Smartsheet Inc.

Good day and welcome to the Smartsheet third quarter fiscal 2024 earnings call. Today's call is being recorded and I would now like to turn the conference over to Aaron Turner, head of investor relations. Please go ahead.

Thank you, Lisa. Good afternoon and welcome everyone to Smartsheet's third 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 Godwell. 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 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 or adversely. All forward-looking statements made during this call are based on information available to us as of today, and 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. 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. And with that, let me turn the call over to Mark.

Thank you, Aaron, and good afternoon, everyone. Welcome to our third quarter earnings call for fiscal year 2024. Smartsheet revenue for the quarter exceeded our guidance and grew by 23% year-over-year to $246 million, and billings grew 22% year-over-year to $268.5 million. In Q3, we generated non-GAAP operating margins of 8%, and free cash flow was $11.4 million. We ended the quarter with annual recurring revenue of $981 million and more than 13.9 million Smartsheet users. In Q3, 89 customers expanded their Smartsheet ARR by more than $100,000, and 256 companies expanded by over $50,000. Additionally, we now have 59 customers with ARR over a million dollars, up from 40 a year ago. Our strength in the enterprise continued in Q3, with expansions at companies such as Cushman & Wakefield, Syntos Corporation, biotech company Beijing, and Commvault Systems, among others. Q3 was also a strong quarter for our suite of capabilities-based products. Similar to last quarter, capabilities were present in each of our top 10 expansions. Smartsheet Advance, which is our bundle of our capabilities, was included in 250 of our expansions in Q3. Advance played a key role in a multi-year, multi-million dollar deal with a Fortune 500 specialty beverage company. Their expansion to Smartsheet Advance Gold will help support the company as it executes high-impact projects, including new product rollouts and associated equipment deployments, network upgrades, as well as new store openings and store improvements. In Q3, we also saw a significant expansion that included an upgrade to Advance Platinum at a major airline. For a number of years, Smartsheet has powered aspects of the carrier's flight ops, flight products, and tech ops units. Due to growing demand for Smartsheet from other departments, they decided to upgrade to a Smartsheet Advance. By implementing the platinum tier of Smartsheet Advance, they were able to consolidate their licenses and bring them all under IT's purview to give these divisions access to all of our capabilities, such as control center, dynamic view, and bridge. This consolidation means that the airline has an opportunity to increase visibility into its IT spend and empower Smartsheet users as it brings greater efficiency to critical activities like resource management, maintenance, and scheduling. And that resulted in a three-year commitment with a total contract value of $4.5 million and an opportunity to further scale Smartsheet across the organization. The ability to rapidly scale was also key to an $850,000 deal at one of the country's largest quick service restaurant brands. The company is in the process of a multi-year transformation initiative and selected Smartsheet Control Center and Resource Management to help drive its global digital transformation and implement portfolio reporting on day-to-day and annual operating plan projects for the senior executive team. By using Smartsheet, the company has been able to enhance and simplify collaboration across over 30,000 locations, and in doing so, rendered a number of other applications obsolete. Another customer example relating to scale is the significant expansion at a global media and entertainment organization that was looking to streamline its tech stack. The company was already using Control Center to manage 14,000 projects and 12,000 workflows in Bridge to track and manage their portfolio of projects. Because that work went across its retail, events, theme parks, and publishing divisions, Smartsheet was well positioned to win this consolidation. Going forward, the company will extend its use of Smartsheet to other initiatives, such as improved speed to market for technology projects, efficient headcount management, cost controls, and profit improvement initiatives. This expansion brought the company's ARR to over $4 million. On the product front, in Q3, we introduced a new way for our customers to discover and use two of our premium capabilities without the need to first contact a Smartsheet rep or partner. We believe empowering frictionless self-discovery of high-value Smartsheet capabilities will drive greater adoption of these premium offerings, and early results have been promising, with hundreds of trials started with just within the first few months. One of those trials occurred at a mid-cap biotech company and directly led to the purchase of DataShuttle to migrate significant amounts of data into Smartsheet from legacy clinical storage systems. While the company has been a customer for years, it had never utilized a premium capability. Once discovering DataShuttle, the company's clinical trial team launched automated workflows to import data they used to track the progress of its research on cancer and rare disease therapies. They found that it had a positive impact by allowing them to centralize view and manage data from these disparate sources. And their success with Data Shuttle has now led to interest in other premium capabilities. Over 40% of these deals in Q3 that were closed as a result of capability self-discovery were with customers buying a premium capability for the first time. We continue to make strides integrating AI across the Smartsheet platform. We now have approximately 50,000 enterprise users in early access to AI-powered skills that allow users to generate formulas and content directly in their sheets. Both these skills will be generally available later this quarter to enterprise customers. The feedback from early access users confirms that our AI features will help power enterprise processes and make it simple for any user to gain insight into the work being done across teams. These AI skills are helping customers achieve their desired outcomes even more rapidly with the Smartsheet platform. Additional AI-powered skills will roll out to eligible early adopters next month. We continue to invest internationally in response to increasing global demand. To support data residency requirement for international customers, we launched a Smartsheet platform instance in Germany in 2021, and we will launch an instance in Australia next year. This new Smartsheet region will enable Australian customers to comply with important data residency requirements and offer them the flexibility to choose where they want their content to be hosted. We will be pursuing IRAP certification, ensuring that it will have the right policies and security controls to meet Australian government information security requirements. This enables Smartsheet to serve a growing regional customer base, including organizations and agencies with the most demanding governance and regulatory requirements. Q3 was also a productive quarter for our federal government business in the U.S., reaching some notable milestones. We signed a six-figure expansion at a large government agency, which brought its ARR up to $1.6 million. This agency uses Smartsheet for critical workflows from purchase management to managing grant funding to using Control Center to manage travel budgets and expense management across its multiple regional offices. Additionally, we now have a presence in all 15 U.S. cabinet-level departments and have two government agencies with ARR over $1 million. In closing, as we approach crossing the billion-dollar ARR milestone this quarter, we remain focused on both product innovation and customer value by continuing to execute as the user-preferred enterprise work management leader. Now let me turn the call over to Pete.