Samsara Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 7, 2024

There are 13 speakers on the call.

Operator

Good afternoon, and welcome to Samsara's 4th Quarter Fiscal 20 24 Earnings Call. I'm Mike Chang, Samsara's Vice President of Corporate Development and Investor Relations. Joining me today are Samsara's Chief Executive Officer and Co Founder, Sanjit Biswas 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. Samsar.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, March 7, 2024, 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 4th quarter 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

Reconciliations of GAAP to non GAAP financial measures are provided in our press release and investor presentation. We'll make opening remarks, dive into highlights for the quarter and then open the call for Q and A. With that, I'll hand over to call Sanjit.

Speaker 1

Thanks, Mike, and thank you, everyone, for joining us today. Samsara's FY24 was another year of durable and efficient growth. We ended FY24 with an ARR of $1,100,000,000 growing 39% year over year. During the year, we added 6 11 customers into our 100 ks plus ARR cohort, bringing us to 1848 large customers in total. Our momentum reflects the continued strength of our platform and the large market opportunity ahead of us.

Speaker 1

Several factors drove our execution. First, we're addressing a large market that's early in its digitization journey. Our customers represent the industries that drive more than 40% of the global GDP and are the backbone of the economy. 2nd, we pioneered the Connected Operations Cloud, a singular system of record for physical operations to address this market. 3rd, we have built a multi application platform that solves our customers' most challenging problems.

Speaker 1

We have a unique IoT data set that includes data from our broad and diverse group of vehicles, equipment, sites and workers. It is also fed by a growing ecosystem of connected assets and third party systems. And last, our increasing scale and strong unit economics drive operational efficiency. While we're still in the early innings of our customers' digitization journeys, we are proud of our progress and impact so far. In just 8 years of selling, we are operating at a rare combination of scale, growth and profitability.

Speaker 1

We are the strategic partner to many of the world's leading and most complex physical operations organizations, and our large customer momentum continues to fuel our growth. We provide visibility into their operations and deliver clear ROI with payback periods often measured in months. Q4 was a milestone quarter for our large customers. We added a record 185 customers into our 100 ks plus ARR cohort. This represents our fastest growing customer group.

Speaker 1

We also added a record 11 customers into our $1,000,000 plus ARR cohort. I'd like to share 2 examples from this quarter that show our momentum with large customers. The first is with the USIC, which is our largest new logo and our largest net new ACV deal ever. USIC is the leading provider of underground public utility locating services, with more than 12,000 technicians in 48 states. Their technicians mark utility lines to ensure public safety and to protect and maintain our critical infrastructure.

Speaker 1

At the core of ESIC is their safe life culture, which is focused on eliminating at risk behaviors and empowering their employees to protect themselves, their team members and their communities. They are using our video based safety application to strengthen their safety program. They have already seen significant results. In a pilot with Samsara, USIC reduced mobile phone usage by 92%, no seat belt usage by 85% and rolling stops by 50%. We also expect USIC to increase fuel efficiency across its fleet with our vehicle telematics.

Speaker 1

This means less carbon emissions and lower fuel costs. The second is our expanded partnership with the leading provider of commercial and residential roofing, siding, windows, decking and installation in the North American building industry. They're a Fortune 500 company with more than 2,300 vehicles and 7,000 team members across 500 locations. They became a customer a quarter ago with telematics only. This quarter, they expanded with over $1,000,000 of video based safety and mobile experience management applications.

Speaker 1

One of their core values is to make every day safer. They are using video based safety to improve safety, reduce accidents and exonerate drivers. They consolidated 3 vendors into 1 with mobile experience management, which they are using to reduce mobile distractions and keep drivers safe. In an early pilot with Samsara, they saw an 85% reduction in total safety events, a 91% reduction in distracted driving, and a 77% reduction in collision risk events. These results deliver clear ROI to our customers.

Speaker 1

We are proud to partner with them to achieve their core values and operational goals. Samsara's Connected Operations Cloud is powered by a flywheel of data from our customers' growing digitization efforts. This enables AI driven insights to help our customers operate more safely, efficiently and sustainably. We've been investing in our cloud, which continues to grow and become more sophisticated. Over the last fiscal year, our cloud processed more than 9,000,000,000,000 data points and 75,000,000,000 API calls, workflows across our platform and recorded more than 60,000,000,000 miles driven.

