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spk01: Summit Materials is a business that has some fairly unique attributes. We sell aggregates and those aggregates are mined from a quarry. Those get ground up and they get put into ready mix concrete. That ready mix concrete also has cement in it. We also produce cement. As a company, what we wanted to really focus on was to be the most socially responsible integrated building materials solution provider. We consume 35 million gallons of diesel annually. We have every incentive as a business to reduce our fuel use because that not only has the benefit in terms of cost, it also has the benefit in terms of emissions reduction. We've worked with Samsara to develop an API. It works directly with our Microsoft business intelligence platform. That allows us to more real-time monitor fuel usage, consumption, idle time, and emissions. And that allows us to give regular report outs to our regional folks. To actually be showing how you're notching progress gives you a whole other level of credibility with the investment community and gives them significant confidence that you're not just throwing a number out there, but in fact, you are actually showing evidence of how you are reducing your impacts. Our next stage of analysis is really asking ourselves, how are we going to position our fleet for the long term? Well, when we look to the future, that future is probably electric. We're able to show a very clear path to a 75% reduction in emissions going through the entire value chain of the business. Safety's so summit that we call it environmental safety and governance.
spk07: You got guys going out in trucks crushing rock, hottest to hot, coldest to cold, dusty as you've ever seen. They're out there working on it. For our fleet, I know if we're speeding, we're slamming brakes on, we're not paying attention, we're going too fast. If I can look at those leading indicators, pass them out to my folks, you can see those trends immediately. Sam Saria lets me do that.
spk14: Good afternoon and welcome to Samsara's fourth 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 Sanjay 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, March 2nd, 2023, 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 calls, some of our discussions will include our fourth quarter fiscal 2023 financial results. We'd 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 Q4, and then open the call up for Q&A. With that, I'll hand over the call to Sanjay.
spk08: Thanks, Mike. And thank you, everyone, for joining us today. FY23 was a year of durable and efficient growth for Samsara. And our continued momentum reflects the strength of our platform and large market opportunity ahead of us. We ended FY23 with ARR of $795 million, growing 42% year over year. During the year, we added 431 large customers with more than $100,000 of ARR, bringing us to over 1,200 large customers in total. To support customer demand, we grew our team to over 2,200 Samsarians, representing an approximately 40% increase in headcount year over year. As a company, we are focused on balancing growth and profitability, and we improved our adjusted free cash flow margin year over year by more than 90% in Q4, with negative 3% adjusted free cash flow margin. We also achieved Rule of 40 for the last two quarters of the fiscal year, which is a significant milestone, but there's still much work to be done to consistently achieve Rule of 40 on a quarterly and annual basis. As you know, our customers represent the broad world of physical operations and span diverse industries from food and beverage to construction to government and more. I'm always impressed by the resilience of our customer base. They're the backbone of the economy and provide the critical infrastructure that keeps the world running. Many have been around for over half a century and are no strangers to challenging economic cycles. Digitization is more important than ever in today's macroeconomic climate. Our customers are faced with difficult operating challenges and continue to search for ways to maximize the return on their investments to achieve their business goals. In Q4, we had a milestone quarter of large deals with customers who have complex operations at scale and a breadth of assets such as cranes, tractors, vehicles, and buildings. The value of the connected operations cloud is resonating with them as we digitize and combine their infrastructure into a single integrated platform. As a system of record for our customers' daily physical operations, the amount of insights and cost savings our platform can generate is tremendous. I'd like to share a few stories about some of our large customers who are starting to use Samsara to elevate their safety programs and improve their sustainability and efficiency efforts across their vast operations. Let's start with Nutrien Ag Solutions, our largest new ACV transaction ever. They're one of the world's largest agriculture inputs and services providers, and the third largest nitrogen producer in the world, with roughly 75,000 assets. Nutrien adopted Samsara's video-based safety solution to prevent accidents, promote safer driving behaviors through in-cab alerts, and help exonerate drivers from false insurance claims. Nutrien's goal is to uplevel its existing safety programs and mitigate risk through event analysis, education, and training. After completing a pilot with Samsara, Nutrien saw significant improvements across driving behaviors. Let's now turn to another exciting Q4 win. Estes Express Lines is the largest privately owned freight carrier in North America and a top 10 less than truckload carrier with more than 22,000 employees, over 45,000 tractors and trailers, and 