Samsara Inc.

Good afternoon and welcome to Samstar's second quarter fiscal 2024 earnings call. I'm Mike Chang, Samstar's Vice President of Corporate Development and Investor Relations. Joining me today are Samstar Chief Executive Officer and Co-Founder 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, August 31, 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 call, some of our discussions will include our second quarter fiscal 2024 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 a press release and investor presentation. We'll make opening remarks, dive into highlights for the quarter, and then open the call up for Q&A. With that, I'll hand over the call to Sanjay.

Thanks, Mike. And thank you, everyone, for joining us today. Samsara achieved another strong quarter as we continue to deliver rapid ROI for the world's leading and most complex organizations. We ended Q2 with an ARR of 930 million, growing 40% year over year. Q2 is also our first adjusted free cash flow positive quarter, and we are proud to have achieved this milestone towards becoming a self-sustaining business. Our vision is to be a multi-decade partner for our customers in driving their digital transformation, and profitability is an important step in that journey. Our customers represent more than 40% of the global GDP and are the backbone of the global economy. They're leaders in construction, food and beverage, transportation, agriculture, and field services. In Q2, we saw continued momentum with large customers. We added a record 140 large customers, bringing us to over 1,500 customers with over $100,000 in ARR, growing 53% year-over-year. This includes New Jersey Transit, National Grid, and Boert Longyear, the world's leading provider of drilling services. Our customer success is central to our company's success, and we are grateful to have earned their partnership and trust. This past June, we had a chance to celebrate our customers by bringing together nearly 1,000 leaders from the largest physical operations organizations in the world at Beyond, our annual customer conference. At the event, we learned more about the challenges they're facing and discussed how Samsara's Connected Operations Cloud is delivering value through digitization. It was a great opportunity to hear our customers' top priorities, which is critical as we shape and prioritize our R&D efforts. Throughout our conversations, it was evident that the appetite for digital transformation is robust and growing. We also held our Connected Operations award ceremony, where we celebrated our customers who achieved an outsized impact on our platform. This year, we honored a number of industry leaders, including DHL, our Connected Operations Innovation winner, and Sobeys, our winner of Most Sustainable Operations. DHL is one of the largest logistics companies in the world, serving more than 220 countries and delivering 1.7 billion parcels annually. They have complex global operations and a frontline workforce of 600,000 people. Using SAMSAR for safety and telematics across 20 sites, DHL Express saw a 26% reduction in accidents and a 49% reduction in accident-related costs. Equally as impressive, DHL's supply chain also saw a 50% reduction in driver turnover, reaching their lowest driver vacancy ever. Driver turnover is a major cost for our customers, and it's incredible to see the positive impact our products can have by helping companies enhance safety and improve retention. Let's turn to Sobeys, one of the largest supermarket chains in Canada, with more than 200,000 employees across 2,700 locations. They have ambitious sustainability goals with a go green target date of 2035 to substantially lower their emissions. Using Samsara, they saved 46,000 gallons of diesel, leading to a savings of 469 metric tons of carbon emissions in just four months. We really enjoyed our customer conversations throughout Beyond, and I'm excited to announce that next year we'll be hosting our conference in Chicago with even more customers, partners, and leaders across the world of physical operations. A key priority for our customers is reshaping the worker experience. While there are millions of employees who work in corporate back office, 70 to 80% of the world's workforce are frontline workers. Saving frontline employees time with digital workflows and other technologies to modernize their experience can have an outsized impact for an organization. A prime example of this is one of the largest air carriers in the world, which is using Samsara to digitize its ground support equipment operations across some of its major U.S. hubs. They're using our telematics and equipment monitoring applications to manage thousands of pieces of equipment, from baggage carts to passenger boarding stairs and more. They've seen impressive results, saving their employees valuable time by helping them locate equipment, often outside in all types of weather conditions, in minutes instead of hours. At one hub alone, they reported saving more than 2,600 hours searching for ground support equipment, and it's already impacting customer experience. They've reduced delays in kickoff flights, the first flights of the day, which has a cascading impact on their operational schedule and customer experience. We are proud to help support their frontline teams and drive these results for their business. Our customers trust us as a strategic partner to make the jobs of their frontline workforce better, safer, and more efficient. At Beyond, we announced two new products to further empower their workers, Connected Forms and Mobile Experience Management. Launching later this year, Connected Forms allows customers to digitize any custom form, such as inspections or incident reports, and enables workers to complete them on the go. De Silva Gates Construction, a leading construction equipment transportation company, used Connected Forms during early access to streamline equipment inspections. They've seen significant value already and reported 90% reduction in administrative time through eliminating the need to process paperwork. You can read more about this exciting use case in our shareholder letter found on our investor relations website. Mobile Experience Management, or MEM, gives operations leaders the ability to easily customize, control, and secure devices for remote environments their frontline teams operate in. U.S. Logistics, a final mile company serving the eastern half of the United States, has seen substantial improvements with MEM. being able to more efficiently assist and train drivers remotely has resulted in a reported 80% reduction in average driver call times. They also reported a 70% reduction in data usage while eliminating disruption for their drivers, supporting their safety on the road. As we build for the long term, we're investing in technology and talent that will drive value for our customers now and in the future. We listen to our customers through our customer feedback loop and use those insights to deliver purpose-built solutions that address their most pressing needs. In addition to Connected Forms and MEM, this year at Beyond, we also announced three innovations to drive operational efficiencies, Virtual Coach, Find My Asset, and Data Connectors. Customer centricity is central to our business. I'm excited to bring an important new voice of the customer to Samsara's Board of Directors with the appointment of Todd Bludorn. Todd brings nearly 30 years of leadership experience within the industrial sector, including 15 years as Chief Executive Officer and Chairman of Lenox International, a leading global HVAC company and leadership roles at United Technologies and Texas Instruments. He brings a deep understanding of our customers' needs and has a proven track record of execution and operational rigor, which will only enhance our ability to deliver for our customers. We are thrilled to welcome Todd to the board. And finally, I wanted to share that we were recently recognized by several organizations as a great place to work. We earned our 2023 Great Place to Work certification, were named a Best Workplace for Innovators by Fast Company, and were named a 2023 UK's Best Workplace for Women. We are proud of creating a culture and a company that our employees enjoy working for. It's been a milestone quarter for us at Samsara. We're operating at scale, have tremendous momentum fueled by customers who find value and ROI in our platform, and have taken an important step towards becoming a self-sustaining business because of our continued focus on durable and efficient growth. I would like to thank all of the Samsarians, customers, partners, and investors for joining us on this decades-long journey. I'll now hand it over to Dominic to go over the financial highlights for the quarter.