Speaker 1

Our partner ecosystem, Samsara's app marketplace, has also grown to include more than 2 70 integrations with 3rd party systems. Our growing dataset accelerates our ability to deliver even more insights so our customers can take action and improve their operations. This helps our customers operate their businesses in completely new ways. They can also drive even more business impact while saving money. For example, many of our customers use real time insights from our Connected Operations Cloud to drive operational actions.

Speaker 1

This results in fuel savings, lower insurance premiums, lower maintenance costs, improved asset utilization and better worker hiring and retention. As we build for the long term, we are focused on expanding our multi product platform, growing our international markets and increasing our investments in security and scaling our unique culture, which fuels our growth. This quarter, we released our Connected Forms application into general availability. Connected Forms is a workflow solution that allows our customers' frontline workers to streamline their operations. This includes inspections and incident reports through digital forms.

Speaker 1

A good example of how customers are already finding value with Connected Forms is with Nextyear. Nextyear recently merged with Patterson UTI to form the 2nd largest oilfield services company in the U. S. They've been a customer since 2021 and expanded their partnership with us in Q4 to use Connected Forms. They are using Connected Forms to help produce operational risk.

Speaker 1

Connected Forms ensures that each trip is safe and necessary to perform, considering the weather, hazardous road conditions and driver readiness. This quarter was also strong for international growth, with 16% of net new ACV coming from non U. S. Geographies. As we look to the future, we are continuing to expand and gain customers in our new frontiers, including Mexico, Canada and Western Europe.

Speaker 1

One of our key international wins this quarter is a major European construction services business with over 120 local operating companies and 17,000 employees. They deliver over 25,000 projects annually across many civil engineering construction sectors. Samsara has partnered with them to advance their core values of safety, sustainability and integrity. They're using Samsara's video based safety and telematics products to help prevent accidents, reduce idling, lower insurance costs, and transition to an electric fleet. We've also continued to focus on protecting our customers and their data.

Speaker 1

Announced today, Samsara has achieved 4 industry leading ISO certifications. This demonstrates our commitment to data security and privacy. It is an important step as we build on our strong foundation of customer data protection, data security and privacy management. And last, as we grow and scale, our differentiated culture allows us to amplify our impact on our customers and communities. In Q4, Glassdoor recognized Samsara as one of the Best Places to Work in 2024, and we are thrilled to have received many Best Places to Work recognitions throughout the year.

Speaker 1

We're proud of this milestone year. We surpassed $1,000,000,000 in ARR at 39% year over year growth, became adjusted free cash flow positive and consistently achieved rule of 40 in all four quarters. We are operating at a rare combination of scale, growth and profitability. It was an exciting quarter and year, delivering on our mission to increase the safety, efficiency and sustainability of the operations that power the global economy. We're grateful for the opportunity to partner with our customers as they modernize their operations.

Speaker 1

We look forward to another year of innovating and building solutions for our customers. Thank you to our customers, partners, investors and Samsarians who are joining us on this journey. We're also excited to see many of you at our Annual Customer Conference Beyond, on June 26 to 28 in Chicago, where we'll also be hosting an Investor Day. At Beyond, we'll be bringing together leaders across the industries we serve to discuss the state of physical operations, the challenges they're facing and new ways to use Samsara to deliver value through digitization. We will also be announcing new products to further drive transformation for our customers.

Speaker 1

We hope you will join us. I'll now hand it over to Dominic to go over financial highlights from the quarter.

Speaker 2

Thank you, Sanjit. Q4 was another quarter of sustained high growth at scale. Ending ARR was $1,100,000,000 and we added a quarterly record $99,000,000 of net new ARR or an increase of 39% year over year, our highest growth rate over the past 10 quarters. This was also the 4th consecutive quarter year over year net new ARR growth accelerated compared to the same period of the prior year at a larger scale. Q4 revenue was $276,000,000 growing 48% year over year or 37% adjusted revenue growth.

Speaker 2

For full year FY 'twenty four, revenue was $937,000,000 an increase of 44% year over year or 41% adjusted revenue growth. As a reminder, Q4 of FY 'twenty four was a 14 week fiscal quarter, which happens every 6 years, instead of a typical 13 week quarter. Adjusted revenue and adjusted revenue growth removed the impact of the additional week of revenue recognition in Q4 FY24 to enable comparability across periods. Several factors drove our strong top line performance in Q4. First, we continue to focus on serving large enterprise customers to drive durable and efficient growth at scale.

