete: The new model. It gets released again, those admins will need to go through that assessment and see who's in who's out. The good thing is that in the old model, where that licensing decision hinged 100% on creation, it's much more straightforward now if.

Pete: You're contributing to a process and within an organization you are licensed and in the past it was much more muddled. So I would expect our ability to drive a much larger population of licensees to play out.

Mark P. Mader: And in the past, it was much more muddled. So I would expect our ability to attract a much larger population of licensees to play out. I actually don't see a scenario in which we drive fewer members in the future. The one wildcard potential upside for us is, of those incremental people who used to be editors, who didn't have access to the full portfolio, who are now on fully, to what degree do they have an appetite for buying premium capabilities?

Pete: Actually don't see a scenario in which in which we drive fewer members in the future. The one the one wildcard potential upside to us as of those incremental people who used to be editors, who didn't have access to the full portfolio, who are now on fully to what degree do they have an appetite for buying premium capabilities. So as the population of <unk>.

Mark P. Mader: So as the population of users grows, what is the added benefit to the rest of our suite of offerings? And that's something that, again, we will comment on as the quarters play out. And Aleks, to your previous question, just

Pete: <unk> Rose what has the added benefit to the rest of our suite of offerings.

Speaker Change: And Thats something that again, we will we will comment on as the quarters play out and Alex.

Pete Godbole: And Aleks, to your previous question, just to sort of add a little more texture to it, you asked about implied ARR growth. As we go through the year, we're going to see that growth rate improve as we progress through the quarter.

Speaker Change: Previous question, just to sort of add a little more texture to it you asked about implied.

Speaker Change: <unk> growth as we go through the year, we're going to see that growth rate improve as we progress through the quarters.

Aleksandr J. Zukin: Thank you. Of course. And your next question comes from...

Speaker Change: Got it thank you.

Speaker Change: Of course.

George Michael Iwanyc: And your next question comes from the line of George Iwanyc with Oppenheimer. Your line is open.

Speaker Change: And your next question comes from the line of George <unk> with Oppenheimer. Your line is open.

Speaker Change: Thank you for taking my question, Mark maybe starting with EMEA.

Mark P. Mader: EMEA engage conference can you give us an update on what.

Mark P. Mader: What you are hearing from customers, there and kind of the overall pipeline internationally.

Mark P. Mader: Yeah, Europe was strong for us in Q1. We had roughly 500 customers, and a lot of large customers were in attendance. And there remains very high curiosity around the modernization of our applications. They're very curious about how we are applying AI. So on the floor where we had our demo booths, I would say the interest level in AI remains very high. We just released, I think, our fourth skill. Half of our enterprise customers have now used AI, and it's all about activation and getting people comfortable with it. So they have high levels of curiosity.

Mark P. Mader: Yes, Europe was strong for us in in Q1, we had roughly 500 customers a lot of large caps and attendance and there remains very high curiosity around the modernization of our application.

Mark P. Mader: They're very curious about how we are applying AI. So we are on the floor, where we had our demo booths I would say the interest level in AI remains very high. We just released I think our fourth scale half of our enterprise customers have now used AI and it's all about activation you're getting people comfortable with it so high levels of curiosity. It was our first.

Pete Godbole: It was our first conference outside the U.S., and as registrations were happening, I was really curious to see how it would play out. The fact that 500 companies from all over Europe showed up was really, really positive. Pete, anything to add in terms of the strength of Europe that we saw in Q1? Yeah, I think George, Europe was pretty strong for us this quarter. It was You could see the market really starting to pick up on collaborative work

Mark P. Mader: Your first conference outside the U S and as registrations were happening I was I was I was really curious to see how it play out. The fact that 500 people from all over year five of our companies from all over Europe showed up was really really positive.

Pete: Pete anything to add in terms of the strength of Europe that we saw in Q1, yes I think.

Pete Godbole: Yeah, I think, George, Europe was pretty strong for us this quarter. You could see the market really starting to pick up on collaborative work management in general. And I think the conference itself produced a high degree of interest, which is manifesting itself in both short-term pipeline and long-term interest.

George: George Europe was pretty strong for us this quarter. It was you could see the market really starting to pick up on collaborative work management in general and I think the conference itself produced a high degree of interest which is manifesting itself in both short term pipe in long term interest.

