Samsara Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 1, 2023

There are 1 speakers on the call.

Operator

Afternoon, and welcome to Samstar's First Quarter Fiscal 20 24 Earnings Call. I'm Mike Chang, Samstar's Vice President of Corporate Development and Investor Relations. Joining me today are Samsara's Chief Executive Officer and Co Founder, Sanjit Bidwas 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. Centaur.com.

Operator

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, June 1, 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 Q1 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.

Operator

All financial figures we will discuss today are non GAAP except for revenue and revenue growth. Reconciliations of GAAP to non GAAP financial measures provided with our press release and investor presentation. We'll make opening remarks, dive into highlights for the quarter and then open up the call for Q and A. With that, I hand over the call to Tanger. Thanks, Mike, and thank you everyone for joining us today.

Operator

Semstar delivered another strong quarter of durable and efficient growth. We ended Q1 with ARR of over $850,000,000 growing more than 40% year over year. We also achieved Rule of 40 for the 3rd consecutive quarter. Sensara's vision is to empower the industry to power our world and we continue to see strong adoption of digital transformation for physical operations. Large customer wins in particular are fueling our momentum.

Operator

In Q1, we added a record 138 large customers, bringing us to a total of 13.75 customers with over $100,000 in ARR, growing 53% year over year. This includes Fortune 1,000 companies with large and complex operations such as United Rentals, Iron Mountain and Werner Enterprises. Our customer feedback loop is central to our success. Sensara customers are the backbone of the global economy and are leaders in diverse industries like construction, Field Services, Manufacturing and Retail. During the quarter, I was on the road with our executive leadership team in the U.

Operator

S. And Europe, meeting with some of our largest customers. Our technology is driving meaningful business impact for them and they're asking us to double down on a few things. 1st, AI based safety technologies to reduce risk across operations. 2nd, digital workflows to increase efficiency for frontline workers.

Operator

And last, more platform and data integrations to drive higher asset utilization in the field. We're hearing this across the board, not just in a single industry. In this current environment, our customers are prioritizing investments in solutions that help control costs and deliver rapid ROI by running smarter, Safer and More Efficient Operations. Now I'd like to focus on how we are using AI to deliver rapid ROI and transform customer data into business impact. AI has been core to how we built our products over the last 5 years and our data mode is one of our key competitive advantages.

Operator

The more operational data we unlock and transform into powerful insights for our customers, the bigger the business impact. I'd like to bring this to life with a customer example. 1 of our customers is a global leader in storage and information management services that serves 95% of the Fortune 1,000 and has more than 25,000 employees. They're focused on investing in software that delivers a high business impact and quick ROI. This organization uses our vehicle telematics application for asset location maintenance and is expanding to our AI powered video based safety Applications to improve workplace safety, reduce insurance premiums and lower corporate risk.

Operator

Based on results from our pilot study, We anticipate our platform can help them achieve more than a 3x annual ROI, which is roughly a 4 month payback period. By improving their safety program, We expect to see a 54% reduction in safety events, a 91% reduction in mobile usage and a 97% reduction in no seat belt usage. On top of reducing accidents and creating a safer work environment, they're also gaining a competitive advantage when recruiting talent in a challenging labor market. These types of results are always amazing to see and we're excited about the opportunities where AI can unleash the power of data to deliver value for our customers. I'm amazed by the improvement AI has made on the safety, efficiency and sustainability of our customers' operations.

Operator

The magnitude of AI's impact on the world of physical operations is clear and Sensara is positioned to be on the forefront of this technological revolution because of 3 unique competitive advantages. First, we continue to amass a massive operational data asset. Approximately 6,000,000,000,000 data points flow annually into our Connected Operations Cloud and it continues to grow in size and sophistication. The combination of diverse assets and data types across different industries, geographies and customer sizes makes our data asset truly unique. This allows us to train powerful AI models to unlock valuable insights for our customers.