270 terminals. Estes expects the real-time data from Samsara's Connected Operations Cloud will help them increase uptime, reduce costs, and achieve their goal of creating a digital twin of its entire shipment lifecycle to improve the customer experience. This way, they can provide better visibility to their own customers while removing time-intensive paper-based processes for their drivers and operations staff. Our video-based safety and vehicle telematics applications can help improve driver safety by using real-time alerts and help reduce idling. We project that a 10 to 15% reduction in idling can save them an estimated $2 to $3 million in fuel costs annually. Additionally, we estimate that saving drivers five minutes per week by automating manual tasks could lead to over $1 million in annual savings. Finally, let's cover another Q4 deal, this time in the public sector. We added a new State Department of Transportation to an existing public sector account, which now exceeds $1 million in ARR. The State Department expanded to use the Connected Operations Cloud to better manage their light duty and off-road assets, giving them data-driven insights to make critical operation decisions in real time. There are almost 40 agencies within the state, accounting for nearly 11,000 assets. By integrating Samsara's diagnostics data into its statewide enterprise resource planning system, the state can identify which assets require immediate attention and prioritize spending across their expansive operations. They can also further their sustainability goals by benchmarking assets that use the most fuel and prioritize those best suited to transition to electric. These customer stories represent just a snapshot of the incredible momentum we're seeing among large customers with complex operations, and we're excited to build on this in the coming year. As a system of record for physical operations, we help customers solve their toughest challenges by giving them the ability to analyze millions of data points across their expansive operations. More importantly, we help our customers achieve their business goals by transforming data into actionable insights. We've been investing in the Connected Operations Cloud, which continues to grow and become more sophisticated with nearly 6 trillion data points flowing in, over 50 billion API calls processed, and more than 50 billion miles driven for analysis annually. Our partner ecosystem, Samsara's App Marketplace, is also growing and now includes more than 220 integrations. Our customers are continuing to plug in additional partners and providers to fully leverage the power of our platform. On average, our largest customers are using six or more API integrations, up from four API integrations just last year. I'd like to share three specific examples of how our customers across industry are seeing value in rapid ROI from unlocking their data. Let's start with insurance premiums. Insurance premiums are consistently one of the top expenses for physical operations customers, and premiums continue to rise annually. Our AI models analyze driver behaviors and road conditions in real time, provide visibility into the leading causes of preventable accidents. And when a model detects one of those behaviors, we can proactively alert drivers in real time so they can take the appropriate action to prevent a potential accident. Safety incidents are saved to our cloud and customers and insurance providers can access this data through APIs. Insurance providers can use this data to better underwrite the risk of fleets, leading to reduced insurance premiums. Fuel prices also remain top of mind for our customers and can represent 60% of non-personnel spend. Leveraging Samsara's fleet benchmarking solution, our customers can better understand fleet performance, identify areas for improvement, set informed goals, and run their own feedback loops to ensure continuous improvements. Another important cost-saving priority for our customers is extending the life of their most expensive assets, from front loaders to cranes to tractors or other costly business-critical equipment. With maintenance status data flowing through our AI models, real-time diagnostics spot issues and proactively alert mechanics to fix vehicles before major faults take place. We're focused on creating an agile platform that meets our customers' most pressing needs. We do this through continuous innovation powered by our data platform and customer feedback loop. A good example of this is with digital workflows and how it's making an outsized impact in transforming the worker experience. By adopting Samsara's customizable digital workflows, our customers reduce time spent on manual written tasks, bringing up valuable time for other business critical work. And we've seen tremendous traction within our platform. We've seen year-over-year improvements in the number of workflows moving daily to our system, including over 110 million driver vehicle inspection reports logged in fiscal year 23, a 70% increase year-over-year, and over 23 million digital documents digitized, a 60% increase year-over-year. Samsara is quickly becoming the system of record for physical operations, and we're excited by the vast opportunity to truly transform the worker experience for our customers. I'd like to end with a thank you to our customers, partners, investors, and Samsarians who are joining us on the journey to digitize physical operations. We're looking forward to another year of building the Connected Operations Cloud, and we're excited to see many of you at BEYOND, our customer conference and investor conference in Austin, Texas this June. I'll now hand it over to Dominic to go over the financial highlights for the quarter.
