Smartsheet Inc.

My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the Smartsheet second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Aaron Turner, Head of Investor Relations, you may begin your conference.

Thank you, Emma. Good afternoon and welcome everyone to Smartsheet's second quarter of fiscal year 2023 earnings call. We will be discussing the results announced in our press release issued after the market closed today. With me today are Smartsheet CEO Mark Mader and our CFO Pete Godbold. Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.smartsheet.com. There is a slide presentation that accompanies Pete's prepared remarks, which can be viewed in the events section of our investor relations website. During this call, we will make forward-looking statements within the meaning of the federal securities laws. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends. These forward-looking statements are subject to a number of risks and other factors including, but not limited to, those described in our SEC filings available on our investor relations website, and on the SEC website at www.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially and adversely. All forward-looking statements made during this call are based on information available to us as of today. We do not assume any obligation to update these statements as a result of new information or future events, except as required by law. In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. The reconciliation to the most directly comparable U.S. gap measures is available in the presentation that accompanies this call, which can also be found on our investor relations website. With that, let me turn the call over to Mark.

Thank you, Aaron, and welcome, everyone, to our second quarter earnings call for fiscal year 2023. Q2 was another strong quarter for Smartsheet. Revenue in the quarter grew 42% to $186.7 million last and billings grew 44% to $205.6 million as enterprises across the globe continue to deploy Smartsheet at scale to solve their mission-critical workflows. In Q2, 62 customers expanded their Smartsheet investment by over $100,000 and 201 expanded by over $50,000. We also added three more customers to the million-dollar ARR tier and now have 36 customers over this ARR threshold. We ended Q2 with ARR surpassing $736 million and now have over 11.1 million Smartsheet users. Q2 was another great quarter for our new business motion, with new business booking setting another quarterly record. We saw new wins at companies such as Payment Processor Repay, United Health Services Hospitals, Bloomberg Industry Group, IMAX, Midwest Vision Partners, the Broadcast Management Platform Operative, Logic Consulting, and Affinity Health Partners. However, we are not immune to the changing macroeconomic condition. In the month of July, we started to see macro impacts on our business, including longer sales cycles, some deal compression, and additional approval layers. These impacts resulted in lower expansion rates. Additionally, our previous guidance assumed a ramp time for sales reps we hired at the beginning of the year to be consistent with what we'd experienced in the past. However, this ramp time has been slower than we anticipated. We're investing in new enablement tools and training to improve productivity. Given these factors, we're taking a thoughtful approach to guidance and are electing to lower our full year billings and revenue guidance with the assumption that the current macro environment persists. While Pete will provide more details about how the changing macro economy is impacting our financials for the remainder of the year, I want to update you on the status of our key growth drivers, namely our portfolio of capabilities products, our success in the enterprise, and brand folder. Our portfolio of Smartsheet premium add-ons that we refer to as capabilities continues to drive deep attachment within our customer base and further differentiate Smartsheet from the rest of the CWM category. Whether these capabilities are bundled in an advanced package or purchased individually, they power our customers' most important workflows. From data shuttle, which lets users act on data across multiple systems, to control center that lets users build and operate a system of work across hundreds to thousands of projects or workflows, to our brand folder digital asset management platform, our portfolio of capabilities lets customers connect to a range of workloads unmatched in the collaborative work management space. These differentiated offerings give our customers the keys to unlock massive value within their organizations. An example of this is Infoblox, a leader in next-generation DNS management and security that has increased its Smartsheet usage by close to 4x since 2019. As more teams and departments at Infoblox adopted Smartsheet, they began to see opportunities to create more integrated, centralized workflows using premium capabilities. Over time, they deployed Data Shuttle to set up a sync between their CRM and Smartsheet, plus advanced reporting capabilities that help summarize their data and enable faster, more informed decision making. In Q2, Infoblox upgraded to ADVANCE to access the full value of Smartsheet's premium