Samsara Inc.

Welcome to Samsara's third 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 and are subject to risks and uncertainties described more fully in our SEC filings. Any forward-looking statements that we make on this call are based on assumptions as of today, December 1st, 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 third 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 will discuss today are non-GAAP except for revenue and revenue growth. Reconciliations of GAAP to non-GAAP financial measures are provided with our press release and investor presentation. We'll make opening remarks, dive into highlights for Q3, and then open the call up for Q&A. With that, I'll hand the call over to Sanjay.

Thanks, Mike. And thank you, everyone, for joining us today. We delivered another quarter of substantial growth at scale, with ending ARR of $724 million, growing 47% year over year. We saw record quarter-over-quarter growth in our $100,000-plus customers by adding over 120 net new large customers. We now have over 1,100 large customers, including many Fortune 1000 companies, across a wide range of physical operations industries. We also continue to improve our operating leverage. In the last year, we've improved our non-GAAP operating margins from negative 26% to negative 10%, and our adjusted free cashflow margins from negative 38% to negative 9%. During the quarter, Samsara's chief product officer, Jeff Hausman, and I met with over 30 customers across North America and Europe. I'm always inspired by the strength and resilience of our customer base. Our customers are the critical infrastructure that power the global economy, and their industries make up over 40% of the world's GDP. They span diverse industries that include food distributors, chemicals companies, energy utilities, freight carriers, and municipalities. Many of them have been around for over half a century, so they're no strangers to the challenging economic cycles. Our customers are essential. They keep the world running and are incredibly resilient. In this macroeconomic uncertainty, our customers are focused on achieving their business goals. They're looking for new ways to maximize every dollar invested into their businesses. Right now, they're focused on asset efficiency, worker availability, and maintaining safe and compliant operations. As a system of record for physical operations, Samsara delivers value across each of these areas by digitizing their day-to-day tasks and workflows. Clear and direct ROI continues to be a priority for physical operations customers. They love investing in technology when it's a clear win. Let's take a look at a few notable case studies from existing Samsara customers in waste services, critical infrastructure, and transportation who've been able to quantify their ROI since adopting our platform. The results they've shared with us are pretty incredible. A waste transportation and container rental company in Texas adopted Samsara to improve driver safety and safeguard their drivers from false accusations. With Samsara's video-based safety driver coaching, they decreased speeding by 58% in one year. They also helped exonerate drivers from more than 50% of accidents. This application alone equated to an estimated savings of $500,000 in annual insurance premiums, representing a five-month payback period for their entire multi-product investments. They've also turned their safety culture into a retention multiplier. In this instance, their driver turnover rate dropped to 26%, which is three times lower than the industry average of 80 to 90%. Retaining skilled workers is a massive cost reduction lever and is especially important given today's labor shortage. Inflationary pressures remain top of mind for our customers. Samsara's platform is a deflationary technology with a proven ability to help customers control costs. Let's take a look at another example, a leading infrastructure provider serving more than 40 states who subscribe to multiple Samsara products, vehicle telematics, video-based safety, and equipment monitoring. They saved an estimated $11 million by using Samsara's equipment monitoring to optimize asset usage across their multiple subsidiaries, representing a five-month payback period for their entire multi-product Samsara investment. With real-time operational data, they've identified inefficiencies in their equipment usage and sold their underutilized equipment, freeing up cash flow to invest in other areas. Optimizing asset utilization is a particularly relevant topic for physical operations customers who now face record wait times for new vehicles and equipment. Let's turn to how Samsara customers can drive ROI by improving and measuring their sustainability efforts. More and more of our customers are focused on carbon reporting and sustainability. Samsara's