Operator

2nd, we've invested in the infrastructure to rapidly deliver AI features. We build capabilities to capture and curate structured and unstructured data, trained in the value of models and operates across tens of thousands of customers, both in our cloud and at the edge with IoT devices. And third, our product innovation is powered by incredible customer feedback loop. This allows us to identify our customers' most critical domain specific problems, capture Ground Truth Data and partner with them to test, validate and ultimately deliver AI powered solutions on our platform. We're also using data driven insights to help our customers with their ESG goals.

Operator

Focusing on the S in ESG for social impact is again all about safety. A top priority for our customers is getting their employees home each day to their families, especially as many work in dangerous physical environments. One of our customers, Liberty Energy, is a great example of this. Liberty is a leading North American oilfield services company. They use Samsara's video based safety for proactive driver coaching and to get enhanced visibility in the cab, which they feature in their most recent ESG report.

Operator

They put millions of miles on their fleet of vehicles each year, making driving the highest risk activity they undertake. By using Sensara, Liberty realized a 50% reduction in vehicle accidents and saved $500,000 in incident related costs. Let's now turn to the E in ESG for environmental. Our customers are faced with a growing demand from their end customers, investors, employees and policymakers to have more sustainable operations. Lane Group is a great example of a customer using Samsara to reduce emissions.

Operator

Lane is a leading wastewater utility solutions provider and the largest independent drainage specialist in the UK. In their most recent sustainability report, Maine shared that using Sempra helped to reduce fuel consumption by improving driving behavior for their entire fleet. This allowed them to reduce overall carbon emissions even as their fleet continues to grow. It's also worth mentioning that Maine's adopted Centaur's video based safety and a decrease of frequency and severity of accidents. They lowered their insurance premiums and reduced the cost of each claim, generating an annual insurance savings of £250,000 per year.

Operator

We are committed to building a safer and more sustainable world together with our customers and are proud of the progress as we continue on this important journey. Our customer momentum reflects the large market opportunities for digitizing the world of physical Operations. As we head into our next chapter of growth, I'm excited to announce Laura Kaini is joining Tempstar as our 1st President of Worldwide Field Operations. She joins us from ServiceNow, where she served as Chief Customer and Partner Officer, and prior to that as the Chief Strategy Officer. I'm excited to welcome Laura to join us in the next stage of growth.

Operator

I also want to share the news that our Chief Revenue Officer, Andy McCall, will be retiring at the end of the year and is staying on as an advisor until that time to help us with the transition. I've been fortunate to partner with Aimbee over the last 6 years he's helped build the sales team of Samsara into world class organization. All of us at Samsara wishing Andy Dabatsky's well deserved retirement. It's been another exciting quarter of durable and efficient growth for Samsara, and we are grateful for our partnership with our customers and the impact we're able to make together. I also wanted to thank all of our Samsara customers, partners and investors for joining us in making this journey to digitize physical operations possible.

Operator

We're excited to continue our partnership at our 2nd annual customer conference, Sempara Beyond, from June 21 to June 23. I'll now hand it over to Dominic to go over the financial highlights for the quarter. Thank you, Sanjit. Q1 was highlighted by strong top line growth and Continued Operating Efficiency Improvements. Our durable and increasingly efficient growth demonstrates the large and growing opportunity for Digital Transformation across the world of physical operations.

Operator

While global economic uncertainty persists, we exceeded our expectations for key top line and profitability metrics for a few key reasons. First, we have a subscription business model that produces highly predictable revenue and we price subscriptions based on the number of physical assets versus headcount based pricing, resulting in a lower risk of ACD contraction if our customers' hiring slows or contracts. 2nd, our customers deploy Gamsara to generate hard ROI savings and many experienced a quick investment payback period measured in months. And third, we primarily sell into the operations budget, which is generally large and non discretionary for our customers. Q1 ending ARR was 856,000,000 growing 41% year over year.

Operator

Within this, we added $61,000,000 of net new ARR, representing 24% year over year growth or 4 percentage points of year over year growth acceleration at a larger scale. Additionally, Q1 revenue was 204,000,000 growing 43% year over year. Several factors drove our strong top line performance in Q1. 1st, We continue to focus on serving large physical operations customers. We now have 1375, 100 ks plus ARR customers, a record quarterly increase of 138% or 53% year over year growth.

