Samsara Inc.

Good afternoon and welcome to Samstar's third 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.samsonar.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, November 30th, 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 third 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'll discuss here 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 the quarter, and then open the call up for Q&A. With that, I hand over the call to Sanjit.

Thanks, Mike, and thank you everyone for joining us today. Samsara had another milestone quarter. We surpassed $1 billion in ARR, growing 39% year over year. We are a strategic partner for the world's leading and most complex physical operations organizations. Large customer momentum continues to fuel our growth, and we added a quarterly record of 148 customers with more than $100,000 in ARR. This represents our fastest growing customer cohort, growing 49% year over year. We also added a quarterly record of nine customers with more than a million dollars in ARR and seven Fortune 1000 customers. Our customers partner with us because we drive impact for them. As part of our ongoing customer feedback loop, we meet with the frontline and back office workers to understand where they're getting the most value. Here's what they say sets us apart. First, our single platform for all of their operational systems. Second, our simple, intuitive, and easy to use technology that just works out of the box. And third, our strategic customer partnership. All of this together is what powers our customers' outcomes and helps deliver clear and fast ROI for their organizations. I'd like to share two examples of this. Earlier this year, we announced a partnership with one of the largest air carriers in the world to digitize its ground equipment across major U.S. hubs. This quarter, we partnered with another major airline, the world's largest low-cost carrier, to help their teams use equipment more efficiently and avoid unnecessary spending. We gave them visibility into their fleet utilization and helped their employees locate critical equipment in real time. This decreased both maintenance times and costs and helped ensure planes were serviced. Based on results from an initial pilot, we estimate the airline can save more than $15 million annually from improvements in utilization, fuel efficiency, and operations. Another example is one of the largest specialty contracting companies in the U.S. focused on construction services, maintenance, replacement, fabrication, and engineering services. They're a top 10 customer and have had 19 expansions with us since 2018. This quarter, they expanded with us again with an over $1 million video-based safety deal. Safety is one of their core values. The wellbeing of their employees, clients, and subcontracting partners is fundamental to their success. During an initial pilot, the company averaged a 50% reduction in safety events when events were coached. We are proud to drive these meaningful results in ROI and improve the safety, efficiency, and sustainability of our customers' operations. In just eight years of selling, we are operating at a rare combination of scale, growth, and profitability. Of all the US listed software companies, only seven, including Samsara, are at or above $1 billion in ARR, growing faster than 30%, and free cash flow positive. This demonstrates our commitment to execution and our strength in the market. Looking forward, we believe we have the foundation to continue delivering durable growth and operating efficiency improvements. First, we are addressing a large market that is still in the early innings of digitization. physical operations represents more than 40% of global GDP. They're the mission critical infrastructure that keeps the world running. Our customers are the world's leaders in construction, food and beverage, transportation and warehousing, public sector, agriculture, and more. Second, we are building the only system of record for physical operations to address this market. We pioneered the Connected Operations Cloud to collect IoT data from a broad and diverse group of vehicles, equipment, sites, workers, and a growing ecosystem of connected assets and third-party systems. Third, we aggregate all of this data into one common cloud. Our multi-application platform continuously delivers applications to solve our customers' most challenging problems. This unlocks an opportunity for us to continue selling and expanding with our customers. Last, our increasing scale and strong unit economics drive operational efficiency. Q3 is the 14th consecutive quarter where we've improved operating margins and dollars year over year. While we are proud to have reached the $1 billion ARR milestone, we know that this is just a small step in our journey to transform the world of physical operations. In front of us, we have a large and rapidly digitizing market. We are scaling our multi-product platform to address the needs of the world's most complex physical operations organizations. And we have a strong foundation to build on with more than 19,000 core customers, more than 260 partners, and thousands of Samsungians working in harmony. The flywheel that is powering our business is accelerating as we convert our leading operations data set into AI-powered insights that amplify customer impact. The first part of the flywheel is investing back in our platform, which has more than 6 trillion data points and 55 billion API calls over the last year. We're focused on increasing the operational data set in our cloud. There are many drivers that will continue to bring more data in, including expansions to more asset types, international growth, and more ecosystem partnerships. Second, as we increase our unique data set, we expect to deliver even more insights and solutions for our customers. We pioneered a platform that is purpose-built to capture and curate data, adopt new models through our robust machine learning infrastructure, and operate in our cloud and at the edge with IoT devices. All of this allows us to accelerate and expand AI-powered insights for our customers. Third, more insights will drive more impact. We have been delivering clear and fast ROI by partnering closely with our customers to understand their key operational pain points. This also helps us understand how AI-powered insights can make the jobs of their workers better and safer, and how their operations can become more efficient and sustainable. As we look to the future, our customer feedback loop will continue to unlock more applications such as co-pilots, risk centers, and workflows to drive even more customer impact. We're excited about the future, and I'd like to say thank you to all the customers, Samsarians, partners, and investors for supporting us on our journey to $1 billion in ARR. We're now operating at a rare combination of scale, growth, and profitability, and we're just getting started. As we scale towards our next billion and beyond, we can look forward to the continued partnership with our customers on their digitization journeys. I can't wait to see the impact we'll make on their communities as we improve the safety, efficiency, and sustainability of their operations. I'll now hand it over to Dominic to go over the financial highlights for the quarter.