Speaker Change: Great and then.

Speaker Change: Maybe staying on the AI theme, but with the packaging.

Speaker Change: As enterprises start to adopt this how are you.

Speaker Change: Including.

Speaker Change: Introducing those.

Speaker Change: It capabilities with the new packaging.

Mark P. Mader: Well, the big push for the new model is that everyone who is a member has access to AI. So, again, there's no longer this split between the haves and the have-nots.

Speaker Change: Well one of the big push to the new model is everyone who is a member has access to AI. So again, there's no longer this.

Speaker Change: The split between the haves and the have nots as we look at how we activated the next the next level of innovation. We are doing is not only on the building of new skills, but also how do you introduce the scale at the time that the person who may benefit from the scale, whether youre, adding business logic through through formularies, where theyre looking to generate content in a in a grid, where they're looking to analyze day.

Mark P. Mader: As we look at how we activate it, the next level of innovation we're doing is not only the building of new skills but also how do you introduce the skill at the time that the person may benefit from the skill? Whether you're adding business logic through formulas, whether you're looking to generate content in a grid, whether you're looking to analyze data, what I've found in speaking to users is that there's a high, high comfort level, and there's a high degree of muscle memory to which people are really, really latched on. So, you have to go through pretty direct means to introduce them to a new way of working. When people see it, they love it.

Speaker Change: Matter, what I've found in speaking to users is that Theres, a high high comfort and Theres a high degree of muscle memory to which people really really latched onto so you have to go through pretty direct means to introduce them to a new way of working when people see it they love it but even even though we have 50.

Mark P. Mader: But even though we have 50% penetration with our enterprise customers, we are still looking to drive that user penetration up. And it's a pretty consistent theme from what I'm hearing across app companies today. Pretty good penetration on the company side. Everyone's hungry for more user engagement. I think a lot of that is education. And how we nudge people in the app, how we educate people in the app, I think will pay off quite well in the year to come.

Speaker Change: The percent penetration within our enterprise enterprise customers, we are still looking to drive that user penetration up and it's a pretty consistent theme from automatically what I'm hearing across app companies today pretty good penetration on the company side everyone's hungry for more user engagement I think a lot of that is education and how we noticed people in the app, how we educate people.

Speaker Change: EMEA App I think we will yield quite well in the year to come.

Speaker Change: Thank you.

Michael H. Berg: And your next question comes from the line of Michael Berg with Wells Fargo. Your line is open.

Speaker Change: Your next question comes from the line of Michael Berg with Wells Fargo. Your line is open.

Michael H. Berg: Hey, thanks for taking my question. Congratulations on the quarter. I wanted to ask about the sequential improvement in a slightly different manner than after alerting the call. Any notable changes in the broader macro or buying behavior, just willingness to open up budgets, any particular reasons that stand out as to why your solution platform has been procured at what appears to be a healthier rate relative to some other names across software, and then I got a quick follow-up. Thank you.

Speaker Change: Harry.

Speaker Change: Thanks for taking my question and congrats on the quarter I wanted to ask about the sequential improvement in a slightly different manner than the asked earlier in the call.

Harry: Any notable changes in the broader macro or buying behaviors willingness to.

Harry: Open up budgets and any particular regions that stand out as to why your solution and platform.

Harry: Has been procured or what appears to be a healthier rate relative to some other.

Harry: Names across software then I got a quick follow up thank you.

Pete Godbole: So I think, Michael, it fundamentally comes down to how customers realize value from our platform. When you think of the things Mark mentioned in terms of sophisticated workloads at scale. In a lot of cases, those are things customers need, and we saw that reflected in the number of enterprise customers who moved to over 100K, and the number of million-dollar customers. And I think in that way, companies are just different in how they're perceived by customers and how they're valued by customers. So that's what we saw play out for us in Q1.

Speaker Change: So I think Michael it fundamentally comes down to help customers realize value from our platform. When you think of are the things Marc mentioned in terms of sophisticated workloads at scale.

Speaker Change: And a lot of cases those are the things customers need and we saw that reflected in the number of enterprise customers, who move to over 100 K.

Speaker Change: A million customers and I think indirectly companies such as different in how they're perceived by customers and how they are valued by customers. So that's what we saw play out for us in Q1.