spk09: Okay, 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 Q4 results and financial guidance. Q4 FY23 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 for a few reasons. First, we sell into the operations budget, which is large and generally non-discretionary. Second, our customers generate hard ROI savings by deploying Samsara. Third, our solution has a quick average payback period for customers, often in months. And finally, we have a subscription business model that produces highly predictable revenue, and we price based on the number of assets versus seat-based pricing, resulting in lower risk of churn if our customer's hiring slows or contracts. Our Q4 ending ARR was $795 million, growing 42% year over year, and Q4 revenue was $187 million, growing 48% year over year. Several factors drove our strong top line performance in Q4. First, we continue to focus on serving large physical operations customers. We now have 1,237 100K plus ARR customers, a quarterly increase of 124 or 53% year over year. We also saw particular strength within our largest customers. We now have 51 $1 million plus ARR customers, a quarterly increase of five or 65% year over year. Our investments in serving the largest physical operations companies in the world continue to pay off. 100K plus ARR customers represent our fastest growing cohort and make up 48% of our total ARR, up from just 45% one year ago. And while Q4 was a strong expansion quarter, it was an even stronger new logo quarter. We added a record number of new core customers in Q4, which now total more than 19,000. New customers represented 51% of net new ACV in Q4, up from 44% in the same quarter last year. And three of the $5 million-plus net new ACV deals in the quarter were new logos, including a leading traffic safety field services company operating across North America, that landed with video-based safety, telematics, and equipment monitoring to reduce accidents, leverage data to drive operating efficiencies, reduce fuel and maintenance costs, and streamline operations. And finally, multi-product transactions continue to significantly contribute to our top-line growth. In Q4, seven 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 25% of core customers and more than 50% of large customers subscribe to three or more applications. In addition to delivering strong 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. Q4 gross margin was 74%, approximately flat year over year, and has stabilized above 70% for 10 consecutive quarters. Q4 operating margin was negative 8%, an annual improvement of more than 40%, or six percentage points year over year, driven by leverage across all functions. And Q4 adjusted free cash flow margin was negative 3%, an annual improvement of more than 90% or 37 percentage points year over year, primarily from improved operating leverage and working capital improvements. Efficient growth continues to be a priority, as demonstrated by a 45% Rule of 40 in Q4, our second consecutive Rule of 40 quarter and our highest quarter in the last three years. While we're pleased with this accomplishment, our goal is to continue making the necessary improvements that would allow us to achieve Rule of 40 consistently on a quarterly and annual basis. And the final Q4 point I want to make is regarding hiring and headcount. We ended FY23 with more than 2,200 employees or approximately 40% growth year over year. Adding headcount is a key input to driving future growth, but we continue to operate with discipline while making incremental investments. Our ARR per employee at the end of FY23 was more than 350,000, an all-time high and three times higher than it was three years ago. Okay, now turning to guidance. As we enter our second year as a public company, we expect our guidance philosophy will be less conservative than during our first year. However, after analyzing various scenarios, we also believe it is adequately de-risked to account for the potential impact of worsening macroeconomic factors on our business. For Q1 FY24, we expect total revenue to be between 190 and 192 million, representing year-over-year growth between 33 and 35%, non-GAAP operating margin to be approximately negative 15%, and non-GAAP EPS to be between negative 5 and negative 6 cents, assuming 526 million weighted average shares outstanding. For full year FY24, we expect revenue to be between 838 and 848 million, representing year-over-year growth between 28 and 30%, non-GAAP operating margin to be approximately negative 7%, and non-GAAP EPS to be between negative 5 and negative 7 cents, assuming 536 million weighted average shares outstanding. And finally, a few additional modeling notes. First, we expect non-gap gross margin for FY24 will be in the low 70s percent. Second, we expect to cut last year's negative adjusted free cash flow dollars in half in FY24, and we expect to reach adjusted free cash flow breakeven in Q4 this year. And finally, we expect FY24 equity dilution to be between 3 and 5%, and our longer-term goal is annual equity dilution of less than 3%. And please note that additional modeling notes for Q1 and FY24 are included in our shareholder letter. So to wrap up, while we're operating in an uncertain macroeconomic environment, we are very pleased with our performance during our first year as a public company. We are digitizing the world of physical operations, and the Connected Operations Cloud is our customer system of record. We remain committed to continued operating efficiency improvements on our path to profitability and to making investments in the highest ROI areas of our business. We believe that with our markets, our platform and our focus on efficiency, we are well positioned to continue delivering durable growth while improving profitability. With that, I'll hand it over to Mike to moderate Q&A.
spk14: Thanks omnic we will now open the line for questions when it's your turn, please limit your questions to one main question and one follow up question. The first question today comes from sterling audi and moffat nathanson followed by Keith weiss and Morgan Stanley.
spk05: Can you hear me okay. Yeah, we can hear you. All right. Thanks, guys. So just curious if you can characterize what sales pipelines look like exiting the quarter versus maybe 90 or 180 days ago, just to help us understand the dynamics of macro impacts versus what you're doing on the sales execution side.
spk09: Sure, I'll answer that. We're not seeing a lot of change to sales pipeline. I think we called out some elongated sales cycles in Q2. We saw that persist in Q3 and Q4. But we're not seeing necessarily a change in the overall pipeline or the conversion of that pipeline or the win rates. But we do continue to see customers look at longer free trials, really validating the ROI analysis, elevating decisions higher up within the organization. But we're pleased with the pipeline that we saw exiting the quarter.
spk05: Excellent. And then, Dominic, you'd also mentioned gross margins in the low 70s. You had a nice, real sequential uptick in gross margins here in Q4. Can you remind us, what are some of the dynamics that are going to ebb and flow that number throughout fiscal 24?
spk09: You're really not seeing a lot of leverage out of gross margin. Again, on Q4, it was approximately flat year over year. And even as we look into next year, most of the leverage in this business that's going to drive better operating margins and better free cash margins are really going to come below gross margins. I think there's room to do some better optimizations and things like our cloud and cellular costs. We're obviously seeing some improvements in supply chain and the overall cost of hardware, and that will eventually – know work its way through through gross margins but i just i wouldn't expect a lot more out of that you know as we as we look into fy 24. understood thank you great our next question comes from keith weiss at morgan stanley followed by matt fow at william blair excellent uh thank you guys so much for taking the question and uh really really nice that too
spk03: strong year and what is still a difficult environment out there um kind of a two-part question um it does sound seem like the the value proposition and the strong roi of the platform is coming through to customers um are you seeing evidence of that in terms of your customer conversations um in terms of pipeline conversion. And then number two, the other sort of really striking part of what we've seen throughout this year, and you guys definitely capped it off in this quarter, is not just like 100K customers, but getting some of those largest potential customers out there, like the top 10 transportation companies and the like. What is it that really turned on for you guys this year? What's working that's enabling you to sort of get up to that class of customer and be so successful there?