Speaker 2

We now have 1848, 100 ks plus ARR customers, a quarterly record increase of 185, representing 49% year over year growth, the same growth rate as last quarter at a larger scale. We also saw particular strength within our largest customers. We now have $82,100,000 plus ARR customers, a quarterly record increase of 11 representing 61% year over year growth, accelerating from 54% growth last quarter at a larger scale. 100 ks plus ARR customers represent our fastest growing cohort and make up 52% of our total ARR, up from 48% 1 year ago and 45% 2 years ago. This higher ARR mix from larger customers coincides with a lower ARR mix from smaller customers.

Speaker 2

To reflect this trend and align with where we're investing for future growth, we're updating our definition of core customer from 5 ks plus ARR customers previously to 10 ks plus ARR customers. Our non core customers with less than 10 ks of ARR represent just 8% of total ARR mix, down from 14% 2 years ago, and we expect this mix to continue declining over time. 2nd this quarter was a balanced mix of landing new customers and expanding existing customer relationships. For new logos, we added a quarterly record number of core and large customers in q4. We also added $21,000,000 plus new logos, including our largest deal ever with USIC.

Speaker 2

And all of our top 10 new customers signed multi product transactions. For expansions, we booked a quarterly record $6,000,000 plus expansion deals and 8 of the top 10 expansions in Q4 were multi product transactions. Most notably, a large existing customer in the construction industry already using vehicle telematics, video based safety and equipment monitoring signed a more than $1,000,000 expansion in Q4 to become our largest overall customer. And this was their 20th expansion since becoming a customer back in 2018. 3rd, we continued to demonstrate strong execution across several frontier markets.

Speaker 2

First, 16% of net new ACV came from international geographies compared to 14% in Q4 last year, driven by strength in Mexico and Europe. Both regions added a record number of 100 ks plus ARR customers and accelerated year over year ARR growth sequentially and compared to Q4 last year at a larger scale. 2nd, our construction vertical contributed a quarterly record 20% of net new ACV in Q4, the 2nd consecutive quarter that construction was our leading vertical. Additionally, 87% of Q4 net new ACV came from non transportation verticals, an increase from 81% in Q4 last year. And lastly, while year over year ARR growth for both video based safety and vehicle telematics accelerated sequentially in Q4 at a larger scale, we also saw strength in emerging products that provide additional expansion opportunities within our existing customer base.

Speaker 2

In Q4, we signed our 2nd largest equipment monitoring deal and approximately $1,000,000 upsell as part of a broader expansion to one of North America's largest full service grocery wholesalers. We also released connected forms into general availability in Q4 and signed a more than 250 ks ks expansion deal with Nexyr Oilfield Services. In addition to driving strong top line growth, we continued to deliver operating efficiency improvements across our business as we scale. Non GAAP gross margin was 76% in Q4, a quarterly record and approximately 3 percentage points higher year over year, driven largely by optimizing cloud, cellular, warranty and support costs. Non GAAP operating margin was 5% compared to negative 8% in Q4 last year, an improvement of approximately 13 percentage points year over year driven by leverage across all functions.

Speaker 2

And adjusted free cash flow margin was 6% in Q4, a quarterly record compared to negative 3% in Q4 last year, an improvement of approximately 9 percentage points primarily from improved operating leverage and continued working capital optimization. Also of note in Q4, we settled previously disclosed lease related litigation. After vacating the building in October 2021, our remaining unpaid lease obligation was more than $130,000,000 and the settlement included a cash payment of $60,000,000 Given the non recurring nature of this legal settlement, it is excluded from adjusted free cash flow. And finally, we reduced our annual equity dilution by almost 40% this year, from 4.4% in FY 'twenty three, down to 2.7% in FY 'twenty four. Okay, now turning to guidance.

Speaker 2

As we enter FY 'twenty five, our 3rd year as a public company, we continue to have more forecast visibility and predictability than in previous years. As a result, our FY 'twenty five guidance philosophy will be less conservative than it was in FY 'twenty four. This is the same exact framework we applied to our initial FY 'twenty four guidance at the beginning of last year, which was also less conservative than our initial FY 'twenty three guide the prior year. And after analyzing various scenarios, we're also confident that our FY 'twenty five guidance is adequately derisked to account for the potential impact of worsening macroeconomic factors on our business. For Q1 FY 'twenty five, we expect total revenue to be between $271,000,000 $273,000,000 representing year over year growth between 33% 34%.