Michael H. Berg: Got it. And then a quick follow-up on margins. Obviously, you had some very nice margin performance and improvement in the guidance for the year. Outside of top on that performance, anything you can think of that's driving the incremental progress there? Or is it just the enterprise? Are you in the economics flowing through the model over time? Thanks.

Speaker Change: Got it and then a quick follow up on margins. Obviously, you had some very nice margin performance and improvement in the guidance for the year.

Speaker Change: Outside of top line outperformance anything you can think of that's driving the incremental progress there.

Speaker Change: Or is it just the enterprise are your economics flowing through the model overtime.

Pete Godbole: I think the fundamental nature of our model is it's highly accretive, but what we've also done is Mark and I have taken a really close look at how we operate and run the business, which means everything in the business, which roles we hire, which locations we hire them in. And sort of when you look at it, and you say, "where do I really want to deploy my capital?" And so we've been very thoughtful and sort of focused on that, and we've seen that play itself out in terms of our margin guide. Your next question comes from the line of Brent Thill with Jeffreys. Your line is:

Pete Godbole: I think the fundamental nature

Speaker Change #100: I think the fundamental nature of our model is it's highly accretive but what we've also done is we've mark and I have taken a really close look at how we operate and run the business, which means everything in the business, which rules to be higher.

Speaker Change #100: Which locations, we hire them in and sort of when you look at it and you say, where do I really want to deploy capital and so we've been very thoughtful and sort of focused on that and we've seen that lead sell through in terms of our margin guide.

Operator: And your next question comes from the line of Brent Thill with Jeffreys. Your line is open. Mark, have a good April and a good night.

Speaker Change #101: Your next question comes from the line of Brent Thill with Jefferies. Your line is open.

Mark.

At April <unk>.

Speaker Change #102: Hi, Good Europe are not consistent with most of the industry and I'm. Just curious what you think really resonated in the Q1 is that the category was in your execution.

Speaker Change #103: Something trigger in the product line, what do you think kind of help you glide through this headwind that others are really getting bogged down by.

Brent John Thill: I think customers and prospects feel when a team is confident. And while we do have quite a few transactions that happen digitally without human interaction, a lot of our enterprises do engage with our team. And I think when the team saw the timeline view come out, and they were able to show something that was modern, beautiful, fast, valuable, perceived as valuable to customers, and they were like, okay, I got two more of these things coming, I've got one coming in July and one coming in the fall. There's a little bit of pep in the step. And I think you combine that with Max, who came in, who landed immediately and effectively, and the field team's feeling good right now.

Speaker Change #104: I think customers and prospects feel when the team is confident and while we do have quite a few transactions that happen digitally without human interaction a lot of our enterprises do engage with our team and I think when the team saw the timeline view come out in April to show something that was modern beautiful fab.

Speaker Change #104: <unk> valuable perceived as valuable to customers and they're like okay. At two more of these things coming I got one coming in July and one coming in the fall there is a little bit of Pep in the step and I think you combine that with Max who came in to land it immediately and effectively.

Speaker Change #104: The field team is feeling good right now.

And that builds on itself.

Mark P. Mader: And that builds on itself. I talked to our customers that are engaged in a conference around convergence. I talked about the convergence of modernization, the convergence around AI, the convergence around new ways to engage with our company. And unfortunately, you don't get that convergence every year of operations. This happens to be one of the years where it is coming together. And I think we're going to, I think customers are sensing that. For a long time, Brent, and you know this, we've talked about futures, but we've talked about them as trust as they're coming. And the fact that they're now hitting is something where customers are looking for evidence. And I think we're able to show that now. Okay, Pete.

Speaker Change #104: I talked to our customers at our engage conference around convergence I talked about the convergence modernization the conversions around AI the convergence around new ways to engage with our company and Unfortunately, you don't get that convergence every year of operations. This happens to be one of the years, where it is coming together.

Speaker Change #104: And I think we're going to I think I think customers are sensing that for a long time, Brian and you know this we've talked about futures, but we've talked about them as a trust us they are coming and the fact that they are now hitting is something where customers looking for evidence and I think we're able to show that now.