spk08: Hey, Keith, this is Sanjay. I'll take the first part. So from an ROI perspective, it's absolutely a strong case. We have multiple opportunities to provide value to our customers on the safety side when it comes to helping exonerate drivers from accidents or even reduce risk to avoid accidents in the first place. That's really compelling. And for these large scale companies, complex physical operations customers, it can save them millions of dollars on a yearly basis. Similarly for fuel, it's the same story. Coaching drivers to operate a little more fuel efficiently and then optimizing the assets and the workloads and the routes to be fuel efficient can save these customers millions of dollars a year. So that ROI case is really strong and that pipeline conversion remains strong in spite of what Dominic mentioned, where there is a bit of elongation on the sales cycle. So I think we feel good that we've got a compelling value proposition. The win rates continue to be stable and it's a very, very large market. We're talking about tens of millions of commercial vehicles here in the US, even more in Western Europe. So I think just in terms of our core market and our core value proposition, the ROI is there. And customers are very much tuned for this as they think of ways to save money in this environment.
spk09: And Keith, it's Dominic. I'll answer the second part. I think, you know, for the large deals, you know, Q4 is typically our largest net new ACV quarter in terms of seasonality. So that definitely played a role in this. But we've been making investments in the enterprise segment or large customer segment for many years now. And we're starting to, you know, find the yield on some of those investments. We've made a lot of investments. uh investments in r d so making sure that the platform is is is enterprise grade uh building the the required integrations as we talked about on average these customers are using six integrations now up from four that it's got the right scalability and flexibility and security all built into the product are big-time investments that we've made for these large customers. And then we've made a lot of sales investments as well. The go-to-market motion is very different than mid-market. The sales cycles can be a lot longer. And we've made a lot of investments there to go along with the R&D investments. And we're now starting to see some real consistent results out of the largest customers.
spk14: Excellent. Thank you, guys. Great. Thanks, Keith. Our next question comes from Matt Fowle, Will and Blair, followed by Alex Zukin at Wolf. Matt, are you there? Okay, let's keep moving. So our next question, let's go to Alex Zucan at Wolf.
spk11: Hey guys, can you hear me okay?
spk14: Hey Alex.
spk11: Yep. Congrats on another excellent quarter. I guess one thing that struck me, Sanjit, from both the letter and the script, your comments about the insurance opportunity were really interesting. And I just want to unpack that a little bit and understand about how much that could become almost a channel opportunity or a partner opportunity for some SAR, almost like a force multiplier. Maybe just talk to us about the current go-to-market with that industry or with that channel. And is this an area that you can partner with in the future to kind of force multiply it?
spk08: Hey, Alex. Happy to chat about that. So insurance is an exciting area for us because we're so closely aligned with these insurers. Our products are helping these physical operations customers reduce risk out in the field. And in the case of exoneration, it helps resolve claims much more quickly. So we have a number of large insurers that have signed up with us. The logos are available in the Samsara app marketplace if you want to take a look. And to kind of get to your question, it is absolutely an important area that we're investing in from a channel and partnerships perspective. Typically speaking, insurers don't sell this kind of technology or resell the technology. So today they're mostly referral partners of ours, but the partnerships are going really well. We're getting introduced to both large and midsize fleet customers and other types of customers through that. So I think it's an area we're going to continue to invest in because there's so much value and value alignment.
spk11: Perfect. dom on the bottom line you guys continue to find uh efficiencies in the business uh for multiple quarters now the incremental margins continue to look solid maybe just um lean in a little bit about your expectations for for sales hiring uh and quota carrying capacity for the coming year and also maybe just remind us at least from a i know it's for illustrative purposes but if you exclude the hardware costs associated with the business What would kind of the adjusted pre-cash flow margin be in that case and how to think about that metric over the court, you know, even exiting next year?