Thank you, Sanjit. Q2 was highlighted by achieving our first quarter of positive adjusted free cash flow. In addition to hitting this milestone in Q2, we expect to remain adjusted free cash flow positive for the full year and going forward. This was also another quarter of high growth at scale. Our year-over-year net new ARR growth accelerated for the second consecutive quarter, resulting in sustained high growth for both total ARR and revenue. In Q2, we added 74 million of net new ARR, a quarterly record, representing 33% year-over-year growth, which was our highest growth over the past six quarters. This also represented 32 percentage points of year-over-year growth acceleration at a Q2 ending ARR was $930 million, growing 40% year-over-year. And revenue was $219 million, growing 43% year-over-year, which is the same growth rate as last quarter at a larger scale. Several factors drove our strong top line performance. First, we continue to focus on serving large physical operations customers with complex operations that are more likely to utilize our full suite of applications. We now have 1,515 100K plus ARR customers, including a record quarterly increase of 140 or 53% year over year growth, which is our third consecutive quarter of maintaining this growth rate at a larger scale. 100k plus arr customers represent our fastest growing cohort in q2 arr from these customers grew 53 year-over-year representing the second consecutive quarter of accelerating year-over-year growth as a result 100k plus arr customers contributed 50 of total arr mix up from 46 one year ago Second, this quarter included a balanced mix of landing new customers and expanding existing customer relationships. New customers represented approximately half of net new ACV, and seven of the top 10 deals were new logos, including three that were greater than $1 million, one of which is a leading clean energy provider serving more than 20 million people in the Northeastern United States. Using Samsara's EV features and sustainability dashboard, they are realizing hard and fast ROI by reducing the consumption of more than 10 million gallons of fuel per year. Expansions to existing customers represented the other half of net new ACV, the largest of which was a more than $1 million video-based safety expansion to a critical infrastructure provider. During the pilot phase, the customer realized a 79% reduction in mobile usage events and a 50% reduction in speeding events. In addition to fewer accidents, this customer expects to lower insurance premiums, improve asset utilization, and reduce fuel costs, all with Samsara. And third, while our core businesses drove most of our Q2 performance, we also executed well across several new frontiers. For example, state and local governments, municipalities, and school districts are becoming increasingly important end markets for Samsara. In Q2, we saw strong public sector momentum, including two of our top five new customers and two of our top five expansion deals. In addition to public sector, we continue to see growing end market diversity. In Q2, 84% of net new ACV came from non-transportation verticals, up from 78% in Q2 last year, with particular strength in energy, utilities, construction, and field services. And lastly, we continue to see strength in non-vehicle applications. We now have three separate products contributing more than $100 million of ARR each and growing more than 30% year over year, including equipment monitoring used to locate and manage non-vehicle assets in the field. In Q2, we signed our largest ever equipment monitoring deal, an approximately $1 million expansion to a top 10 customer. In addition to driving strong top line growth, we continued to deliver operating efficiency improvements across our business as we scale. Q2 gross margin was 75%, a quarterly record, and approximately two percentage points higher year over year, driven largely by optimizing cloud, cellular, and customer support costs. Q2 operating margin was negative 3% compared to negative 13% in Q2 FY23. And Q2 adjusted free cash flow margin was positive for the first time at 2% or $5 million compared to negative 25% or negative $38 million in Q2 FY23, primarily from improved operating leverage and continued working capital improvements. Okay, now turning to guidance. For Q3 FY24, we expect total revenue to be between 223 and 225 million or between 31 and 33% year-over-year growth. Based on our Q2 results and updated outlook for the remainder of FY24, we're raising our full-year revenue guidance to be between $896 and $900 million, or between 37% and 38% year-over-year growth. As a reminder, our fiscal year always ends on the Saturday closest to February 1st, which means every six years, our fiscal year calendar includes 53 weeks instead of 52. As such, FY24 includes an extra week in Q4, resulting in 14 weeks instead of our typical 13-week quarter. We expect the extra week will add less than 3 percentage points of year-over-year growth in FY24, which was already factored into our prior guidance as well as the current guidance we provided today. Additionally, we don't expect the extra week in FY24 will have a material impact on our key profitability metrics because we will incur an additional week of expenses while also recognizing an additional week of revenue. To wrap up, we are pleased with our performance through the first half of FY24 and our improved outlook for the remainder of the year. We are digitizing the world of physical operations and helping our customers become safer, more efficient, and more sustainable. With our markets, products, and customer focus, we are well positioned to continue delivering durable and efficient growth. With that, I'll hand it over to Mike to moderate Q&A.