Smartsheet Inc.

Good afternoon. 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 fiscal 2024 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 to star 1. 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 2024 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 Godbolt. 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 the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially and or 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 to 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. And with that, let me turn the call over to Mark.

Thank you, Aaron, and good afternoon, everyone. Welcome to our second quarter earnings call for fiscal year 2024. While Pete will provide additional details, I'd like to highlight a few areas of our Q2 performance and share continued progress in our leadership of the enterprise work management market. Smartsheet revenue for the quarter exceeded our guidance and grew by 26% year-over-year to $235.6 million, and billings grew 18% year-over-year to $243.1 million. In Q2, we generated non-GAAP operating margins of 8% and free cash flow was $45.5 million. We ended the quarter with annual recurring revenue of $933 million and more than 13.4 million Smartsheet users. 75 customers expanded their Smartsheet investment by more than $100,000 in Q2 and 232 companies expanded by over $50,000. Additionally, we closed three transactions over $1 million and now have 51 customers with ARR over $1 million. Enterprise expansions for the quarter included Airbus U.S., Hewlett Packard Enterprise, Iron Mountain, and Pacific Life Insurance Company, among others. And we saw new customer wins at organizations such as Breville, Equity Group Holdings, and New York University. We now have over 9,400 enterprise customers, which we define as organizations with over 2,000 employees. These customers make up over 50% of our ARR and are posting NRRs well above our overall rate. Our execution within the enterprise continues to be recognized by industry analysts and peer review sites. On the heels of being named the leader in Forrester's Collaborative Work Management Tools Wave, IDC published a report in July recognizing Smartsheet as a vendor who shaped the year in 2022. Additionally, Smartsheet received the distinction of being a customer's choice in the 2023 Gartner Peer Insights Voice of the Customer in the Collaborative Work Management Market segment in Q2. Smartsheet received the highest rating and the highest percentage of customers willing to recommend the platform at 98%. Our portfolio of capabilities continues to be a core differentiating factor in our success in the enterprise. Our customers leverage our capabilities to attach the Smartsheet platform to mission-critical projects, programs, and processes. In Q2, capabilities were present in each of our top 10 expansions. Smartsheet Advanced, which is a bundle of our capabilities, had a strong quarter as well. We closed 216 advanced deals in Q2, an increase of 50%, versus Q2 of last year. To expand on this, here are some additional details of our three largest deals this quarter. A Big Four consulting firm signed a seven-figure deal with us to streamline client engagement, simplify internal and client status reporting, and automate a variety of processes across the organization. With Smartsheet Advance enabling the firm's business transformation, This customer estimates they've already saved $7.5 million across 590 projects completed as of May of this year. Importantly, Data Shuttle is allowing them to pull information from disparate data sources to quickly create reports without needing to develop costly direct integrations with proprietary systems. They'll also use Smartsheet to more effectively bid on engagements with clients and more efficiently plan, track, and manage resources and budgets. This firm's increasing client-facing use of Smartsheet will also showcase our platform to their portfolio of blue chip clients during engagements. We also signed a seven-figure expansion with a large global retailer where Smartsheet is being used to drive business transformation across multiple divisions. In its fulfillment centers, Smartsheet is helping leadership manage strategic planning and operations. And as they grow their brick-and-mortar locations, they're using Control Center to help manage new construction and store remodels. Smartsheet Advance also plays an important role in the company's retail marketing organization, where it supports their budget management, marketing, and creative operations. Also in Q2, we closed a seven-figure brand folder deal with a Fortune 15 company. This customer will use brand folder to consolidate its tech stack while enabling marketing teams to eliminate manual processes and streamline the storage and management of digital imagery and video content. BrandFolder will help power their websites and mobile apps to reduce aversion control issues and help the team deliver a better online experience for customers and more efficiently generate millions in online revenue. As the leader in enterprise work management, our customers are running mission-critical programs and processes at significant scale on Smartsheets. Whether that's tracking the sourcing of millions of parts for a manufacturer or running programs with tens of thousands of projects, the Smartsheet platform continues to be the choice of customers needing to operate at enterprise scale. Scale will continue to be one of our biggest differentiators. Our platform's ability to scale allows our customers to leverage Smartsheet to build sophisticated solutions that run the kind of complex workloads that enable organizations to achieve their goals. Over the past 12 months, we've gone from supporting hundreds to thousands of concurrent projects with every control center blueprint. Very soon, customers will be able to run tens of thousands of concurrent projects per blueprint. Another element of scale is our commonly used and powerful computational feature, cross-sheet cell linking. It enables our customers to aggregate data across thousands of active and completed projects to build reports and dashboards to communicate program or portfolio health and progress. We increased the cell links limit from 30,000 to half a million per sheet, and we're aiming to achieve another 10x increase in scale next year to get to 5 million cell links per sheet so customers can manage more interconnected projects. Additionally, in Q2, platform improvements resulted in formula computations running 10 times faster. In sum, these enhancements enable our customers to now manage significantly larger programs and portfolios, quickly aggregate and compute data at scale, and visualize information in real time to achieve great efficiency across their global operations. And recently, we also made it easier for our customers to find and derive value from two of our most used premium capabilities, Data Shuttle and DynamicView. Through self-discovery, our customers can now easily get hands-on experience with these powerful and popular capabilities without needing to engage with a salesperson. Data Shuttle automates data movement between other systems of record and Smartsheet so customers can quickly visualize and act on this data in their projects, programs, and processes. Dynamic View powers secure and confidential workflows across vendors or internal processes by enabling personalized views of the data in sheets and reports. By creating curated views, teams simplify error-prone manual work typically done over email and messaging. We commenced the rollout for self-discovery across both Data Shuttle and DynamicView for our business and enterprise customers at the end of Q2. By the end of September, we will complete the rollout. Following the July announcement of Smartsheet's integrated generative AI capabilities, three features are currently being used by customers in private beta. Our plan is to make these and others more broadly available after our engaged customer conference in September. AI Assistant and AI Solution Builder will be available to all customers to get started more quickly and to deliver value faster. These features enable our customers to continue moving their projects and processes forward without leaving their workflows, leveraging our AI features to create a solution by describing their needs. With respect to monetization, AI Formula Builder, AI Content Generation, and AI Insights will only be available to paid users on enterprise plans. We expect these powerful features to incentivize plan upgrades and expansions. In some instances, we expect customers to also purchase higher usage tiers based on need. Brand folder image captioning, people tagging, and basic image editing will also be available in multiple usage tiers as part of brand folders pricing plans. Over time, these features should become a meaningful catalyst for free to paid license conversion and enterprise plan upgrades. Heading into the second half of FY24, we remain well positioned for efficient growth powered by the creativity and energy of thousands of Smartsheet team members and partners worldwide. Our team's dedication and hard work serves to enhance the Smartsheet platform and drives our success with customers. In less than two weeks at our sold-out Engage Customer Conference, we will unveil how we are changing the way organizations operate and innovate faster at even greater scale. We are rapidly evolving our entire platform to extend our leadership position from the expansion of features to governance to scale and to Gen AI. And across all these areas, we're looking forward to enrolling our customers in the future of Smartsheet. Now, let me turn the call over to Pete.