spk09: Sure. So I think we made a lot of investments in overall headcount in FY23, growing 40% year over year while being able to improve our overall ARR per employee. As I look into FY24, we continue to hire. We have more than 200 or around 200 open recs on our website right now. And so I expect the overall headcount growth to still be going into next year. And a subcomponent of that will obviously be sales capacity. We really look at productivity metrics to really drive our investment decisions. If we see productivity, net new ACV per ramped rep improving, that gives us confidence that we can continue to hire. If we see it go down, then that means we probably need to pull back and we're cutting territories and accounts too quickly. So we'll really continue to use that data to uh monitor how how we're gonna hire into next year but but i do expect that we'll continue to build more capacity that won't necessarily help us in fy24 but more so in fy25 given the four quarter ish ramp for for for new sales reps on your second question So about 21% of our revenue in Q4 was spent on inventory, you know, on our IoT devices and on inventory. And so with a minus 3% free cash flow margin, our free cash flow margin sans dollars going out the door for inventory would have been positive. 18%. So we recognize that obviously a significant component of our service are IoT devices, but I think that that goes to show investors just the overall kind of leverage in this business longer term and the efficiency in which we're operating. Perfect. Thank you guys. Congrats again. Thank you.
spk14: Let's go back to Matt Pfau at William Blair, followed by Derek Wood at TD Cowen.
spk04: Hey hey thanks wanted to ask about being used more and more as a as a system of record with your customers as. As customers use more api's incorporate you more into your workflows I assume that makes them stick here, but what are you seeing in terms of potential monetization opportunities as that happens.
spk08: So Matt, I'll take that. So we are seeing a lot of momentum. We talked about this in the shareholder letter. In terms of API calls, we had about 50 billion API calls last year, and that increased 4x year over year. And overall, the other software-based features that we've added to the system, whether it's workflows or digital documents, are also growing 60% and 70% year over year. So there's a lot of value there for the customer. Today, it's made available as part of the license. We are constantly looking at how we price and package the platform to best align with what our customers need and how they want to consume it. But today, there's no plans to break that out and monetize it separately. We're trying to drive adoption and really get customers to get as much value from this data as possible because that's ultimately what makes us essential as a system of record is to be that source of data, to have high-quality, clean data, and that has value for the customer. And then we can also do things like better training AI models and other benchmarking data sets behind the scenes with that.
spk04: Great. And along those same lines, are you seeing OEM integrations become more important? I know that was called out in the largest deal that you signed in the quarter.
spk08: We are. So on the OEM front, we're seeing OEMs of all different kinds of equipment integrate connectivity directly into the assets themselves. And so that's just been a long-term build for us is partnering with OEMs, whether it's light duty, heavy duty, other kinds of equipment manufacturers like John Deere, Caterpillar, and others. So that's an area that I think will take a couple of years to really get going, but it's something that we are starting to see the beginnings of.
spk04: Great. Thank you.
spk14: So our next question comes from Derek Wood at TD Cowen, followed by Matt Hedberg at RBC.
spk06: Great. Hey, guys. Thanks. It's not that common to see new customer mix rising in this kind of economy where it's often harder to sign new deals, especially ones that are larger in size. So that's great to see those metrics. And I just wanted to try to unpack that a little bit more. I mean, obviously, we know your value prop, your ROI is so compelling, but It does seem like new customer activity at markets accelerating and just wondering, is that more brand recognition? Is that more feet on the street and effective selling? Is that more legacy solutions aging out? If you could just highlight a couple of key factors, that'd be great.
spk09: Yeah. Hey, Derek, it's Dominic. I think, you know, as you mentioned, in the quarter, 51% of net new ACV came from new logos, 49% came from expansion. So it was very balanced. But in Q4 of last year, it was only 44% of net new ACV was new logos. I think maybe just adding a little bit of color, you know, our overall goal is just to drive more net new ACV and increase ARR. We don't, at this point, incentivize sales reps differently for new logos versus expansions. We just view it as like a dollar is a dollar. So you saw Q4 was a really strong new logo quarter. In Q3, it was flipped. Expansions were a little bit stronger. And so we're really focused on just that overall balance. And right now, over the last several quarters, we've had a really good balance, almost half coming from new logos and the other half from expansions pretty consistently.
spk06: Got it. Makes sense. And I guess, Dom, another one for you. I saw your comments around seasonality with respect to the AR build and how you're expecting it to be a bit more back end loaded because of engaging more with with larger companies that I suspect have more seasonal seasonal budgets. But, you know, this has been a motion that's been pretty consistent for you guys for a while. So what's different for this year? And perhaps does it contemplate the macro and longer sales cycles? Is that part of the reason for more back-end loaded?
spk09: I think it's more of the first point that you made. If you look at just the ARR mix coming from 100K plus customers is now at 48%. A year ago, it was at 45%. And so we would expect that to continue. That cohort of customers is growing a little bit faster. And at the same time, we've talked about de-emphasizing customers that pay less than 5K of ARR, where you see more... you know, steady bookings throughout the year. It's much more consistent. And so as we expect that trend to continue into FY24, that would lead to a little bit more, you know, backend ARR, net new ARR linearity than what we've seen. We don't expect it to be extreme, but that's a trend that we expect to continue to happen.
spk06: Great. Congrats on a great quarter. Thanks.
spk14: So our next question comes from Matt Hedberg at RBC, followed by Cash Rangan at Goldman Sachs.
