Samsara Inc.

Good afternoon and welcome to Samsara's first quarter fiscal 2023 earnings call. I'm Mike Chang, Samsara's vice president of corporate development and investor relations. Joining me today are Samsara co-founder and chief executive officer Sanjit Biswas and our chief financial officer Dominic Phillips. In addition to our prepared remarks on this call, additional information can be found in our shareholder letter, press release, investor presentation, and SEC filings on our investor relations website at investors.samsara.com. The matters we'll discuss today include forward-looking statements. Actual results may differ materially from those contained in the forward-looking statements. Any forward-looking statements that we make on this call are based on assumptions as of today, June 2, 2022, and we undertake no obligation to update these statements as a result of new information or future events unless required by law. During today's call, some of our discussions will include our first quarter fiscal 2023 financial results. We would like to point out that the company reports non-GAAP results in addition to and not as a substitute for or superior to financial measures calculated in accordance with GAAP. All financial figures we'll discuss today are non-GAAP, except for revenues and revenue growth. Reconciliations of GAAP to non-GAAP financial measures are provided with a press release and investor presentation. We'll make opening remarks, dive into highlights for Q1, and then open up the call for Q&A. With that, I'll hand the call over to Sanjay.

Thanks, Mike. And thank you, everyone, for joining us today. We had a strong start to the year, surpassing $600 million of ARR in just the seventh year since our founding. This represents 59% year-over-year growth and is a great milestone for the company as we continue to grow at scale. We also surpassed 15,000 core customers and continue to see exceptional growth in our $100,000-plus ARR customers. This segment now represents approximately 900 customers spanning various industries. It includes the addition of Coach USA, Oklahoma City, a major United States provider of automotive, travel, and financial services, and two Fortune 500 customers, one of the largest home improvement retailers in the United States and one of the world's top 10 global retailers. Samsara is operating at a scale that's hard to replicate. The amount of IoT data we process in our connected operations cloud more than doubled last year to about 4.6 trillion data points. In addition, API calls grew to 33 billion last year, an increase of more than 4x year over year. We use this massive amount of data to regularly train our AI models and enhance our benchmarking data. Our year over year growth speaks to Samsara's integral role in supporting digital transformation and physical operations. Our customers provide mission critical services that keep our planet running and represent over 40% of global GDP. Now more than ever, they're investing in digital technology to streamline operations and increase efficiencies, and we are here to help. Our customers come from every segment of the world of physical operations. They help keep the world running, whether it's constructing infrastructure, maintaining utilities, clearing snow off the streets, or managing the global supply chain. Many have been around for over half a century and weathered challenging cycles in the past. Today, the world is facing a particularly challenging macro environment with inflation, rising interest rates, tightening supply chains, tight labor markets, and geopolitical uncertainty. These challenges represent Samsara's biggest opportunities to add value for our customers. We are proud to partner with our customers to use data to mitigate cost challenges, including labor inefficiencies, asset and fuel inefficiencies, insurance costs, compliance, safety, and emissions. Using the Samsara Connected Operations Cloud, our customers are seeing their investment return several times over. Let me share three examples. First, GP Transco is a trucking logistics company with over 400 drivers, 410 tractors, and 550 trailers. They use Samsara to improve fuel efficiency and reduce vehicle idling by 35%. They've saved an estimated 205,000 gallons of fuel. That's over $350,000 in savings. GP Transco used these savings to fund driver pay increases and bonus programs, giving them a