Operator

Our investments in serving the largest Physical operations companies in the world continue to pay off. 100 ks plus ARR customers represent our fastest growing cohort and make up 49% of total ARR, up from just 45% 1 year ago. 2nd, this was a strong customer expansion quarter. 60% of Q1 net new ACV came from expansions to existing customers, our highest quarterly mix ever and up from 51% in Q1 last year. 8 of our top 10 net new ACV deals in Q1 were customer expansions, including a large $1,000,000 plus expansion to a leading national distributor of aftermarket automotive replacement parts.

Operator

3 years ago, this customer landed with video based AC and telematics for just our heavy duty vehicles, which make up less than 5% of their entire fleet. And in Q1, the customer adopted Gamsara across their entire light duty fleet as well to improve driver behavior, reduce accidents and lower insurance costs. And 3rd, while our core business drove most of our Q1 performance, we executed well across several new frontiers. For example, 15% of Q1 net new ACV came from non vehicle applications, primarily from strength and equipment monitoring, which ended the quarter at approximately $100,000,000 of ARR. Additionally, a record 17% of Q1 net new ACV came from non U.

Operator

S. Customers, including a top ten expansion for one of Canada's largest grocery retailers. And lastly, 83% of Q1 net new ACV came from non transportation customers with particular strength in utilities, Energy, Field Services, Construction and Public Sector. In addition to delivering strong top line growth, We continue to focus on driving operating efficiency improvements across our business as we scale. Q1 gross margin was 73%, approximately flat from Q1 FY2023 and our gross margin has remained above 70% for 11 consecutive quarters.

Operator

Q1 operating margin was negative 9% compared to negative 18% in Q1 of FY2023, An improvement of 50% or approximately 9 percentage points year over year, driven by leverage across all functions. This is our 12th consecutive quarter of improving both operating margins and operating profit year over year. In Q1, adjusted Free cash flow margin was negative 1% compared to negative 36% in Q1 FY2023, an annual improvement of 35 percentage points were $49,000,000 primarily from improved operating leverage and continued working capital improvements. Efficient growth continues to be a priority as demonstrated by a 42% rule of 40%, our 3rd consecutive 40% plus Rule of 40 quarter. While we're pleased with this accomplishment, our goal is to continue making the necessary improvements that would allow us to achieve Rule of 40 consistently on a quarterly and annual basis.

Operator

Okay. Now turning to guidance. For Q2 FY 'twenty four, we expect total revenue to be between $206,000,000 $208,000,000 representing between 34% 35% Year Over Year Growth. Operating margin to be approximately negative 9% and EPS to be between negative $0.03 and negative $0.02 assuming 532,000,000 weighted average shares outstanding. Based on our Q1 results and improved outlook for the remainder of FY 'twenty four, We're raising our full year revenue guidance to be between $866,000,000 $874,000,000 or between 33% 34% year over year growth.

Operator

In addition to increasing our top line guidance, we continue to focus on operating efficiency improvements. As a result, we're also improving our full year operating margin guidance to negative 5% or an implied FY 'twenty four operating income improvement of $16,000,000 at the midpoint of guidance. And we expect EPS to be between negative $0.02 and 0 point 0 dollars assuming 535,000,000 weighted average shares outstanding for the full year. And finally, we included a few additional modeling notes in our shareholder letter. So to wrap up, we are very pleased with our Q1 of FY 'twenty four.

Operator

We are digitizing the world of physical operations and helping our customers become safer, more efficient and more sustainable. We continue to be committed to driving durable growth while also achieving operating efficiency improvements on our path to profitability. And with that, I'll hand it over to Mike to moderate Q and A. Thank you, Dominic. We will now open the line up for questions.