spk10: Hey, guys. Thanks for taking my questions. I'll offer my congrats as well. Sanjay, you called out the million-dollar state government deal as well as a bunch of other public sector wins in your shareholder letter. That's super exciting to me. I guess my question is, how big of a vertical is public sector for you? And I think once you win one large state contract, it looks almost like a standardization. Could that create a bit of a domino effect as in what's good for one state could be good for the others?
spk08: Sure, Matt. So we are excited about governments because they have large, complex physical operations. And like you said, there are multiple states out there. So as one state sees value from what we do and becomes referenceable, it is something that is applicable across the board. Now, the challenge with public sector is the buying cycles are a little bit longer. You do need to get on some of these state contract vehicles. And then they have also different pieces of software they integrate with that we don't see as often out with commercial customers. So we're in the process of building out our public sector team and also all the sort of necessary integrations. But for us, we believe it could be a top 10 industry vertical for us. And we're excited to continue to invest. And within government, I should highlight, it's really state and local is the largest opportunity for us because the operations are so distributed. And that's not just here in the US, but also in international markets, Canada, Mexico, Western Europe as well.
spk10: Fantastic. And then Dom, for you, I know you guys signed longer term contracts. Maybe looking back to some of those contracts from five, six years ago that are renewing, Can you talk about sort of the renewal yield you're getting on these? Because I think, you know, obviously you've got a lot more opportunity now, a lot more product than you did back then. How are those been trending, you know, in what is obviously a tighter economy today?
spk09: Yeah, I mean, renewal motion was newer for us in FY23, given that, you know, we're eight years old and we signed these three to five year contracts. The amount of renewal ACV in FY23 was almost 5X what it was in FY22. So we're learning a lot. Fortunately, we're seeing really good renewal rates. They're very consistent. And anecdotally, we're seeing that as well. As we go in and replace legacy incumbents, we're replacing some solutions that have been embedded for decades. And so we know that we can get in there and add value and would expect to continue to see strong renewal rates. And I think we're doing a good job of... terms and price increases and all of those things that go into the renewal conversation. And we're very pleased with the performance of that in FY23. Thanks.
spk14: Our next question comes from Cash Rangan at Goldman Sachs, followed by Kirk Maturna at Evercore.
spk00: Great. Thank you very much. Congrats on the quarter. One for Sanjit, one for Dom. Sanjit, when you look at these customer workflows that are increasingly getting more sophisticated, there's a lot more documentation being stored on the system. Your product is getting deeper into aspects of the enterprise applications topology within your customers. So are these workflows leading you to new product opportunities or pricing models? that could be somewhat pegged to consumption, although the word consumption is not a great thing on Wall Street these days. But regardless, what are these workflows leading you into other avenues of growth within your customer base? And one for you, Dom. When you look at the growth of the company, in part driven by multiple vectors, but one of which is new customer acquisition. So if you want to keep up the growth rate, you've got to wrap up the new customer acquisition. Is there any way, and that entails obviously working capital requirements with the inventory buildup, et cetera. Is there a way you could get the best of both worlds? You could still continue to drive growth and not have to slow down growth in order to attain the free cash flow levels that you are capable of generating? Or is there no way around it that you have to keep growing and ultimately at some point when things do settle down way into the future, that we should be able to get the scale because the inventory requirements will become smaller as a percentage of the recurring ARR base. Thank you so much.
spk08: Hey, Cash, this is Sanjay. I'll take the first part, and it'll actually link, I think, maybe to the second part of your question. So on the workflows front, we are seeing great traction with the digital workflows that we offer these customers. We talked about this in the shareholder letter and prepared remarks. We saw about 110 million driver vehicle inspection reports get filled out digitally using smartphones and tablets. That was up 70% year over year. Digital documents, we saw about 23 million digital documents, again, used through the app. So that's up 60% year over year. So we do see that as a growth factor for us, driving usage engagement using these apps. And the reason I highlight that is it's not actually tied to necessarily hardware. It's another area of value, and these companies are basically moving from pen and paper clipboards to digital process. So that's an exciting area for us to deliver value to the customer. Today, we're focused on the areas that I talked about earlier, but we are thinking more generally about Can these workflows work at the beginning of a shift or an end of a shift? Can they be used for safety? Are there other use cases and applications? So you'll see us continue to invest there. And at some point, we may break that out. Today, it's available as part of our existing product family. But if we start to see usage that gets decoupled from the asset-based licensing model that we have, that we talked about earlier, the three- to five-year seed-based SaaS kind of traditional model, we might price it or package it differently. But we have no plans to do that yet.
spk09: And I'll take a crack at your second question here. I would just, and feel free to follow up if I'm not addressing it directly, but I think I would just view growth and free cash flow at this point as relatively decoupled. We are growing exponentially. as fast as we can. And we're putting inputs into the business to drive growth as quickly as we can. And at the same time, we're getting incredible leverage out of the business in driving working capital improvements. Those things are relatively decoupled and would expect that to be the case going forward. We're going to continue to get more and more leverage out of out of OPEX, and we're doing a better job of optimizing our working capital, including the dollars that we spend on IoT devices and supply chain and cash collections and the like. So we think that we can continue to grow fast as we're scaling while continuing to drive more and more leverage out of the business.