competitive edge in this market. Second, Henef Transportation Systems, a leader in liquid bulk transportation, is using our video-based safety with 1,800 drivers and site visibility across their 80 terminal locations nationwide. They're proactively coaching drivers and employees to reduce spend on insurance claims. Henef estimates a 50% reduction in liabilities because of our technologies. And third, UFP Industries. The leading manufacturer and distributor of wood products is using the Connected Operations Cloud to streamline worker productivity. They wanted to improve operational visibility, driver safety, and customer service. Our solutions are used in 350 private fleet trucks to complete over 200,000 deliveries a year. By going paperless with Samsara, UFPI estimates they save $600,000 annually. These examples show how Samsara's Connected Operations Cloud is being used by our customers to improve worker productivity, streamline their operations, and reduce their cost stacks. It's these kinds of cost savings that are helping our customers combat inflation and maintain competitive footholds in their industries. As you may have seen in April, we released our inaugural ESG report. In it, we share how we're building a safer and more sustainable world through our customers' operations and our own. Our customers are vitally important to the global economy. Small shifts in their operations can dramatically reduce their environmental impact and improve the lives of employees. With over 4 trillion data points captured last year alone, CEMSAR is uniquely positioned to impact our customers' ESG goals, especially around emissions reporting, worker safety, and efficiency. Take Summit Materials, a leading construction materials company. Their goal is to be the most socially responsible provider in the market and achieve net zero emissions by 2050. To achieve the goals outlined in their ESG report, they needed more reliable data and deeper visibility across their operations. Summit is using SEMSAR vehicle telematics, video-based safety, and site visibility. With Samsara, they expect to save approximately $1 million per year in fuel costs. That's a reduction of more than 2,000 tons of CO2 emissions or over 175,000 gallons of fuel. They also saw a 33% decrease in preventable vehicle accidents in one year. We're also helping Sunrun unlock new ways to meet their sustainability goals. As outlined in their latest impact report, we're helping them reduce transportation emissions by transitioning half of their vehicle fleet to electric or hybrid. We also made great strides on our own ESG goals this quarter. Doing this helps us better understand our customers' ESG journeys and guide them. Samsara is carbon neutral, and we're committed to maintaining carbon neutrality and achieving net zero emissions by 2040. As I mentioned earlier, the world of physical operations represents more than 40% of the global GDP and keeps our world running. We want our connected operations cloud to be the foundation supporting digital transformation in this space for decades to come. As part of this, we are prioritizing profitability because we plan to be a sustainable long-term business. We improved our operating margins by more than half year over year and remain committed to key operational drivers for profitability. Disciplined capital allocation, reducing hardware costs, and efficient go-to-market strategy focused on renewals and expansions. We're also focused on building capacity to serve increasing customer demand. Q1 was our best hiring quarter since the pandemic began, driven in part by our well-received work-from-anywhere strategy. 90% of the new hires in Q1 are remote-first employees. By expanding our operations, we're able to leverage the efficiencies of a global talent pool, bolster customer support, and accelerate region-specific go-to-market strategies. We plan to sustain our hiring momentum throughout FY23 in order to serve our growing base of customers. Last, I'd like to thank all Samsarians, as well as our customers, partners, and investors for their continued support. We're in the early stages of this tremendous opportunity and look forward to what's ahead. We're excited to continue the partnership at our first ever in-person customer conference, Samsara Beyond, on June 15th and 16th. With that, I'll hand it over to Dominic to go over the financial highlights for the quarter.