Speaker 2

Non GAAP operating margin to be approximately negative 3% and non GAAP EPS to be between 0 $0.01 For full year FY 'twenty five, we expect revenue to be between 1.186 $1,196,000,000 representing year over year growth between 27% 28% or between 29% 30% after adjusting for the extra week in q4 fy24. Non GAAP operating margin to be approximately 2% and non GAAP EPS to be to be to be between $0.11 $0.13 And finally, please see the additional modeling notes in our shareholder letter. So to wrap up, we are pleased with our Q4 and full year FY 'twenty four performance. This was a year of accelerating growth at a larger scale, while continuing to drive more operating leverage. We are digitizing the world of physical operations and helping our customers become safer, more efficient and more sustainable.

Speaker 2

With our large markets, products and customer focus, we are well positioned to continue delivering durable and efficient growth. And with that, I'll hand it over to Mike to moderate Q and A.

Operator

Thanks, Amit. We will now open the line up for questions. The first question today comes from Keith Weiss with Morgan Stanley followed by Matt Hedberg with RBC.

Speaker 3

Congratulations on a really outstanding quarter. And I guess that's the question. Accelerating net new ACV growth, growing only almost 40 percent in the net new component. And frankly, I mean, I've spent the week at our Morgan Stanley TMT conference and the spending environment sounds a little bit better, but not that much better, right, at all. The macro environment doesn't seem that much better.

Speaker 3

So can you help us explain what was the unlock within Samsara over the last couple of quarters that has enabled you guys to accelerate and get to these levels of growth, which we're frankly just not seeing anywhere else in

Speaker 4

the software landscape right now?

Speaker 2

Yes. So maybe I'll take the first part of that. But again, I think it comes down to the fact that we're selling into a slightly different budget than a lot of the other software companies. We're selling into the operations budget, which tends to be more resilient. And also our solutions are used to drive real hard ROI.

Speaker 2

So customers are deploying our software and they're using it to find cost savings and to drive more safety within their organizations. And then the other thing I would point out even internally as we've discussed now for several quarters, we had made a concerted effort to add more sales capacity into the business and that sales capacity clearly came online and continued to ramp and drove more overall productivity. And so we're pleased with both of those results.

Speaker 3

Got it. Then maybe as a follow-up on the back of that. How should we think about the expansion of sales capacity into the forward fiscal year?

Speaker 2

So I'd say we are ending headcount. We grew it just under 30% in FY 'twenty four. I would say that our headcount in FY 'twenty five will grow at least at a similar rate. Again, we've got big market opportunity. And so we're still aggressively hiring into FY 'twenty five.

Speaker 2

Similar to previous years, about half, maybe just under half of our overall net headcount additions will go into sales and marketing. And a portion of that is quota capacity that will lead to investments for future growth.

Speaker 5

Outstanding. Congratulations, guys.

Operator

Our next question comes from Matt Hedberg with RBC followed by Ag Zukin with Wolfe.

Speaker 6

Great. Thanks for taking my questions. I guess, all for my congrats as well, really strong year here. The other thing that stood out to me was growth in large customers. And I guess, can you put a finer point on what's driving like what are the most important factors driving the strength and how durable do you think that success is with these large customers?

Speaker 1

Hey, Matt. This is Sanjit. I would say if you think back to my prepared remarks, we focus on large complex physical operations companies. They have a lot of real world operational challenges and problems. Those relate to safety.

Speaker 1

So, operational safety out on the front lines. They're trying to reduce risk, in other words. They're finding ways to be more efficient in terms of how they operate their business, how they drive their routes, how they operate their assets, and they're trying to figure out how to be more sustainable. These are evergreen problems and this is a very, very large market opportunity. We're talking about $60,000,000,000 TAM, it's growing 20% year over year.

Speaker 1

And I would say these customers, largely speaking, they're sophisticated, but they're in these early innings of digitization. So we think that this can go on for some time.

Speaker 2

Yes. I mean, just to add on that, obviously, we accelerated the year over year growth for $1,000,000 plus customers. This was the 4th consecutive quarter that we had a quarterly record for 100 ks plus customer additions. And then obviously, we signed our largest net new ACV deal ever with USIC. And so we're seeing a lot of momentum with large customers.

Speaker 6

Great. Exciting stuff. Dom, one for you. You don't guide to ARR, but I'm wondering if you could help us with any of guidepost or guardrails to think about ARR growth, some of the building blocks maybe relative to your adjusted revenue growth target, I think it was 29% to 30% for the

Speaker 2

year. Sure. I mean, I would just say, 1st, obviously, we came off a really strong year in FY 'twenty four. We added $307,000,000 of incremental ARR, grew at 30% year over year. That's an acceleration from 9% net new ARR growth in FY 'twenty three and obviously at a much larger scale.