Speaker Change #105: Okay. Pete how are we going to have to wait till June 24th or do we get any sneak peek here in terms of what this is going to look like.

Yes.

Pete Godbole: You know, I think you're going to see it on June 24th.

Speaker Change #106: I think youre going to see it on June 24th.

Speaker Change #107: Okay very clear thank you.

Speaker Change #108: Thanks Brent.

Steven Lester Enders: Your next question comes from the line of Steve Enders with Citi. Your line is open.

Speaker Change #109: And your next question comes from the line of Steve Enders with Citi. Your line is open.

Steven Lester Enders: Hi, this is George Kurosawa on behalf of Steve. Mark, a few times you've alluded here to the impact that Max has had on the GoToMarketOrg, which I think is really impressive given, you know, how new he is to the organization. Maybe you could double-click on kind of what you've seen him bring to the table and what you have you got him focused on for the rest of the year?

Speaker Change #110: Hi, This is George Chris Lau on for Steve Mark a few times you alluded here too the impact that the Max has had on the go to market Org.

Speaker Change #111: I think it's really impressive given how.

Speaker Change #111: New year's the organization, maybe you could just double click on kind of what you've seen and bring to the table and what have you got them focused on for the rest of the year.

Mark P. Mader: Yeah, I think I would say three things have really landed quickly. The first is a hyper-focus on use cases and getting a fresh set of eyes on why customers are with us, what they're asking for, what our pipeline composition is, and aligning these use cases that we're looking to market with how we're deploying our marketing capital, with how we're enabling the team, and then, also, with that understanding, having a point of view on what this new pricing and packaging model looks like.

Speaker Change #112: Yes, I think I would say three things have have really landed quickly. The first is a hyperfocus on use cases and getting a fresh set of eyes on on why customers are with us what they are asking for what our pipeline composition is.

Speaker Change #112: And aligning these use cases that we're looking to market with how we're deploying our marketing capital with how we're enabling the team and then also with that with that understanding having a point of view on what this new pricing and packaging model looks like and it is great that we had a few months with Max.

Mark P. Mader: And it's great that we had a few months with Max before we launched this, for him to get ramped up and engaged in speaking to customers before having to make that decision cold. So that use case orientation, something that is very, very experience-driven from his background, combined with being ramped up and participating in this pricing and packaging modeling. And then I would describe the last piece as almost like this up-leveling of the enterprise mindset, whether you talk about field enablement, multi-year models, ELAs, value realization journeys, I mean, you can go on and on. These are the things that we've discussed really, really extensively during the interview process, and he has it. And the team? I think the team is responding well.

Speaker Change #112: Before we launch those for him to get ramped and engage in speaking to customers before having to make that decision cold. So that use case orientations something that is very very.

Speaker Change #112: Very experienced driven from his background combined with being ramped and participating in this pricing and packaging modeling and then I would describe the last piece is almost like this this up leveling of enterprise mindset.

Speaker Change #112: Whether you cant talk about field enablement multiyear models elas value realization journeys I mean, you can go on and on these are the things that we prosecuted really really extensively during the interview process any hazard and and the team I think the team is responding well.

Steven Lester Enders: That's great to hear. And then a quick follow-up on capital allocation. You know, I think the buyback plan makes a lot of sense given how strong the free cash flow generation has been. But the $150 million is a pretty significant number, you know; most of the annual free cash flow guide is kind of getting plowed back into buyback. So maybe you could just talk about how you guys kind of triangulated and on sizing that and you know, why not kind of push a little bit more into, you know, reinvesting in growth.

Speaker Change #113: That's great to hear and then a quick follow up on capital allocation.

Speaker Change #114: I think the buyback plan it makes a lot of sense, given how strong the free cash flow generation has been.

Speaker Change #115: But $150 million, it's a pretty significant number most of the annual free cash flow guide kind of getting plowed back into in the buyback. So maybe if you could just talk about how you guys kind of triangulated on sizing that and why not kind of pushed a little bit more into reinvesting in the growth.

Pete Godbole: Yeah, so, you know, we made it with a very disciplined capital allocation decision to start with. And when we looked at the stock price and how undervalued the stock was, we took that as one input to the equation. We balanced that against..., www.smartsheetinc.com We don't think we've shortchanged ourselves and opportunities to invest by making this $150 million.