Connected Operations Cloud helps them measure and reduce fuel and energy usage, electrify their fleets, and monitor carbon emissions. Here we're looking at a less than truckload carrier based in Illinois with subscriptions to multiple Samsara products that include telematics, video-based safety, and sites. They were drawn to Samsara because we can provide a complete platform that helps them reduce their fuel usage, improve safety, and cut back on paperwork and inefficient processes. Since deploying our telematics across their entire fleet, they've reported an improvement in fuel efficiency and a 50% decrease in idling, which is a significant source of fuel waste. This one feature alone translated to approximately 150,000 gallons of fuel saved and over $500,000 in cost savings per year, representing an eight-month payback period for their entire investment in Samsara products. These case studies represent a snapshot of how Samsara customers are getting clear and fast ROI to our platform. As a system of record for our customers' daily physical operations, the amounts of insights and cost savings our platform can generate is tremendous. Trillions of data points now flow to our platform every year, providing companies with rich insights that can help them control costs, improve safety, and reduce emissions. What makes our data unique is not the sheer volume alone, it's the breadth and depth of the data. We are able to pull data from all aspects of a company's physical operations, from vehicles to equipment to buildings. All of this business critical data exists in an open platform and can be seamlessly integrated with a robust ecosystem of partners, including OEMs, IT systems, insurance providers, and vertical specific applications. This quarter, we reached an important milestone. We added our 200th partner integration to our platform. This makes Samsara the largest open ecosystem for physical operations. Similar to leading cloud providers, leading cloud platforms that exist to deliver actionable insights for IT workers, Samsara allows physical operations leaders to have a single source of truth as our system of record for physical operations. As the scale of our data compounds, we're able to refine our analytics models to deliver even richer insights and innovation for our customers. This quarter, we launched our proactive driver coaching solution. It's powered by our data asset and our advanced AI capabilities. With it, customers can take a preventative approach to driver safety. Technology solutions like this help build safe habits on the road, empower drivers to own their coaching experience, and act as a differentiator for companies as they look to attract and retain talent. But we're not only focused on building products, we're also focused on building our company for the long term. Digitally transforming the world of physical operations isn't going to happen overnight. To be a multi-decade partner for our customers, we must become a self-sustaining company. This was our 10th consecutive quarter of delivering year-over-year improvements to our non-GAAP operating loss in both dollars and margins. Over that same period, we've scaled ARR over 3X from $222 million to $724 million. We're committed to operating efficiently on our path to profitability. Like our customers, we're focused on investing in the highest ROI areas of our business. We also continue to invest in our people. Samsara has become a destination of choice for top tier talent. This quarter, we welcomed Steve Pickle as Samsara's first chief people officer. Steve joins us from Salesforce, where he oversaw global people strategy and operations and helped double Salesforce's headcount. Steve's experience leading and growing large-scale transformative teams and cultures will be instrumental as we grow and develop our talent pool. We benefit from a flexible workplace model at Samsara and have offices in North America, Europe, and Asia. By expanding our operations, we leverage the efficiencies of a global talent pool. This allows us to bolster customer support and accelerate region-specific go-to-market strategies. It's been an exciting quarter of efficient growth across our product offerings, partnerships, executive leadership, and global footprint. We are proud to serve a diverse and resilient range of essential industries. Samsara's customers keep our world running, and we are here to help keep them running safely, efficiently, and sustainably by streamlining their operations, reducing their cost stacks, and providing clear and direct ROI. I'd like to end with a thank you to all Samsarians, as well as our customers, partners, and investors for your continued support. While there's much to be proud of today, I know the best is yet to come. I'll now hand it over to Dominic to go over the financial highlights for the quarter.