Speaker 2

As I said in my prepared remarks also Q4 was the highest net new ARR growth that we've seen in the last 10 quarters. And as we pointed this out in our modeling notes that we think that we can at least match that amount of net new ARR in FY 'twenty five. We're obviously still monitoring macro uncertainty and we are adding a lot of sales capacity and so monitoring the sales rep productivity. But if those headwinds don't come to fruition, we like the capacity that we've added and we're going to continue to add more. So I think I'd say that's how we're thinking about it to start out the year and we'll have better visibility as we make our way through FY 'twenty five.

Speaker 5

Thanks a lot guys.

Operator

The next question comes from Alex Zukin with Wolfe followed by Michael Turrin with Wells Fargo.

Speaker 7

Hey, guys. Congrats on a truly remarkable quarter. I guess, you had a kind of a trifecta of largest net new deal, largest amount of 100,000 ads. And also what seems to be accelerating sales cycles, meaning your newest products are getting more traction faster than even your previous cohort of products. So, maybe just help us understand on either of those dimensions, what's the incremental significance to the future growth, meaning the largest land ever is that kind of continuing to will that be a reference customer and you see a continual cohort of potentially larger lands now that you're selling a lot more comprehensive of a platform package at like basically from the start.

Speaker 7

And therefore it's driving meaningfully higher productivity of reps or how are all three of those things kind of playing together?

Speaker 2

Alex, it's Samik. I would say that I think it's just important to also know that the ARR the year over year ARR growth for our core products, telematics and safety accelerated. The overall ARR accelerated sequentially. So it was a very strong telematics and safety quarter. But we are starting to see some of these emerging products be attached in many of the deals, specifically new customers.

Speaker 2

I call out that all 10 of our top 10 new customers were multi product transactions. And so I think it just gives us more opportunities to create more value for customers, whether it's a new customer or expanding into an existing customer. And a lot of the new products that we're adding, scaling equipment monitoring and mobile experience management, connected forms are just opportunities for us to expand the deal sizes.

Speaker 7

Perfect. And Sanjay, maybe one for you. You referenced some potential exciting new products coming later this year in June. And I guess on the backdrop of your platform has a ridiculous amount of kind of great data for your customers, it would I guess is there anything exciting to think about with the potential to layer on any kind of AI or generative AI use cases on that corpus of data to be further monetized in the platform?

Speaker 1

Absolutely. And Alex, I'm going to have to use that ridiculous amount of good data line. That's fantastic. We absolutely are planning to leverage the platform. That's what customers come to us for.

Speaker 1

They like that all of these applications are running on the same platform, sharing data with each other. Some of the newer applications we've released like Connected Forms and MEM and even equipment monitoring, they leverage that. And just to give you a sense of how we can use generative AI in the operations use case, if you think about Connected Forms, it basically is digitizing paperwork. And we have a lot of operational context. We know where the user is.

Speaker 1

We know what the asset is that they're maybe maintaining or monitoring. And we can fill out a lot of these form fields automatically and speed up their workflow. We can also understand what the next step should be, that sort of thing. So that's a little bit of a preview, but I would encourage you all to come to Beyond and hear about the new products in June.

Speaker 7

Will do. Thank you, guys.

Operator

The next question comes from Michael Turrin with Wells Fargo followed by Derrick Wood with TD Cowen.

Speaker 8

Cowen. Dominic, in the letter and remarks, you mentioned less conservatism in the guide. It sounds like just continued progress relative to what we saw at the start of last year. But can you just walk us through the rationale and the factors you're considering there alongside what's providing the better visibility over time?

Speaker 2

Yes, I would just again stress, this is the same commentary, same guidance framework that we provided on the Q4 call last year, same playbook. It's just we're entering our 3rd year as a public company. We have more forecast predictability, and therefore, we need less conservatism in our guide than we did needed during our 2nd year, where we needed less comment. At the same time, I would just want to reiterate that that is really what's driving the comment. At the same time, I just want to reiterate that we do recognize that there's macro uncertainty that could have an impact on future demand.

Speaker 2

We're not seeing it. And we've run a number of different downside scenarios on our operating plan as well, and we're confident that we can hit this initial guidance regardless of what happens and that is the derisk commentary as well. If we don't see the macro headwinds, we obviously have opportunity to raise our guidance throughout the year. Just won't be at the same rate that it has been in previous years. And we just want to make sure that investors appreciate that going into FY 'twenty five.

Speaker 8

All makes sense. The letter also mentions your expansion targets are unchanged even at increasing scale, the 115% and 120% target. So can you just spend some time with us on the drivers of durable expansion within the model and how we should think about just underlying expansion with the core products versus the evolution of cross sell into that emerging product bucket over time and what keeps those expansion rates holding relatively consistent here.