Speaker Change #116: Yeah. So.

Speaker Change #117: We made it with very disciplined capital allocation decisions to start with <unk>.

Speaker Change #118: And when we looked at the stock price and how undervalued. Our stock was we took a took that as one input to the equation, we balanced that against.

Speaker Change #118: Having a healthy balance sheet for our customers and then being able to trade off against opportunities. We would have an M&A and ability to invest in M&A. So a combination of those elements led to the $150 million initial stock buyback. We don't think we have shortchanged ourselves and opportunities to invest.

Speaker Change #118: By making this $150 million.

Steven Lester Enders: Perfect. Thanks for taking the questions.

Speaker Change #119: Perfect. Thanks for taking the questions.

Pinjalim Bora: And your next question comes from the line of Pinjalim Bora with J.P. Morgan. Your line is open.

Speaker Change #120: And your next question comes from the line of pendulum borrow with J P. Morgan Your line is open.

Okay.

Pinjalim Bora: Oh, great. Hey, hey, everyone. Congratulations on the quarter. It's nice to see the good results. Just a number of clarifications on the pricing and packaging. Are you completely moving away from the free collaborators, is what I understand from what I've heard so far. Any way to understand the kind of base of early customers on which you are basing the price elasticity comment made earlier in the call, and within the existing customers, or the early customers, I should say, that have moved to this model, what are you seeing from a conversion point of view for those collaborators?

Speaker Change #121: Oh, great Hey.

Speaker Change #122: Hey, everyone. Congrats on the quarter nice to see the good results.

Speaker Change #121: Just.

Speaker Change #121: A number of clarifications on the pricing and packaging.

Speaker Change #123: Are you completely moving away from the free collaborators is what I understand from what I've heard so far.

Speaker Change #124: Any way to understand kind of the <unk>.

Speaker Change #124: <unk> of the customers that you are facing the price elasticity comments you made earlier.

Speaker Change #125: In the call.

And within the existing customers are the only customers I should say that have moved to this model. What are you seeing from a conversion point of view for those collaborators.

Mark P. Mader: So to your first question, free collaboration is still alive and well in our model. We have this notion of guests.

So to your first question the the free collaboration is still alive and well in our model. We have this notion of the guests. So when an organization shares outside of their domain.

Mark P. Mader: So when an organization shares outside of their domain, all of that access is done at no cost to the user. If someone creates a dashboard for corporate visibility and corporate communication sharing, all of the thousands of people within the company who only view it do so at no cost. Those are huge populations of people which are also really important to establishing touch points and long-term morality. Those remain consistent with what we have today.

Speaker Change #125: All of that access is done at no cost.

Speaker Change #125: If someone creates a dashboard for.

Speaker Change #125: Corporate visibility and corporate communication sharing.

Speaker Change #125: All of the thousands of people within the company only view it do so at no cost those are huge populations of people, which are also really important to establishing touch points and long term reality. Those those remained consistent with what we have today in.

Mark P. Mader: In terms of the conversion rate you speak to around collaborators, there really is no notion anymore of a conversion rate from a contributor, an editor, to paid because they are paid now. So if you engage with our product, and you work within an organization, and you're editing, you're commenting, you're adding to it, you are paid. So the second you engage, and the second you go through this provisional period, you are on the road.

Speaker Change #125: In terms of the conversion rate you speak too around collaborators. There really is no notion any more of a conversion rate from a contributor and editor to paid because they are paid now so if you engage in our products and you work within an organization and you're editing youre, commenting youre, adding to it you are paid.

Speaker Change #125: So the second you engage.

Speaker Change #125: And the second you go through this provisional period, you are on the license. So it's there's no longer this decision by an administrator around well theyre editing and are contributing but do they really need to create that decision is now gone.

Mark P. Mader: So it's, there's no longer this decision by an administrator around, well, they're editing and they're contributing, but do they really need to create? That decision is now gone. But that user population of free that is cross-company is still very, very present and very important to us. And, Pete, did you... Sorry, go ahead. Why don't you ask the second follow-up question?

Speaker Change #125: But that user population of free that is cross cross company lines is still very very present and very important to us.

Speaker Change #126: And did you have another.

Speaker Change #127: Sorry, you had a bunch of.