spk00: Thank you so much.
spk14: Our next question comes from Kirk Matern at Evercore, followed by David Unger at Wells Fargo.
spk15: Hi, guys. This is actually Peter Berkeley. I'm with Kirk. You're asking the question, and I appreciate you taking the time to take some questions. So, Don, maybe just a couple quick ones for you. You know, first off, I'm just curious, you know, noticing your shareholder letter, NRR for the large customer segment sort of staying above that 125 range, but then, you know, forward-looking next year, sort of assuming, you know, a slight decline down to the 120. So, I'm just curious if this is mostly about, you know, a continued choppy macro, or if there's a, law of large numbers dynamic at play or you know any color you could add there and then just my second one would just be you know you also mentioned you're gonna have a sort of less conservative approach to guidance this year um you know while it's still being adequately de-risked if the macro were to deteriorate so just wondering if you could add any color there i mean is this assuming you know change on top of funnel or better conversion rates or just various you know in terms of that guidance methodology what's changed
spk09: Sure. Yeah. So on the net retention one for Q4, we are above our FY23 target of 115% for core customers and 125 for 100K plus. As you mentioned, we are setting our target for FY24 at 115 and 120. And it is really just given the macro uncertainty and some of the elongated sales cycles that we experienced. in FY23, which could have an impact on the timing of expansions. I would also just echo the point that I made earlier that we don't actually incentivize sales reps differently for new logos or for expansions. Q4 happened to be a really strong new logo quarter. Q3 was a stronger expansion quarter, and so we're really just looking at the overall balance, and again, it was 51% of net new ACV came from new logos, 49% from expansions in Q4, and so we're seeing good balance, and that's ultimately what's important to us. On the... the uh the conservatism in the fy 24 guide comment that was made in the shareholder letter and and the prepared remarks really what what i'm saying is um if you go back to like fy 23 we we initially guided 30 to 32 percent revenue growth and we ultimately finished that 52 growth so that entailed beats of eight percent seven percent nine percent nine percent in q one two three and four what we're saying for fy 24 is we're starting the guidance at 28 to 30 percent the we will not have those same level of beats in fy 24 so it is less conservative than that initial fy 23 guide um there is a lot of obviously macro uncertainty if we see a lot of those headwinds we won't need to reduce our guidance that is that is why we call it d risk we do not think we will go below 28 to 30%. If we don't see those headwinds, we will have the opportunity to move that guidance up throughout the year, similar to what we did in FY23, but we do not expect the same magnitude of, of beats. And so that's really the point that I was, I was trying to drive home more in that kind of low to mid single digit, you know, revenue beats on a quarterly basis. If we do not see any sort of, you know, macro, macro uncertainty.
spk15: Makes sense. Thanks, Tom.
spk14: Our next question comes from David Unger at Wells Fargo, followed by Alexey Gogolev at JPMorgan.
spk13: Hi, can you hear me okay? Yeah, we can hear you. Okay, thanks. Just a couple for me. Can we just talk about the competitive environment, any changes you're seeing over the past year, and then just, you know, looking ahead to the long-term with efficiency gain, just which line do you think could be the most meaningful opportunity for you for the long-term? Thank you.
spk08: So, David, I'll take the competitive question. I would say the competitive environment remains pretty consistent with what we've seen. Most of our customers are familiar with a number of the legacy incumbents that have been in this marketplace for some time. They offer point solutions, products that either just do GPS tracking or just do driver safety and so on. And we're differentiating ourselves by being a modern platform, a platform where customers The majority of our customers now are using multiple apps, which is exciting to see. And it's also we're differentiated in the sense that we're open in the number of integrations that we offer, which is now up over 220. So just a kind of quick summary there is I would say the competitive environment remains very consistent with what we saw in previous years.
spk09: And I'll take the second question kind of on the leverage point. I would say, you know, again, gross margins, we think longer term can be in the mid 70s. I think through the IPO and the long term model, we had 74 to 76%. So that's where we likely see that. uh plateau out i think that most of the again the leverage in the business is really going to come from opex sales and marketing is is our largest area of spend as more and more of our base renews the cost of sale on renewal is uh like it is for for most subscription businesses is significantly lower and so we will get a lot of natural leverage out of that R&D is an area I don't expect much leverage there. And FY24, a lot of investments to make there. And then G&A is another area where we'll get more and more leverage as we scale. Obviously, as a first-year public company, there was an inflection in public company costs. I don't expect those costs to grow at the same rate as revenue in future periods.
spk13: Excellent. Congratulations. Thank you.
spk02: next question comes from alexia jp morgan followed by dan jester at bmo thank you mike can you hear me okay yeah we can hear you great thank you um i was wondering if you could provide a bit more detail on the relationship that you have with your suppliers from taiwan um maybe give us some details how many there are and if the relationships are exclusive But more importantly, have you considered how you're going to meet customer demand in case of another supply constraint of IoT devices? Should we see geopolitics escalate further in Taiwan?