Speaker 2

Yes, thanks. We just had a really consistent balanced mix within our net new ACV of new logos and expansions. In this quarter, 53% of net new ACV came from expansions, 47% from new logos. So that's been very consistent. And then within the expansions, there's a really healthy mix of both upsells to existing customers where they're doing a phased rollout of existing products across a broader set of assets or employees, as well as cross sells into new products.

Speaker 2

And so I think many of our customers, our larger customers will roll out over time and that allows us to have confidence in durable upsell growth. And then obviously as we increase our product velocity, we're seeing more and more attach of new products and that gives us the confidence.

Speaker 8

Thanks very much.

Operator

The next question comes from Derrick Wood with TD Cowen followed by Matt Pfau with William Blair.

Speaker 5

Hey, guys. Thanks. Congrats on just an amazing quarter and amazing year. Sanjit, I'll start with you. Interesting to hear about that vendor consolidation taking place with the Roofing Products Company.

Speaker 5

And one of those points of consolidation you mentioned was a displacement of an enterprise mobility management solution. That's a pretty sizable software category in of itself with a different set of vendors than I think you've historically competed against. Can you talk about kind of what the value pitch is to get customers to displace existing solutions there? And then just talk about what the landscape look like around that enterprise mobility management market? Is it like the telematics market with a bunch of older legacy vendors or what does that look like today?

Speaker 1

Sure. So in terms of what's in it for the customer, it's really that connectivity with the rest of the data on our platform. The way that our mobile experience management solution works is it's able to lock a tablet if it's in a vehicle that's moving more than 30 miles an hour. You can set the threshold. So that's an example of something that we can do that existing legacy MEM player can't.

Speaker 1

We can also customize the screen. We can integrate with those workflows. So there's a lot there for the customer. And most importantly, it's targeted to the operations user and the operations buyer as opposed to needing to be something that IT needs to take on as a project. So it's really we're there with the buyer who's in operations.

Speaker 1

We're solving some very real world problems. And they're coming to us saying, we wish we had a way that we can manage these devices where they can only use a couple of apps that they need to be on the job. They're not distracted on the road. It helps improve their safety. So I think we're in the right place at the right time with the buyer.

Speaker 1

In terms of that landscape, I would say generally speaking, it's also fragmented. Like you said, there are different players, but we're very unique in our offering in that it's connected into the rest of our connected operations platform.

Speaker 5

Got it. That is helpful. And I don't know whether if you were Dom, but I wanted to ask about the construction vertical, things like that's humming quite nicely for you guys now 2 quarters in a row. What makes this vertical stand out above and beyond the others right now? And I guess how are you feeling about momentum in selling video, not into vehicles, but video into sites site locations?

Speaker 2

Yes. I think the point of the kind of emerging products commentary every quarter just is to make the point that we're really selling into a broad set of industry verticals, physical operations making up 40% of global GDP. And we don't have one industry vertical customers that makes up the majority of our ARR. And we've had some success in industries like public sector this year that we've called out. And over the last two quarters, construction has been stronger.

Speaker 2

And we're seeing all of our products within that sector, safety and telematics, a lot of equipment, then some of these newer products MEM and connected forms. And so the customer that I mentioned on the call that did their 20th upsell since 2018 that is now our largest customer is in the construction vertical. And so when you get some kind of chunky expansion deals like that, in the quarter, that definitely helps that overall net new ACV mix.

Speaker 1

If I can add a little bit of customer perspective also, I would say the video based safety application where we're in the vehicle, it's relatively speaking under penetrated. This is not an industry segment that had adopted the legacy product. So they're seeing value really for the first time. So they're very excited about it. And many customers have shared with me that a lot of the risk actually occurs when they're driving around.

Speaker 1

It's when they're driving to and from the job site, when they're driving over the road. So while it's not typically considered a telematics or video based safety use case, construction is an exciting industry where we can solve a lot of problems for the customer.

Speaker 5

Awesome. Thanks.

Operator

The next question comes from Matt Pfau with William Blair followed by Junaid with Truist.

Speaker 9

Great. Congrats on the results and thanks for taking my questions.

Speaker 6

First, just wanted

Speaker 9

to better understand within those customers that are doing $1,000,000 plus in ARR, what is the remaining opportunity there? Is there the potential to get a good portion of these customers to $5,000,000 plus, $10,000,000 plus in ARR? Are they sort of at the point of being fully penetrated?