Speaker Change #128: As the second follow up question.

Pinjalim Bora: No, I was just trying to understand if the existing customer or the customer who has moved to this plan had free collaborators who were also editing, those are moving to paid now, is my understanding. So I'm trying to think if that customer had 10, did all of those 10, are you seeing all of those 10 kind of move to paid with this new model?

Speaker Change #129: No I was just.

Speaker Change #130: I'm trying to understand is if a customer yes existing customer or a customer who has moved to this plan.

Speaker Change #130: <unk>.

Speaker Change #130: Free collaborators were also editing those are moving to feed now is my understanding so I'm trying to think if you had that customer had 10.

Speaker Change #130: All of those 10 are you seeing all of those 10 get them moving debate with this new model or is it 5% of that 30% of that that's what I was trying to get at in terms of conversion.

Mark P. Mader: Or is it 5% of that, 30% of that? That's what I was trying to get at in terms of conversion. Yeah, and we haven't we haven't disclosed that conversion.

Mark P. Mader: Yeah, and we haven't disclosed that conversion rate. I think, especially at mega scale, at scale, you also have what I would call bespoke user pricing, right? You don't just work off of the MSRP. So I would say the customers that we've gotten reads off of, the ones that are deployed, in most cases, those are large enterprises. We have done testing and research and gotten feedback on all sorts of models all up and down the segments. But in terms of the ones that I was referring to earlier, those were some of our larger enterprises.

Yes, we haven't we haven't disclosed that conversion rate I think especially at Mega scale.

Speaker Change #130: At scale you also have.

What I would call bespoke user pricing right you don't you don't just.

Speaker Change #130: Work after the MSRP, so I would say the customers that we've gotten reads off of the ones that are deployed in most cases those are large enterprise, we have done testing and research and gotten feedback on all sorts of models, all up and down the segments, but in terms of the ones that I was referring to early those where some of our larger enterprise customers, who had already come over.

Speaker Change #131: Understood. Thank you.

David E. Hynes: And your next question comes from the line of D.J. Hynes with Canaccord Genuity. Your line is open.

Speaker Change #132: And your next question comes from the line of DJ Hynes with Canaccord Genuity. Your line is open.

David E. Hynes: Hey guys, Mark, you're going to be taking a lot of folks that were previously collaborators, and you're going to give them full access to create and contribute on the platform. How do you, at the same time, educate what were passive users in the past on what's possible, how to use the platform as a creator, you know, get them engaged, help them figure out how to create value? I mean, that seems like a really important part of the site.

David E. Hynes: Hey, guys.

Speaker Change #134: Mark you're going to be taking a lot of folks that were previously collaborators and youre going to give them full access to create and contribute in the platform.

David E. Hynes: How do you at the same time educate what were passive users in the past on what's possible how to use the platform as a creator get them engaged help them figure out how to create value I mean that seems like a really important part of.

Speaker Change #135: Driving incremental long term value from the new pricing models would love any color on how you're thinking about that.

Mark P. Mader: Yeah, I think it's, you know, as I talked about the importance of driving not only organization penetration or percentage adoption with AI but actually user counts. I think when we think of R&D, we think of it not only as discrete feature development, building something new or improving the capability of something, but it's more how do you get somebody engaged in it? We've made a number of changes, for example, around what our sharing model looks like, the actual way in which people know things can be shared in our product.

Speaker Change #136: Yes, I think it's as I talked about the importance of driving not only organization penetration or percentage adoption with AI, but actually be user counts I think when we look when we think of R&D, we think of it not only as discrete feature development building, something new or improving the capability of something but it is.

Speaker Change #136: How do you get somebody engaged and that we've made a number of changes for example around what our sharing model looks like the actual way in which people know things can be shared in our product, it's not introducing sharing it's making sharing better and more obvious and we've seen really interesting uptake on morality just by those experiential changes so much like.

Mark P. Mader: It's not introducing sharing; it's making sharing better and more obvious. And we've seen really interesting upticks in virality just because of those experiential changes. So much like we did with our self discovery on data shuttle and dynamic view three quarters ago, we didn't just silently launch them when you go, and you do an import in Smartsheet.