Thanks, Sanjay. As a reminder, please refer to our shareholder letter, press release, and investor presentation at investors.samsara.com for additional information on our Q1 results and guidance. Q1 was highlighted by strong topline growth at scale due to continued large customer momentum, multi-product strength, and significant expansions within our existing customer base. Our ending ARR in Q1 was $607 million, growing 59% year-over-year, and Q1 revenue was $143 million, growing 63% year-over-year. Our investments in serving the largest physical operations customers continue to pay off. We now have 897 customers with ARR of more than 100K each, a quarterly increase of 91, and an annual increase of 379, or 73% year-over-year growth. Samsara is purpose-built for large customers with complex operations that want full visibility and control over thousands of disparate assets on one integrated platform. Additionally, large customers are generally more stable in uncertain macroeconomic environments. They have stronger long-term unit economics and higher retention rates. Our investments in large customer opportunities coincides with the de-emphasis in acquiring customers with less than 5K of ARR. As a result, the number of 100K plus ARR customer additions in Q1 surpassed the number of sub-5K ARR customers acquired for the first time ever, and we expect that trend to continue. Additionally, multi product transactions continue to contribute significantly to our top line growth, showing the strength of our connected operations cloud in the market. Seven of our 10 largest deals in Q1 included subscriptions to two or more products. More broadly, more than 70% of core customers and more than 90% of 100k plus ARR customers subscribe to multiple applications. We're also seeing multi-product adoption at scale. At the end of Q1, our two connected fleet applications, video-based safety and vehicle telematics, each represented more than 250 million of ARR, and our remaining non-vehicle applications combined to contribute more than 10% of total ARR. And finally, while Q1 was another record quarter of new core customer additions, it was also the second consecutive quarter that expansions to existing customers drove more than 50% of net new ACV. As a result, our dollar-based net retention rate for core customers and large customers continues to be greater than our target of 115% and 125% respectively. In addition to our strong top line performance, we continue to operate more efficiently as we scale and we saw strong year over year leverage across all functions. Our Q1 non-GAAP gross margin was 73%, a year over year improvement of approximately two percentage points, primarily from product optimizations, improved commercial strategies, and larger scale. Our operating margin was negative 18%, an annual improvement of more than 50%, or approximately 24 percentage points year over year, driven by leverage across all functions. And our adjusted free cash flow margin improved by 10 percentage points year over year, driven by the operating leverage I just mentioned, but partially offset by negative networking capital. A key component of our solution is providing IoT devices that connect physical assets to the Samsara cloud. More than 75% of our adjusted free cash flow in Q1 was related to payments for IoT devices. And while these purchases result in negative networking capital today, while we're growing rapidly, we anticipate networking capital will turn positive in our long-term model. primarily from a more stable global supply chain, improved device optimizations and a larger renewal base that won't require new devices, all of which will lead to operating margin and free cash flow margin converging over time. It's also worth noting the global supply chain disruption continues to put pressure on critical component costs and availability. We expect inventory costs and lead times to remain high for the foreseeable future, but we also expect they will normalize over time as the supply chain ramps to meet demand. But even in the face of this challenge, we improved our gross margin, we improved our adjusted free cash flow margin, and we shipped enough IoT devices to meet all customer demand for the quarter. And the final Q1 point I want to make is regarding hiring and headcount. Q1 was our largest hiring quarter since pre-COVID, and almost 50% of our net new employees joined our go-to-market teams. We primarily utilize a direct sales model, which means adding more sales capacity along with improving productivity are key drivers of future growth. As a reminder, we reduced headcount at the beginning of FY21 during the onset of COVID to manage costs in an uncertain macro environment, and we started to rebuild our headcount capacity last year. We're now above pre-COVID headcount and on track to accelerate our headcount growth in FY23 while maintaining a commitment to margin improvement each year. Okay, now turning to guidance. Per Q2 FY23, we expect total revenue to be between $142 and $144 million, representing year-over-year growth between 41 and 43%, and non-GAAP operating margin to be approximately negative 22%. Based on our strong Q1 results and updated outlook for the remainder of FY23, we're raising our full-year revenue guidance to 590 to 600 million, or 38 to 40% year-over-year growth. We also identified additional savings from operating efficiencies without sacrificing investments to growth, given the strong demand we're seeing from customers. So in addition to increasing our top line guidance, we also raised our FY23 operating margin guidance to negative 20% for an implied non-GAAP operating income improvement of $7 million. And finally, we also included some additional modeling notes for Q2 and full year FY23 in our shareholder letter. To wrap up, we are very pleased with our start to the year and our improved outlook for FY23. We are benefiting from the secular transformation of physical operations, and we believe that the macro volatility caused by high inflation and a tight labor market is making Samsara even more imperative to our customers. And we remain committed to continued operating efficiencies on our path to profitability through scale, product enhancements, global employee expansion, and cost optimization, all without sacrificing the incredible customer demand we're experiencing. With that, I'll hand it over to Mike to moderate Q&A.