Speaker 2

Definitely not fully penetrated. Again, I would just go back to the customer that is now our largest customer overall. They've done 20 expansions since 2018. And so, I think that expansion opportunity, whether it's cross sells of some of these newer products or more phased rollouts of their existing products gives us a lot of opportunity to grow our overall net new ACV within some of these largest accounts. I think within our $1,000,000 plus customers, they can be many multiples the size that they are today on average.

Speaker 9

Got it. And sort of a follow-up on a previous question. Historically, your split in net new ARR has been roughly even between new customers and existing customers, move around a bit quarter to quarter. But as you land larger and larger with new customers on the initial sale, do you expect any material shift in that split longer term?

Speaker 2

I don't know how it's going to play out. It's interesting because we don't incentivize our sales organization to sell new versus expansions. They retire quota on net new ACV. And they're clearly doing a pretty balanced job of landing new logos and expanding existing customers. I think if we started to see it skew one way more than the other, we could potentially consider that.

Speaker 2

But it's happening exactly. We like it to be balanced. We need more new logos today that we can expand in the future. And obviously, we want to to expand wallet share within our existing customers as much as we can. I think a lot of our larger customers tend to more of a phased rollout over time because they just have complex operations in so many assets.

Speaker 2

And so as more and more of our net new ACV and our ARR mix moves into larger customers that could push more of the mix to expansions over time, but it's been very balanced over the last couple of years.

Speaker 3

Great. Thank you.

Operator

The next question comes from Junaid with Truist followed by Jim Fish with Piper Sandler.

Speaker 10

Great. Thank you for taking my question. You had an exceptionally strong quarter on the gross margin line. I think you've talked about before that most of the leverage is going to be coming below the gross margin line. So if you could just maybe expand on going forward, should we still expect most of that leverage coming in or should we see strong gross margin performance going forward as well?

Speaker 2

Yes, I mean, you even saw it in the results in Q4, gross margin improved 3 percentage points year over year, but operating margin improved 13 percentage points year over year. And so I think that's indicative of what to expect in the future that more of the operating leverage will continue to come from our OpEx leverage sales and marketing. Primarily, again, the cost of sale on a renewed dollar of ACV is much lower than it is when we land or expand ACV dollars. And then obviously, we expect more and more leverage to come out of G and A as we continue to grow and scale. And so I think that's where I would point investors to looking for additional leverage.

Speaker 10

Great. Thank you. And just a follow-up, is there any update that you could provide us on the lawsuit against Motive?

Speaker 1

Sure. I'll take that one. In terms of update, it's a relatively recent suit, so no big update. In terms of context of why we're even filing the suit is to protect our investment innovation and IP. This is a patent infringement claim.

Speaker 1

And we've seen that their senior leadership team was in our product gaining access, copying features of our platform. Many of those were patented features. So there's more information on our microsite, but that's kind of where we are today.

Speaker 10

Great. Thank you.

Operator

The next question comes from Jim Fish with Piper Sandler followed by Daniel Jester with BMO.

Speaker 11

Hey, great quarter guys. Thanks. Thanks for the question. You guys are doing really well internationally. I think it was 16% of net new ACV you called out.

Speaker 11

At what point do you get more aggressive in other regions really not in or just smaller in? Is this where Dom, you kind of alluded to headcount additions? Is that where it's going to be added? Are there any new geographies going to be supported this year?

Speaker 2

No. I think we feel like we've got a lot of market opportunity in front of us. First of all, I mean, just in our core U. S. Market, but Canada, Mexico, Western Europe, the countries the key regions in Western Europe that we're addressing, that's where our focus is.

Speaker 2

And we feel like we've got a lot of market opportunity within those regions. And then obviously, on the product development side is another key area where we're allocating more capital. But we feel like we've got enough market opportunity with the current geographies.

Speaker 11

Makes sense. Just as a follow-up to Matt's earlier question, I mean, how do you see the pipeline of these large opportunities entering the year versus last year? And are there any larger kind of renewal opportunities on the horizon with some customers understanding you guys typically upsell cross sell throughout the life of the contract?

Speaker 2

It doesn't look terribly different than it has in previous years. We feel good about the customer demand and the conversations that we're having, building off the momentum that we demonstrated in FY 'twenty four and Q4. And we've really kind of nailed down our renewal motion over the last couple of years and that's driving a lot of success. And so again, we feel good heading into FY 'twenty five. Thanks.

Operator

The next question comes from Daniel Jester with BMO followed by Kirk Materne with Evercore.

