Smartsheet Inc.

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Smartsheet fourth quarter fiscal 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 at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star 1. Thank you. It is now my pleasure to turn today's call over to Mr. Aaron Turner, Head of Investor Relations. Sir, please go ahead.

Thank you, Brent. Good afternoon, and welcome, everyone, to Smartsheet's fourth 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 Godwold. Today's call is being webcast and will also be available for replay on our investor relations website at investors.smartsheet.com. There's a slide presentation that accompanies Pete's prepared remarks, which can be viewed in the event 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. A reconciliation of the most directly comparable U.S. GAAP 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.

Hello, and welcome to our fourth quarter earnings call for fiscal year 23. Our fourth quarter results cap off a strong year for Smartsheet, a year in which we extended our leadership position in collaborative work management, delivered our best year ever for new customer bookings, acquired Outfit to strengthen our marketing and creative management solutions, added 2.2 million users to the Smartsheet platform, and generated positive free cash flow for the year for the first time. While Pete will provide additional details, I want to call out some overall highlights from the quarter. Revenue for the quarter was $212 million, up 35% year-over-year. We added $62 million in annual recurring revenue in Q4, bringing our total ARR to more than $854 million. In Q4, we saw expansions at Volvo, USA Today, and Allscripts, among many others. And we had new customer wins at companies such as Dassault Aviation, cameras, and Xperia. Our expansion motion within our customer base continued with 311 customers expanding by $50,000 or more and 118 expanding by $100,000 or more. In Q4, we had two transactions of more than a million dollars and now have a total of 45 customers with ARR over a million dollars. Despite these successes, we've seen the changing macroeconomic environment negatively impact expansion rates across customer segments. However, even with these less favorable macro backdrops, our enterprise customers continue to exhibit the fastest growth rates. Our product investment and go-to-market strategy is focused on winning the enterprise, and we have seen great success in this segment. We now have over 3,300 large enterprise customers defined as organizations with over 10,000 employees. ARR from just this customer segment is now over $260 million and grew over 40% in FY23. We believe this segment alone represents a multi-billion dollar revenue opportunity for Smartsheet. While we may have seen some companies be more thoughtful with spending in this environment, We believe that in the long term, enterprises, especially large enterprises, remain the best opportunity to drive long term profitable growth. And no one in this category is winning the enterprise like we are. In FY23, in response to the changing macroeconomic environment, we took steps to improve our profitability. These actions resulted in Q4 profitability, non-GAAP operating income, and free cash flow exceeding our guidance. As we look ahead, we expect our scale, combined with our increasingly efficient operating model, to generate positive operating margins and over $110 million of free cash flow in FY24. Our scale and profitable business model further secure Smartsheet as the leader in collaborative work management. We are operating at an ARR scale, enterprise adoption rate, and profitability level that are unmatched in category. This leadership position is recognized by top peer review sites and publications. We recently earned a top five placement on G2's 2023 Best Products for Enterprise list, making us the only CWM platform to rank anywhere in the top 50. The list recognizes software companies that have best in class enterprise customer service, products, and experiences. And earlier this month, we were recognized for our industry leading enterprise work management and digital asset management solutions on Fast Company's most innovative companies list in the enterprise category. At Smartsheet, adoption of our capabilities-based products play a key role in our enterprise success. These capabilities now make up 31% of our subscription revenue, up five points year over year. Capabilities drove many large customer expansions in Q4. For example, a leading enterprise human capital management provider, signed a three-year enterprise license agreement that will give all 8,000 Smartsheet users at the company access to a full suite of advanced capabilities. Through January, on a year-over-year basis, they created 67% more forums, provisioned 132% more control center projects, and created 210% more work apps. A key Smartsheet use case at this HCM provider is in its professional services org, where they use Smartsheet to manage customer deployments. Smartsheet has become their global standard for customer deployments in part because our enterprise-grade security gives them the ability to manage sensitive customer data on our platform while still allowing for efficient collaboration. Our secure collaboration model has allowed this company to bring more than 42,000 external collaborators from different client organizations onto the Smartsheet platform. Q4 was a strong quarter for Smartsheet Advance. The Fortune 500 global manufacturer had a high six-figure annual expansion that included an upgrade to a higher advanced tier. This upgrade resulted from the viral adoption of Smartsheet