spk08: So, Alexei, I'll take that one. This is Sanjit. We work with multiple suppliers, and these are basically large ODM manufacturers that manufacture product for multiple customers, and it's a thriving ecosystem. So the good news about that is we have a selection of multiple suppliers and multiple manufacturers we can work with, and we also maintain direct relationships with the key component suppliers. In other words, the... key chipset suppliers that we use upstream. So in that sense, we have pretty good visibility. We have very strong relationships. And while there's this geopolitical uncertainty, uh, we're managing through it by relying on these strong relationships that we have. And we've actually seen circumstances improve quite a bit over the last, uh, you know, 12 to 18 months.
spk02: Great. Thank you, Sanjit. And, um, could you also, um, provide some thoughts on your productivity per employee. I mean, I completely see that it has significantly increased from three years ago, but versus last year, based on the figure of 40% growth, it looks like it remained broadly unchanged. That's ARR per employee. So just wondering when you think that added sales capacity and improving productivity is going to kick in.
spk09: Yeah, I'll take that. So yeah, ARR per employee was up, again, 3x over the last three years and was up in FY23 over where we ended FY22. We did grow headcount in FY23 by 40%. And the subcomponent of that that is sales capacity or that will drive more sales capacity will add more productivity in FY24. I think it's an interesting proxy that we use to think about our business and really in just, are we hiring at the right pace? If that starts to go really negative, I think it makes us question, are we hiring too quickly? But obviously- all headcount costs is not created equal. I think we've started to do a much better job of hiring in lower cost regions and really broadening our aperture of where we're hiring from. And so not all headcount costs is created equal, but it is just a high level proxy that we use to ensure that we're hiring at an appropriate pace.
spk02: Great. Thank you.
spk14: All right. Our last question today comes from Dan Jester at BMO. Dan?
spk12: Great. Thanks for taking the question. Just two real quick ones. First, you know, obviously a lot of improvement in profitability and the rule of 40 metric, which you mentioned. I guess what's going to get you comfortable with saying that that's the new framework that we should be thinking about? scale? Is it macro? Like what needs to get put in place for comfort there? And then secondly, on the sort of the API growth that you mentioned, especially along large customers, is there any similarities in terms of where they're sort of investing most in the ecosystem from an apps perspective? And what are you doing in the year ahead to sort of make sure the ecosystem growth is as strong as possible to keep that dynamic growth going? Thanks.
spk09: Yeah, I'll take the first one on rule of 40. So I think it's important to understand that free cash flow is a portion of that calculation, and it's very seasonal for our business. So it will likely be worse in the first half of the year, and it will improve in the second half. the year, similar to what we saw on FY23. That's why we're confident that we can get to adjusted free cash flow break even in Q4. And so I think as we move beyond that, and we're starting to see free cash flow at that level more consistently, that will obviously have a bigger impact on rule of 40 and being able to also see that metric at or above 40 consistently. So again, more likely in the back half of the year, and we do have a few additional expenses that come through cash outflows in the first half of the year.
spk08: Great. And I'll take the API growth question. So as I mentioned earlier, we saw 50 billion API calls in the last year, and that's up 4x year over year. So a lot of what we're doing today is to simply enable our customers to take advantage of these APIs and get more value from the data. many of these physical operations companies are early in their digital transformation lifecycle. So they're now starting to adopt business intelligence tools and tie this real-time data into their ERPs and improve their end customer experience through real-time notifications, those sorts of things. So we have some great teams internally that help with that enablement process early in the customer journey. And then we are also continuing to invest in partnerships. So as I mentioned earlier, we have about 220, uh, partners on the Samsara app marketplace. Some of those are insurance companies, which we talked about as well. We have payroll system providers, ERPs, OEMs that we've integrated with to get even more data. So we're going to continue to invest in technology partnerships. But I think for us, the real unlock has been that the customers are now waking up to this opportunity or starting to really pull on how do we get this API data and how do we make the most use of it?
spk12: Great. Thank you very much.
spk14: So this concludes the question and answer portion. Thank you all for attending our Q4 fiscal year 2023 earnings call. That was a great conversation. This past quarter capped off a year of durable and efficient growth for the company and reinforced the strength of Samsara's Connected Operations Cloud and continued customer momentum. We're only getting started, and we look forward to updating you on our progress as we pursue the big opportunities that lie ahead. Before I let you go, I have a few short announcements. First, we'll be attending the Morgan Stanley Technology Media and Telecom Conference on March 6th and the Wells Fargo Software Symposium on April 12th. So we hope to see you in person at one of those events. Second, we are hosting our investor day on June 22nd in Austin, Texas. Please send an email to ir.samsara.com if you're interested in attending in person. For those that prefer to attend virtually, our IR website will have a web link to a live broadcast. That's it for today's meeting. If you have any follow-up questions, you can email us at ir.samsara.com. Thanks again. Bye, everyone.
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