Speaker 12

Great. Thanks for taking my question. Maybe to follow-up on an earlier one in maybe a different way. You highlighted in the prepared remarks the really big renewal that happened kind of 1 quarter after or really big expansion 1 quarter after a new customer was signed. And I mean the velocity there is really impressive.

Speaker 12

Are you seeing actually the speed of that expansion change? Is this a one off sort of unique case? Is it due to sales capacity? Anything that is sort of different in terms of the speed in which you're able to go and re attack these customers?

Speaker 2

I don't think I think every sales cycle is different. It really kind of depends on where the customer is and their kind of internal resources and how much of the platform or products that they can digest upfront. And so some customers are able to move very, very quickly with deployment. Some customers take a more phased rollout approach. And so we're not really seeing any differences there.

Speaker 2

It really comes down to kind of customer readiness and project prioritization.

Speaker 12

Okay, great. That's helpful. And then to follow-up on the sort of comment about construction earlier being a more historically underpenetrated industry vertical. As you look across the verticals today, are there any others that you'd call out where you see potential change in the opportunity or direction of how you think the year progress in 2025? Thanks.

Speaker 2

I don't think so. I mean we usually at our Investor Day will show this ARR mix pie chart by industry vertical and it's been pretty consistent. It moves around kind of a few percentage points within individual verticals, but we're not seeing anything really stand out within one specific vertical that creates more of a catalyst than others. I think we're very focused on having this horizontal platform of applications that's really used by many different end markets. And that's been the case since kind of the founding of the company, and I would expect that to be the case going into FY 'twenty five as well.

Speaker 12

Okay, great.

Speaker 4

Thank you. Our

Operator

last question today comes from Kirk Materne with Evercore.

Speaker 4

Yes. Thanks very much. I'll echo the congrats on the quarter. Sanjay, I was wondering if you could just comment a little bit on the idea of your platform. And as you get up to having customers that have 1,000,000 plus in ARR, are the people that are accessing the data and the platform expanding beyond the operations folks?

Speaker 4

Meaning, I imagine finance wants to look at this. I imagine legal in some cases wants to have access to the data coming off your platform. So can you just talk about what that means from a longer term perspective in terms of getting connected forms into it? I'm just trying to get a sense on it feels like we're scratching the surface in terms of where you could go within an organization even outside of operations.

Speaker 1

Yes. Kirk, we would agree with you. So in large enterprise customers, there are many different personas that use the system. You'll have the back office folks that might be the fleet managers and dispatchers. You will see finance teams using this data to drive everything from tax reporting to carbon reporting and so on.

Speaker 1

And then we do have a bunch of other use cases that we can kind of go through. But like you said, with Connected Forms, we start to expand the horizon of what you can do on the product. It's not necessarily tied to a vehicle. And we're already seeing that with things like equipment, where we've got asset managers in a different sense, keeping an eye on asset utilization of construction equipment, that sort of thing. So, I think that's exactly right in terms of platform expansion and user expansion and we're excited to kind of lean into that with new products like Forms.

Speaker 4

That's really helpful. And Dom, just a quick one to finish up. Obviously, you'll be adding a lot more sales folks to the mix this year. Could you just talk about how if there's any changes to the go to market or how are you feeling about those people, just more overlay salespeople, just expanding within existing regions? I guess just the broader question is any real changes to the go to market as we head into fiscal 'twenty five?

Speaker 4

Thanks.

Speaker 2

Yes. Hey, Kurt. No major changes. We don't use overlay sales for products. Look, the go to market motion is clearly working really well.

Speaker 2

And so like every year, we will have some evolutionary kind of changes as we prepare for more and more scale, but no major changes. Capacity going into our core markets, but also some of our emerging frontiers, whether that's the geography or in the specific industry verticals like public sector. But again, more evolutionary changes than the large wholesale changes.

Speaker 5

Thanks very much.

Operator

All right. So this concludes the question and answer portion. Thank you all for attending our Q4 fiscal year 2024 earnings call. Before I let you go, I have a few short announcements. First, we'll be attending the Wells Fargo Software Symposium on April 10, so we hope to see you there.

Operator

And then second, we're hosting our Investor Day on June 27 in Chicago. Please send an email to irsamsar.com if you're interested in attending in person. For those that prefer to attend virtually, our IR website will have a web link to a live broadcast. That's it for today's meeting. If you have any follow-up questions, you can e mail us at irsamsar.com.

Operator

Thanks again.

Powered by Quartr
Earnings Conference Call
Samsara Q4 2024
00:00 / 00:00