Thank you, Sanjit. Q3 was highlighted by several new records for important operating metrics and surpassing notable milestones. First, we surpassed 1 billion of ARR in just our eighth year of selling to customers. Second, this was our third consecutive quarter of accelerating year-over-year net new ARR growth at a larger scale. Third, we achieved a quarterly record number of large customer additions with both 100K plus and 1 million plus ARR customers. Fourth, our video-based safety and vehicle telematics products each surpassed $400 million of ARR while still growing more than 30% year over year. And lastly, we achieved our first quarter of positive non-GAAP operating profit, led by a quarterly record non-GAAP gross margin. Q3 was another quarter of sustained high growth at scale. Our ending ARR was $1.003 billion, growing 39% year over year, and Q3 revenue was $238 million, growing 40% year over year. Several factors drove our strong top line performance in Q3. First, we continue to focus on serving large enterprise customers to drive durable and efficient growth at scale. We now have 1,663 100K plus ARR customers, a quarterly record increase of 148, representing 49% year-over-year growth. We also saw particular strength within our largest customers. We now have 71 $1 million-plus ARR customers, a quarterly record increase of nine, representing 54% year-over-year growth, accelerating from 51% year-over-year growth last quarter at a larger scale. 100K-plus ARR customers also represent our fastest-growing cohort and make up 51% of our total ARR, up from 47% one year ago. And our land and expand strategy for large customers continues to pay off. In Q3, four of our five largest net new ACV transactions were new logos, including three new million-dollar-plus ARR customers that each landed with our three largest products, video-based safety, vehicle telematics, and equipment monitoring. Additionally, almost 60% of the 100K plus ARR customer additions in Q3 were expansions to existing customers, allowing us to achieve our target dollar-based net retention rate of 115% and 120% for core and large customers, respectively. Second, our customers increasingly utilize SAMSAR as a system of record for physical operations by subscribing to multiple applications all on one unified platform. More than 90% of our large customers and 75% of our core customers subscribe to multiple application licenses. As a result, our two vehicle-based applications, video-based safety and vehicle telematics, each represent more than $400 million of ARR, and our largest non-vehicle-based application, equipment monitoring, which is used to locate and manage field assets, is more than $100 million of ARR. In addition to large-scale, each of these product categories is growing more than 30% year-over-year. Additionally, our largest transactions increasingly include multiple products. In Q3, nine of our top 10 net new ACV deals included two or more applications. Our largest new logo in Q3, a leading US aggregates company with over 1,000 on and off-road vehicles and over 6,000 field assets across more than 500 locations, landed with video-based safety, vehicle telematics, and equipment monitoring. Partnering with Samsara, the customer is eliminating more than 50,000 hours of manual reporting and data input work, gaining insight into equipment utilization, providing safety coaching, and saving millions of dollars on annual fuel spend. Third, we continue to demonstrate strong execution in several frontier markets. Most notably, 17% of net new ACV came from international geographies, tied for our strongest quarter ever, driven by strength in Mexico and Europe. Additionally, our construction and public sector verticals each contributed their highest net new ACV mix over the last three years, led by new customers such as the city of New Orleans, serving nearly 400,000 residents and millions of visitors annually. This large municipality landed with video-based safety, vehicle telematics, and equipment monitoring across 41 city departments, including police, fire, public works, code enforcement, parks and parkways, sanitation, and more to proactively manage maintenance, improve operational efficiency and safety, and increase asset utilization. And lastly, we saw strength in emerging products that provide additional expansion opportunities within our existing customer base. Mobile Experience Management, or MEM, is a new software-only product that allows customers to manage mobile devices in the field through features such as end-to-end visibility, remote access, and display customization. Q3 was our first full quarter selling MEM, and we've already crossed $1 million of ARR. In addition to driving strong top line growth, we continued to deliver operating efficiency improvements across our business as we scale. Non-gap gross margin was 75% in Q3, a quarterly record, and approximately two percentage points higher year over year, driven largely by optimizing cloud, cellular, and support costs. Non-GAAP operating margin was positive for the first time at 5% compared to negative 10% in Q3 last year, an improvement of approximately 15 percentage points year over year. An adjusted free cashflow margin was 4% or $9 million in Q3 compared to negative 9% or negative $15 million in Q3 last year, an improvement of 12 percentage points or $23 million year over year, primarily from improved operating leverage and continued working capital improvements. Okay, now turning to guidance. Based on our Q3 results and increased forecast visibility for the last quarter of the fiscal year, we're raising our revenue and profitability guidance both in dollars and margin. For FY24, we're raising our revenue guidance to between 918 and 920 million or 41% 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 additional week will add approximately three percentage points of year-over-year growth in FY24, which was factored into our prior guidance as well as the updated guidance provided today. Additionally, we don't expect this will have a material impact on FY24 ARR because sales quotas are consistently set regardless of the number of days or weeks in a fiscal quarter or year. Similarly, we don't expect a material impact on our key profitability metrics because additional expenses will be required to support the additional revenue. In addition to increasing our top-line guidance, we're also improving our FY24 non-GAAP operating margin guidance to approximately negative 1% or an implied operating income improvement of $18 million at the midpoint of guidance. And we are raising our FY24 non-GAAP EPS guidance to between 5 and 6 cents. And finally, we included a few additional modeling notes in our shareholder letter. So to wrap up, we are pleased with our performance in Q3 and our 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 believe we are well positioned to continue delivering durable and efficient growth. And with that, I'll hand it over to Mike to moderate Q&A.