Speaker Change #136: We did with our self discovery on data shuttle and dynamic view three quarters ago. We didn't just silently launch them. When you go and you do an important smart sheep now you are presented with education at the right time on here's what this new fancy thing can do do you want to try it.

And that is much much more powerful than silently, sending someone email and say hey, we did this great new thing and we're going to trust. The you really care about our email and that you're going to explore it presented to them in the moment. So this notion of nudging.

Mark P. Mader: Now you are presented with education at the right time about what this new fancy thing can do; do you want to try it? And that is much, much more powerful than silently sending someone an email and saying, hey, we did this great new thing. And we're going to trust that you really care about our email, that you're going to go explore it presented to them in the moment. So this notion of nudging. Like when we launch BoardView soon, you have many, many users who have been using CardView for a long time, the predecessor to this modern view.

Speaker Change #136: When we when we launched board view soon.

Speaker Change #136: Many many users who've been using current view for a long time the predecessor to this modern view. So one of the things you do is you launch them in the new one.

Mark P. Mader: So one of the things you do is launch them in the new one, and with the easy ability to go back to CardView if they wish to. These are the types of moves you make when you're trying to get people exposed to things. And don't rely on good intentions and how wonderful your documentation is to pull them through. It's a whole area of development that a really interesting research team on design team is working on, and our engineers are very much cognizant of it.

Speaker Change #136: And with the easy ability to go back to the card view if they wished you. These are the types of moves you make when you are trying to get people exposed to things and don't rely on good intend and how wonderful your documentation has to pull them through.

Speaker Change #136: It's a whole area of development.

Speaker Change #136: Really interesting research team on design team and our engineers are very much <unk>.

Pete Godbole: And then Pete, a follow-up for you, so we have pretty limited history with the relationship between ARR growth and net revenue retention, but over the last four quarters, which we do have, ARR growth has outpaced NRR by about five to six points consistently. How would you expect that ratio to trend and look over the course of?

Speaker Change #137: <unk> yeah.

David E. Hynes: And I'll be back in a minute. Thanks very much. I appreciate it.

Speaker Change #138: Okay makes sense and then a follow up for you. So we are pretty limited history with the relationship between <unk> growth and net revenue retention.

Speaker Change #139: Over the last four quarters, which we do have AOR growth has outpaced <unk> by about five basis points pretty consistently.

Speaker Change #140: How would you expect that ratio to trend and look over the course of this year.

David E. Hynes: You know, I think the ratio in terms of how that plays out, you're going to find yourself looking at, you know, the relationship being the same, it's going to be there's gonna be a delta between ARR growth and the NDRR that manifests itself, but one will be lower than the other, because you've got some amount of new coming into the ARR growth. So you think it should be pretty consistent.

Speaker Change #141: I think the ratio in terms of how that plays out youre going to find yourself looking at.

Speaker Change #141: The relationship being the same it is going to be there's going to be a delta between.

Speaker Change #141: <unk> growth and the NDA route that manifests itself.

Speaker Change #141: One will be lower than the other because you've got some amount of new coming into the IRR growth.

Jackson Adar: Right, so do you think it should be pretty consistent in that five to six point range?

Speaker Change #142: Right. So you think it should be pretty consistent in that five to six point range.

Speaker Change #142: It should be.

Speaker Change #143: Thank you.

Jackson Adar: And your next question comes from the line of Jackson Adar with KeyBank. Your line is open.

Speaker Change #144: And your next question comes from the line of Jackson Ader with Keybanc. Your line is open.

Kyle: Hey, Thanks. This is Kyle deal answer Jackson Ader, just maybe two quick ones for US can you give us some color on where we stand in terms of sales capacity for this year and if there are any head count plans that you guys have for the remainder of the year, particularly given it looks like we're ahead of our initial profitability targets here and then Pete.

Jackson Adar: And then, Pete, I think you mentioned that capabilities were 35% of subscription revenue this quarter, so that seems to continue to tick up. In terms of the standalone purchases that are being made, where are the outperformers, and where are you guys seeing success? Thanks.

Pete: I think you had mentioned that capabilities were 35% of subscription revenue. This quarter. So that seems to continue to tick up in terms of the standalone purchases that are being made where the outperformers and where are you guys seeing success. Thanks.