Operator

When it's your turn, please limit your questions to 1 main question and one follow-up question. The first question today comes from Matt Pfau with William Blair followed by Matt Hedberg with RBC. Great. Thanks for taking my question. Wanted to just As it was a really strong Q1, anything that was, I guess, non normal in the quarter?

Operator

And on the demand environment, It seems like it's holding up quite well, but any change there from the Q4 that you saw? Thanks. Hey, Matt, it's Dominic. I would say nothing really stands out as being unusual with Q1. Again, really strong customer demand.

Operator

I think the hard and fast ROI and the early innings of digital transformation and physical operations really I would say that the buying environment is similar to kind of what we started to call it in the middle of last year and that persisted into Q1. We're seeing really strong pipeline and conversion of the pipeline, but the sales cycles remain a little bit more elongated than they were Historically, customers wanting to do longer trials, wanting to really nail down the ROI analysis, running approval higher up into the organization, but nothing that stands out terribly different than what we saw in Q4. Great. Our next question comes from Matt Hedberg with RBC followed by Alex Zukin with Wolfe. It's Dan Bergstrom for RBC here for Matt Hedberg.

Operator

Thanks for taking our question. It looks like a nice hire here with Laura. It's good to see Andy staying on through year end. Any more color around the change there? Why now?

Operator

Is it just Getting the right business scale to the next level. That's exactly right. This is Candid, by the way. We were excited to find Laura. We ran a search for several months.

Operator

Andy let us know well in advance about his plans for a tire, and so we were able to run an extensive search. What we love about Lara's background, she's been very customer facing in her time at ServiceNow. She started out as the Chief Strategy Officer. She was later the Chief Customer Officer. You also saw them scale from roughly $1,500,000,000 or $1,500,000,000 sorry, dollars 1,500,000,000 in ARR to Over7.

Operator

And so as we prepare for this next chapter of growth for Gamsara, we thought she'd be a great asset to bring into the team. I would just add on on additional point. And I think it's important to note that all of the senior leaders in the sales organization that are going to report into law in this role Our folks that have been with the company for many years, some up to more than 5 years. And so we have a lot of continuity across all of the individual go to market functions that are going to report into LoRa. Great.

Operator

And then appreciate the additional color around Equipment monitoring ARR at $100,000,000 nice to see that. Any more details there, growth rates, traction, etcetera? And then maybe anything else From a product perspective this quarter to point out beyond those core safety and telematics products? Nothing really to call out other than it's been continued progress on equipment monitoring. So that's now our 3rd product category It's at for more than $100,000,000 I think we'll share a little bit more detail at our Investor Day coming up in a few weeks.

Operator

But Suffice it to say that equipment monitoring has been growing quite quickly, but we're seeing really good growth, frankly, across all of our different product categories. Thank you. Great. Our next question comes from Alex Zukin with Wolfe followed by Kash Rangan with Goldman Sachs. Yes.

Operator

Hey, guys. Can you guys hear me okay? Yes, yes. Thanks for taking the question. So I mean, look, it's truly astounding performance in what is a tough macro where you're accelerating growth At scale, more large customers, more expansion on a year over year basis from existing customers.

Operator

I guess, are you seeing something is there a new dynamic or trend developing? Obviously, sales cycles We're still challenged, particularly in the larger side, but it's unusual, I would say, to see acceleration at this scale. So as if that you've hired a lot of Reps over the course of the last year that are starting to ramp, is it something in the packaging and pricing that's coming to bear? Is it some new geography that you've opened up? Like what's the story that you feel like is kind of driving this acceleration?

Operator

Hey, Alex, it's Dominic. So I think the real drivers are, I would say, there are some external factors and that really is it's just that it was a very strong customer demand quarter in Q1 and we've seen that in the most recent quarters as well. And I think going back to my Original points, we're selling into a little bit of a different budget here. We're selling into the operations budget for our customers, which tend to be pretty large, less discretionary than maybe some other budget categories. And customers are able to save money and drive really strong and hard ROI, and they're able to pay back their investment very quickly.