capabilities, and they plan to implement a scalable, automated, and secure OKR solution using Control Center and Dynamic View. We're seeing more large customers deploy ADVANCE to access multiple capabilities such as Data Shuttle, Control Center, Data Mesh, and Bridge for complex workflows that need to integrate with other systems in their organization. For example, the technology and consulting provider NV5 implemented Control Center to automate the creation of their primary customer engagement templates to save time and achieve consistency while still allowing for changes over time. They are also using Work Apps and Dynamic View to create custom views for field teams that only show them the information that is relevant for their role, helping ensure data security at scale. And revenue from capabilities continues to grow rapidly and now accounts for 28% of our subscription revenue compared with 22% in Q2 of last year. Advance, which packages various capabilities, was included in 300 deals in the first half of this fiscal year, including those with biopharmaceutical company Sobe, Crown Roofing and Waterproofing, and Elego Health Research. The growth potential for capabilities remains very strong. Through Q2, only around 7,000 of our more than 100,000 customers had deployed at least one capability. Those customers are realizing significant ROI on their Smartsheet deployments and are expanding at a rapid pace. This value realization naturally gets the attention of senior executives who are increasingly involved in the decision-making process. This value-based enterprise go-to-market motion has demonstrated an increase in executive leaders selecting Smartsheet as their CWM platform of choice. I'd like to highlight a few Fortune 100 companies where that's happening. In Q2, a Fortune 100 entertainment company expanded its Smartsheet investment by over $700,000, taking their total ARR to over $3 million. With this expansion, they migrated to the next tier of connected users for their advanced gold deployment. This company has doubled the number of paid licensed users over the past year, adding roughly 3,000 enterprise licensed users and has now tens of thousands of connected users. And that number is expected to increase further as Smartsheet is now the central component in the company's effort to consolidate the work management solutions it uses. An executive in their IT department suggested that other CWM platform used in the organization will be retired in favor of Smartsheet. A Fortune 50 pharmaceutical company more than doubled its ARR to almost a million dollars as its teams rely on Smartsheet to help them manage the spinoff of one of its divisions and will continue to use Smartsheet in the resulting two companies. Most important, the company's expected ROI of its Smartsheet deployment is $3 million in just year one. We also want an RFP at a Fortune 50 food and beverage company to become their global standard for collaborative work management. While this company is a low six-figure customer today, this RFP win sets the table for rapid growth over the next few years. RFPs are still rare for our business, but this shows that in a rational head-to-head comparison, Smartsheet won, thanks to our years of investing in our platform to delivering extensibility, scalability, and security that businesses demand. One more example I'd like to share from Q2 is a Fortune 10 technology company. that expanded by over $1.7 million in Q2, accelerating our growth within this organization to a total of $7.6 million in ARR. Last year, we became a globally approved CWM platform for the company. This approval has helped fuel significant adoption of Smartsheet across several dozen large departments. Previously, I've emphasized the importance of our brand folder digital asset management platform as key to cementing our leadership in the CWM space. Naturally, we spent a lot of time understanding how to optimize workflow management for marketers. One of our insights is that marketers need to distribute content across more channels at higher velocity while ensuring brand consistency. Marketing teams are being asked to do more and more with fewer resources. To meet customers' expanded content distribution needs, we require the leading brand management, templating, and creative automation platform, Outfit. Outfit will turbocharge Brandfolder's content distribution capabilities, making us a leader in the content automation and management space. We're looking forward to introducing Outfit and the many other exciting new Smartsheet features and capabilities to thousands of users at our Engage 2022 customer conference taking place September 19th through 22nd in person for the first time since 2019. In closing, the new economic reality organizations are facing has impacted a portion of our business, yet we remain confident in our ability to deliver long-term, durable growth and profitability. This confidence is due to our position in the market, our differentiated suite of capabilities, and our market-leading presence in the largest companies in the world. We're carefully managing our resources to drive improved margins, and we remain on track to achieve break-even free cash flow by end of this fiscal year. And now I'll turn it over to Pete. Pete?