across the organization. This year alone, they created over 5,000 dashboards, increased their work apps use by 430%, and provisioned nearly 5,000 projects using Control Center. This company will now use Smartsheet to help achieve its billion-dollar three-year operational cost savings initiative. Advanced usage through connected users also drove a seven-figure expansion at a Fortune 100 telecom company, which brought the customer's total ARR to over $3 million. Over 50,000 Smartsheet users across 11 departments in eight countries now use Smartsheet. This deal was driven by increased demand and adoption as more teams looked to centralize their work on Smartsheet. Our platform underpins over 1,000 work apps, 4,000 projects managed using Control Center, and over 28,000 dashboards. It is now the starting point for thousands of workflows that span integrated apps such as Salesforce, Jira, and Slack, and serves as a central hub for the company's collaboration with more than 500 external organizations. Wins such as these speak to the power of the advanced model, where the value of Smartsheet increases as the use of Smartsheet grows. In January, we published our inaugural future of work management report, which showed that over 80% of workers at every level across organizations say project management is being done by people whose title or job description doesn't include project manager. The research also showed a significant perception gap between leaders and workers with respect to their current project management tools. 60% of leaders say they've made the necessary investment in tools, but just 36% of workers who responded feel this way. This gap drives a robust, continuous flow of opportunity for Smartsheet. Here's a great example of how the best tools can empower people and business transformation. In Q4, we had an RFP win against three CWM competitors, which expanded our footprint at a Fortune 500 global biopharma company. The seeds of this win were planted when one team member in the purchasing organization took the initiative to design a Smartsheet-based system to automate the company's complex and time-consuming paper and email-based purchase order management process. Smartsheet didn't just modernize PO management, our platform also reached the company's transformation office, where Smartsheet is now supporting the company's critical initiatives. As the company's business transformation platform, Smartsheet Control Center and Work Apps are now helping them manage five strategic portfolios of work, each containing dozens of work streams that will guide the company towards its goal of positively impacting the health of two and a half billion people in the next 10 years. On the product front, we closed out another year of customer-focused innovation, having delivered over 400 product enhancements. In Q4, we launched the Smartsheet desktop application, content automation with integration of outfit, capacity view, and numerous automation enhancements. We also further increased platform scalability to power sophisticated workflows and drive thousands of business-critical work streams for customers of all sizes. In FY24, our investment efforts will be focused on helping our biggest customers grow faster with us as well as driving efficiency in how we sell to and serve our emerging customers. To enhance customer experience and value, we continue to evaluate and integrate artificial intelligence into the Smartsheet platform. Our AI innovation began in 2018 following our acquisition of Converse.ai. More recently, we have enabled petabyte scale intelligent content management through our proprietary powered AI engine, Brand Intelligence. Using recognition models, content is analyzed and tagged, making it easier for people to find creative assets with natural language search. And for over a year, predictive models have powered navigation recommendations in Smartsheet. Now our sites are set on the next wave of innovation, generative AI. The progress we've made in our early development is very promising. And the impact to accelerating customer onboarding, solving for advanced business designs, and unlocking self-directed discovery can serve as a catalyst for growth in FY25 and beyond. In closing, I'm proud of how our team executed in FY23, expanding our enterprise leadership position while navigating macro headwinds and driving significant efficiencies in the business. We continue to keep our customers' needs top of mind as we prioritize investments that enable them to drive meaningful change for their organizations. Q4 was another showcase of our CWM leadership. our winning enterprise strategy, the power of our platform, and the scalability of our business model. We are excited to continue this momentum in FY24 and beyond. Before I turn the call over to Pete, I want to acknowledge the transition of Smartsheet's board chair role. We recently appointed Mike Gregoire as the new chair of our board of directors. He succeeds Jeff Barker, who has been on our board since 2012 and has served as chair since 2017 and will remain on the board following this transition. We appreciate and thank Jeff for his leadership. His commitment to governance and execution during the company's transition from private to public and in the years that followed strengthened our ability to deliver value to customers and shareholders. Mike has been a valuable member of the Smartsheet board since late 2019. His expertise in operating technology companies at scale aligns very well for our next phase of growth. We are pleased to welcome Mike to the chair position and look forward to working with him more closely. Now, let me turn the call over to Pete. Pete?