Operator

And so in a challenging macroeconomic environment, that has continued to play well. In terms of what drove the performance, I would say it was more tied to strong productivity. We called out it was a really strong Large customer quarter, a record number of 100 ks plus customer adds at 138. It was a really strong expansion quarter. The New Frontiers performed well.

Operator

And so I would frame it more as strong productivity than a bunch of additional fully ramped sales capacity added. Perfect. And then maybe just a follow-up, Sanjay, because we've already gone through questions and generative AI has not been mentioned. So In the spirit of keeping that going, I guess, you mentioned how strong of a data asset you're gathering in the Platform 1 Data Model. As you look at evolving, particularly with the water coming on, as you look at the evolving Product packaging and just general go to market, how important, how realistic Is it to assume that there is some incremental monetization opportunities from kind of mobilizing some sort of generative AI functionality inside the product?

Operator

So AI is something we've been investing in now for several years. I think we really got into it about 5 years ago as we introduced Safety Products and it really was a breakthrough for us in terms of value for the customer. All of a sudden they could go from not having to watch Hours or hundreds of hours of video footage being able to surface safety incidents in their inbox and then coach their drivers and reduce their risk. So that showed us the power of AI. I would say generative is a new tool in the toolbox when it comes to AI and we're continuing to invest there.

Operator

As incremental monetization, we first think about how we create a lot of value for our customers. And we run our customer feedback loop, we try to figure out what's useful to them, and that's where we invest. And then it comes down to how we want to price and package it. We don't have any specific announcements to make today, but it is something we're looking at. And Jeff Housman, who joined us Last year as our Chief Product Officer is very much looking at this to figure out how do we best align with the problems that our customers are trying to solve and then price and package appropriately.

Operator

Perfect. Thank you, guys. Congrats and see you next quarter. Thanks, Doug. Our next question comes from Kash Rangan with Goldman Sachs followed by Sterling Auty with MoffettNathanson.

Operator

This is Jacob on for Kash. I want to echo what Alex said around the quarter. Really, really strong quarter. Good to see. A couple of quick questions.

Operator

The presentation noted that 83% of the net new HCV was from non transportation customers. Was this Due to more of a focus on those other verticals or is this due to the current weakness that's being seen in the transportation industry as a whole? I think this is a trend that we've seen for a while now. I think we've called out in previous investor presentations that if you look at it just on an overall ARR Basis, the Transportation segment is in the kind of low 20 percent. So this is even lower than that.

Operator

And I think it just goes to The breadth and the horizontal nature of our platform that this is really a solution set that's addressing many of the physical operations industries, and I think that that's sometimes misunderstood by investors. And so we just wanted to make sure that we called out that we're really seeing strength across many of these other end markets more so. Awesome. Okay. Good to hear.

Operator

And then one more for me is reading through some of the transcript from like JB Hunt and Werner, They both noted that they've had some pretty strong headwinds from insurance claims the last couple of quarters. So has that Maybe altered the current selling motion to focus more on the money that can be saved with video based safety solutions and the benefits they might get From Ford used insurance premiums there, has there been any updates around that or adjustments to selling motions given that? Jacob, that's been a core part of our value proposition with the video based product for some time is exoneration. Many times our customers get Used of accidents that they did not, they were not involved with. And then also, just being able to coach their drivers to reduce risk.

Operator

So that's something that we've been selling into for a couple of years. I think the examples you mentioned just highlight how valuable it is. And the contract change, by the way, can be 100 of 1,000 or even 1,000,000 of dollars. So it's really the significant source of ROI for our customers. Okay, awesome.

Operator

All right. Thanks for the clarification. Our next question comes from Sterling Auty with MoffettNations, then followed by Chris Conciero with Morgan Stanley. Yes. Thanks.

Operator

Hi, guys. I also want to go back to the idea of AI. And I think you alluded to the possibility of solutions that are more tailored to an industry, so kind of a vertical solution. But what I'm wondering is, does that suggest that Semferra will actually start to develop Industry specific specialized solutions built on AI. And if that's the case, what kind of time line should we think about We're seeing something like that in the marketplace.