Thank you, Sanjit. As a reminder, please refer to our shareholder letter, press release, and investor presentation at investors.samsara.com for additional information on our Q3 results and financial guidance. Q3 was highlighted by strong top line growth and continued operating efficiency improvements. Our durable and increasingly efficient growth demonstrates the large and growing opportunity for digital transformation across the world of physical operations. While global economic uncertainty persists, we exceeded our expectations for key top line and profitability metrics by providing quick time to value and meaningful ROI savings for our customers. Q3 ending ARR was $724 million, growing 47% year over year, and Q3 revenue was $170 million, growing 49% year over year. Several factors drove our strong top line performance in Q3. First, we continue to focus on serving large physical operations customers. In Q3, we eclipsed 1,000 large customers and now have 1,113 customers with more than 100K of ARR, a record quarterly increase of 124 and a record annual increase of 398 representing 56% year over year growth. Next, Samsara is increasingly utilized as the system of record for physical operations, and multi-product transactions continue to significantly contribute to our top line growth. In Q3, six of our 10 largest transactions included subscriptions to two or more products. More broadly, more than 70% of core customers and more than 90% of large customers subscribe to two or more applications, and more than 50% of large customers subscribe to three or more applications. We're also seeing multi-product strength at scale. At the end of Q3 are two connected fleet applications, video-based safety, and vehicle telematics, each represented more than 300 million of ARR. Additionally, our emerging products contributed more than 14% of net new ACV in Q3, including our third largest ever equipment monitoring transaction. And while just over 10% of ARR comes from non-fleet products today, customer adoption is much higher. Almost half of multi-product core customers and two-thirds of multi-product large customers already subscribe to non-fleet products. This demonstrates our product breadth and opportunity for further expansion as customers bring additional assets onto the Samsara platform. Lastly, we continue to see strong expansions within our customer base, including upsells of existing products across a broader set of assets and cross-sells of additional products. As a result, 55% of Q3 net new ACV came from existing customers, and our dollar-based net retention rate for core customers and large customers remained above our targets of 115% and 125% respectively. Our largest Q3 customer expansion was a $1 million plus upsell to a Fortune 500 telecommunications provider. With no incumbent solution, the customer selected Samsara to help them reduce fuel costs and maintenance spending, improve safety through speeding reduction, and decrease carbon emissions from idling. As a result, we expect the customer will achieve a 3.6x return on investment. In addition to delivering top line growth, we continue to focus on driving operating efficiency improvements across our business as we scale. As a result, we saw year-over-year leverage across all major functions. Q3 gross margin was 74%, a year-over-year improvement of two percentage points, primarily from product and supply chain optimizations and larger scale. Q3 operating margin was negative 10%, an annual improvement of more than 60% or 16 percentage points year over year, driven by leverage across all functions. And Q3 adjusted free cash flow margin was negative 9%, an annual improvement of more than 75% or 29 percentage points year over year, primarily from continued improvements in the global supply chain and working capital optimizations. In Q3, adjusted free cash flow margin converged with operating margin, and we expect these metrics to be more closely aligned moving forward. We also achieved Rule of 40 in the quarter, a milestone that demonstrates our focus on efficient growth. While we're pleased with this accomplishment in Q3, our goal is to continue making improvements that allow us to achieve Rule of 40 consistently on a quarterly and annual basis. Okay, now turning to guidance. Based on our Q3 results and increased forecast clarity for the last fiscal quarter of the year, we're raising our revenue and profitability guidance, both in dollars and margin. For FY23, we're raising our revenue guidance to be between 636 and 638 million, or between 48 and 49% year-over-year growth. We're improving our full year operating margin guidance to approximately negative 14% and we're raising our EPS guidance to be between negative 16 and 17 cents. Based on our updated full-year FY23 guidance, Q4 implied revenue is expected to be between 170 and 172 million, or between 35 and 37% year-over-year growth. Q4 operating margin is expected to be approximately negative 16%, and EPS is expected to be between negative 5 and 6 cents. Looking to next year, based on our current outlook and after analyzing various scenarios, we believe current consensus estimates for high 20% FY24 revenue growth is appropriately de-risked. On our next earnings call, we will provide more detailed FY24 guidance based on our actual Q4 performance and our finalized operating plan. And finally, we also included some additional modeling notes for Q4 and full year FY23 in our shareholder letter. To wrap up, while we're operating in an uncertain macroeconomic environment, we are pleased with our performance year to date. We are digitizing the world of physical operations, and our cloud is becoming our customer's system of record. As a result, we remain committed to driving durable growth along with improved operating efficiencies on our path to profitability. With that, I'll hand it over to Mike to moderate Q&A.