Pete Godbole: So the first part of your question is, we're staying on point on overall sales capacity. But what we are doing is weighting our sales capacity a little more heavily towards the enterprise segment. We're adding capacity there, so we're sort of rebalancing where we've applied the sales capacity capital. The second part of your question that you asked was about capabilities and where we're seeing the bright spots. I think the capabilities we've seen very strong performance in advance and capabilities in general. And the capabilities, in general, cut across the same sort of capabilities which customers love and appreciate; the control center, dynamic view, data shuttle remain the top names in the capabilities stars, if you will.

Speaker Change #146: So the first part of your question is we're staying on point on overall sales capacity.

Speaker Change #147: But what we are doing is we're waiting our <unk> capacity, a little more heavily towards the enterprise segment, we're adding capacity. There. So those are sort of rebalancing, where we've applied the sales capacity capital if you will.

Speaker Change #147: The second part of your question that you've asked was on capabilities and where we are seeing the bright spots I think the capabilities. We've seen very strong performance in advance and capabilities in general and the capabilities in general cut across the same set of capabilities, which customers love and appreciate the control Center diner.

Speaker Change #147: MC view data shuttle.

Speaker Change #147: We remain the top names in the in the capabilities stars if you will.

Operator: And we have time for one more question. Our final question will come from Taylor McGinnis with UBS. Your line is open.

Speaker Change #148: And we have time for one more question. Our final question will come from Taylor Mcginnis with UBS. Your line is open.

Taylor Anne McGinnis: Yeah, hi, thanks so much for taking my question and apologies for the background noise. Just one for me, which is when we look at the revenue and ARR guidance, can you perhaps quantify or tell us how much of the uptick was driven by this pricing and packaging change? And, you know, understanding that, you know, the macros still pop up there, you don't have many software companies rising in light of the environment. So I'll break down your question into the revenue guide first. So we...

Taylor Anne McGinnis: Yeah, Hi, thanks, so much for taking my question and apologies for the background noise.

Taylor Anne McGinnis: Just one for me, which is when we look at the revenue and <unk> guidance can you.

Taylor Anne McGinnis: Perhaps quantify or tell us how much of that.

Uptick was driven by pricing and packaging change and understanding that the macros about there you don't have many software companies.

Taylor Anne McGinnis: And in light of the environment, but just curious is there anything in the quarter that may be down a little bit. After that's making you more cautious for the year or is that just mostly conservatism. Thanks. So much.

Pete Godbole: So, I'll break down your question about the revenue guide first. So, we raised the revenue guide by, you know, $3 million at the midpoint, and that was a carry forward because, essentially, what we see is an environment where we have, you know, some level of understanding of how the rest of the year will roll out, and that's what we feel is prudent, would be the prudent thing to do. Now, the second part, in terms of what we did with ARR, that's a combination of two things.

Speaker Change #150: So a breakdown your question into the revenue guide first so we.

Speaker Change #151: The revenue guidance by $3 million at the midpoint.

Speaker Change #152: And that was a carryforward because essentially what we see as an environment, where we have some level of understanding of how the rest of the year will rollout and thats. What we feel is prudent would be the prudent thing to do now the second part in terms of what we did with <unk>.

Speaker Change #152: That's a combination of two things.

Pete Godbole: The first part is the solid performance we had in Q1, and some measure of that was the impact of the new pricing and packaging model as applied to new customers and prospects, which is where we're starting.

Speaker Change #152: The first part is the solid performance we had in Q1.

Speaker Change #152: And some measure of it being the.

Speaker Change #152: Implication of the new pricing and packaging model as applied to new customers and prospects, which is where we're starting.

Speaker Change #153: Great. Thanks, so much.

Speaker Change #154: No problem.

Aaron Turner: And ladies and gentlemen, that concludes our question and answer session. I will now turn the call back to Mr. Aaron Turner for his closing remarks.

Speaker Change #155: And ladies and gentlemen that concludes our question and answer session I will now turn the call back to Mr. Aaron Turner for closing remarks.

Aaron Turner: Great. Thanks, Abby. And thanks, everyone, for joining us today. We'll speak with you all again next quarter.

Operator: Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Great. Thanks, Amy and thanks, everyone for joining us today, and we will speak with you all again next quarter.

Speaker Change #156: Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.

Speaker Change #156: [music].