Operator

So Sterling, as Dominic mentioned earlier, we serve a pretty broad set of industries and we try to find the kind of 80%, 90% commonality. I wouldn't expect us to have verticalized solutions by industry. In terms of how we're using AI, we are trying to find deeper and again save our customers time, make it easier to get business value from this data and incorporate it in a bunch of other So the way we think about highly specialized vertical software is to partner. We have over 230 partner integrations on our app marketplace now. Our large customers use more than 6 of them and that's a strategy that's worked really well for us.

Operator

It's very complementary, but our investment in AI is going to be a little bit more across the board as opposed to any specific Industry. That makes sense. And then Dominic, one for you. You talked about pipeline. Just kind of curious, can you qualitatively just describe to us What's happened to kind of pipeline coverage ratios over the last several quarters as you're kind of managing through these long dated sales cycles?

Operator

I think the pipeline coverage has held up relatively well and kind of in line with the historical trends. So we're not, Again, necessarily seeing a big change in the overall pipeline coverage and frankly the conversion of that pipeline. The commentary starting I think back in Q2 of last year was really more tied to the sales cycle length. And I think we've done a we've continued to do a very good job of building pipeline and converting that to drive the strong bookings numbers. Got it.

Operator

Thank you. Our next question comes from Chris Quintero with Morgan Stanley followed by Kirk Materne with Evercore. Hey, this is Chris Montero on for Keith. Congrats on another quarter. I'm just following on the theme of asking about AI.

Operator

I want to ask about your pricing model of turning based on number of devices versus speeds like a lot of software does. So kind of 2 part question. One, what do you see in terms of customers trying to add more devices? And 2, what do you think this means about your opportunities with AI given the Yes. I think we're seeing Generally, when customers are expanding, a larger portion of the expansion is coming from phased rollouts, the customers that are taking products that they already have and rolling that out to a broader number of assets.

Operator

And often cases, that could be more vehicles. And so We're seeing customers continue to grow and to expand in an environment where There's maybe a shortage of an ability to get certain assets and things like vehicles being able to use our technology Optimize for utilization or extend the life of some of these assets has really also resonated with customers. And if I can just add a little bit on that. Our customers really do think about their business in terms of their assets. So it's not from a fleets and users, it's the assets.

Operator

And then what we're doing is adding value through all the software, through all this data. So over time, we want to be more valuable to the customer per asset. Excellent. And then, Dominic, last quarter you talked about how Q1 met new ARR actually, excuse me, weaker than previous years due to more of those kind of enterprise engagements. But actually came in better, someone to better understand the dynamics there and if that changes your view on seasonality for the rest of the year.

Operator

Thanks. Yes, again, it was a strong Q1, I think, again, due to some of those external factors, the strong customer demand. And then we really did have strong internal Productivity Performance. And so I think that we feel that the seasonality should probably look like it has in previous years, Though I think we recognize that there is a lot of macro uncertainty in front of us and we did add a lot of hiring and sales capacity in FY 'twenty three. So understanding how that sales capacity ramps and how productive it is as it becomes fully ramped, I think are things that we're watching out for in the back half of the year.

Operator

But We're pleased with the Q1 results and the expected linearity for the rest of the year. Got it. Thank you. Our next question comes from Kirk Materne with Evercore, a call by Derrick Wood with Cowen. Yes.

Operator

Thanks, Kyle. I thought congrats on a nice quarter. Yes, Sanjeet, just to start, I was curious if you could just talk about how you think about building out your own sort of application solutions On your data state, as data becomes a more essential element of AI, I was just kind of curious if that Chang did your thinking on what you all might want to do versus handing it over to partners in the app marketplace. Can you just talk about that a little bit? Sure.

Operator

So you put your finger on it, which is the data is the most valuable part here. We are collecting an enormous amount of data. We talked about the 6,000,000,000 data points and not just GPS, it's not just video, but it's all kinds of additional kind of business relevant data for our customers. The way we think about applications is really through the lens of what drives value for and that's how we thought about pricing and packaging. Over time, if there are opportunities, if there are commonalities, in other words, that many of our customers and prospects are asking us for, We would go there, again, kind of applying that eightytwenty philosophy.

Operator

But for now, we see tremendous opportunity with the core apps that we offer today. So we're going to stay focused I keep our ears open for additional expansion opportunities. That's helpful. Maybe just one for Dominic. Dominic, can you talk about expansion on the quarter?

Operator

Was the expansion mainly just more assets getting covered or was it more products? I assume it was a mix of both, but did it, I guess, Everflow one way or the other this quarter in a bigger way. The example he gave was, I was like, you're expanding from the asset base that's working with you all. Just curious if the product side of it was strong as well on the expense side. Yes, it was.

Operator

I mean, it is a mix of both Rollout of the products across more assets as well as cross sells of additional products. That happens every quarter. And the trend in the mix was similar in Q1 as previous quarters. It does skew more towards phased rollouts and an expansion, upsell versus Cross. Hope you did see a healthy mix of both.

Operator

Thank you. Our next question comes from Eric Wood with Cowen followed by Michael Turrin with Wells Fargo. Great. Thanks. Hopefully, you guys can hear me okay.

Operator

Just wanted to ask about the hiring of a new Head of Field Operations as you look to scale to the next level. Is there anything you want to highlight in terms of potential go to market tweaks that you'd be looking at over the next few quarters? I don't think at this point, again, this is just something that we're announcing today. And we've got a machine that's working really, really well. And I think we're really proud of the execution over our 1st now 6 quarters as a public company.

Operator

So I wouldn't expect any large and significant changes. We've got a solution that's working really well right now. And Laura will come in and kind of get up to speed and start evaluating and talking to customers. And obviously, we've got Andy on board through the rest of the year to help us with this transition. Great.

Operator

And given that Europe is such a big part of the TAM out there and you guys got a record percentage of UHG from non U. S. Customers, It would be great to hear about investments in Western Europe or in Canada, how they're tracking, what demand is like and how you're thinking about these International regions helping to contribute to the incremental growth in the medium term. Yes. I would just call it, we are seeing really good success in all of our international markets, Canada, Mexico and Western Europe, a record 17% of net new ACV coming outside of the U.

Operator

S. I think we recognize that these markets are Western Europe, for example, is a larger market opportunity than the U. S. Just in terms of the number of physical operations and so our core business in the U. S.

Operator

Continues to be the biggest driver of growth and productivity, but we're definitely investing internationally and you're seeing The higher growth leading to a more net UACV mix coming outside of the U. S. As well. Okay. Congrats on a great quarter.

Operator

Our next question comes from Michael Turrin with Wells Fargo followed by Jim Fish with Piper Sandler. Hey, great. Thanks. Good afternoon. Appreciate you taking the questions.

Operator

Just on a similar line from some of the prior questions, Q1 is especially strong to start the year. The customer expansion activity in the mix also stands out. So just any additional commentary you can add to help us Square, what drove stronger expansion, especially in Q1, if there's anything from a go to market or product side you've put in place or just Any other observations around what's working there and how you might expect that mix between net new and expansion of trends going forward? No, I think that our primary goal is to grow ARR as fast as we can, and we don't necessarily run the business to Specifically go after new logos versus expansions. If you recall from Q4, it was a really strong new logo quarter and outpaced expansions and then this quarter kind of flips back the other way.

Operator

New logos were still really strong in terms of the overall number of logos added and the average deal size for new customers. It's just that expansions were stronger. There was no kind of changes to go to market or incentives or any of the kind of sales playbook to accomplish that and we've seen that kind of flip back and forth. Great to have that interplay at your disposal. Just if you can remind us, Dominic, the delta between operating margin and free cash flow margin, If there's a thumbnail on what that's mainly a function of and you have some commentary around how you're expecting that to trend longer term and The letter, if you can just kind of spell that out for us as well, is helpful.

Operator

Yes. I mean, I think the biggest driver is obviously the working capital Dynamics. I mean, you go back a year ago, I think free cash flow was like 18 percentage points below operating margin and that was really driven by the challenges in the global supply chain. And now I think in this quarter, we were 8 percentage points better on free cash flow than operating margin. So it's clearly The biggest driver and the difference is the working capital optimizations.

Operator

And we had a really strong collections quarter and we continue to see improvements in supply chain and hardware availability. I expect these things to move relatively in line with each other. In Q1, we were a little bit better on working capital. But if you're thinking about it going forward, I think within plus or minus 5% of each other, but kind of moving together is what I would expect. Very helpful.

Operator

Thank you. Our next question comes from Jim Fish with Piper Sandler followed by Jannad at Jureus. Hey, guys. Thanks for the question. Nice quarter.

Operator

Really wanted to go about the expansion here going back to the prior couple of questions ago. Obviously, you guys have talked about that as particularly strong. It kind of implies that NRR possibly uptick Here, and I know, Dominic, last quarter we talked about that you expected net retention rates to be a little bit lower than where we were Last fiscal year, and I did it's only 1 quarter, but does this quarter is this a quarter changing view on that, that We could actually see retention rates finish similar to where we were last year, given the strength and expansion you're seeing right now in your installed base. I would just we really at the beginning of each year, we're setting out a target for the year in terms of what we expect our net retention rate to be. And in Q1, we were above it.

Operator

In quarters where more net liquidity comes from expansions, it definitely helps on the net retention side. And yes, we were above our target for Q1 and we feel good about being able to stay above that for the rest of the year. Makes Makes sense. And then on the Productivity side, again, it sounds like you're extremely happy with where you're at. Is there are you guys disclosing where Overall headcount is, I know you don't want to give quota reps, but where are we at with total headcount at this point?

Operator

And How are you thinking about the hiring environment with the upside you're seeing right now, the pipeline strength kind of balance against Kind of a macro in other spaces at this point that you're not really seeing hit you guys at this point. Yes. I think what we shared is we grew overall headcount approximately 40% last year in FY 'twenty three and the growth rate will be lower in FY 'twenty four and we're kind of on track for our targets through Q1. Hiring environment remains good. I think overall, New hires and our attrition rate and frankly employee sentiment and all of those things are working really well right now.

Operator

Frankly, it's probably as good as we've ever seen and so a lot of good hiring momentum right now. Thank you. Thanks, Jim. Our last question today comes from Janae with Twist. Great.

Operator

Thanks for taking my question. This is Janae speaking from Trusz. You've done an excellent job adding large customers To the platform, but as you attract more of these large customers, is there a fear that these elongated sales cycles will More of a headwind going forward than in the past? I don't think So I think we have a number of large customers where we're able to convert them in months, maybe in a couple of quarters, and we have some large customers where it could be a multiyear sales cycle. And I've said pretty consistent over the last few quarters.

Operator

We did again see it elevate kind of in the middle of last year. But across the board, across all customer segments, it's been pretty consistent over the last few quarters. And I think we're always going to have some quick converts and more likely always have some elongated Sales cycle, but it's something that we're definitely monitoring just given the overall economic volatility. Great. Thank you.

Operator

All right. So this concludes the question and answer portion. Thank you all for attending your Q1 fiscal year 2024 earnings call. Before I let you go, I have a few short announcements. First, we'll be attending the William Blair Growth Stock Conference in Chicago on June 6 and the Baird Global Consumer Tech and Services Conference in New York on June 7.

Operator

So we hope to see you in person at one of those events. 2nd, we are hosting our Investor Day on June 22 in Austin, Texas, where we will be providing additional insights into Samsera's Geography and the overall state of physical operations. Please send an email to irsamsara.com if you're interested in attending in person. For those that prefer this conversely, our Investor Relations website will have a link to a live broadcast. That's it for today's meeting.

Operator

If you have any follow-up questions, you can email us at ircamsar.com. Thanks again. Bye

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Earnings Conference Call
Samsara Q1 2024
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