Samsara Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
September 5, 2024

There are 15 speakers on the call.

Operator

Equipment and sites in a single platform. An AI that finds the most important insights so you can take action. Transformation is a journey, but you have a partner by your side with a shared mission, creating new technology for both your front lines and your back office. We see good things ahead, and we're building it in partnership with you. Let's operate smarter together.

Speaker 1

Good afternoon, and welcome to Semstar's 2nd quarter Fiscal 2025 Earnings Call. I'm Mike Chang, Samstar's Vice President of Corporate Development and Investor Relations. Joining me today are Samstar'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. Samsara.com.

Speaker 1

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, September 5, 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, we will discuss our Q2 fiscal 2025 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.

Speaker 1

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 up for Q and A. With that, I'll hand over the call to Sanjit.

Speaker 2

Thanks, Mike, and thank you everyone for joining us today. Samsara delivered another strong quarter of durable and efficient growth at greater scale. We ended Q2 with $1,260,000,000 in ARR, growing 36% year over year. We also achieved a quarterly record for non GAAP operating margin. We are the strategic partner to the world's leading and most complex physical operations organizations.

Speaker 2

Large customer momentum continues to fuel our growth. We added 169 customers with more than $100,000 in ARR. We also added a quarterly record of 14 customers with more than $1,000,000 in ARR. In Q2, we had wins with the state of Maine, one of the largest supermarket chains in the U. S.

Speaker 2

And one of the largest retail owned hardware cooperatives globally. As we grow our customer base, our data asset scales too. We're proud to announce that we achieved an important company milestone. We now collect more than 10,000,000,000,000 data points annually on the Samsara platform. In addition to scale, our unique IoT dataset has incredible breadth and spans a broad and diverse group of assets.

Speaker 2

Our growing dataset unlocks unique insights that help our customers tackle their toughest challenges. In June, we hosted Samsara Beyond to discuss the impact of data and AI on the future of connected operations. Nearly 2,000 attendees across the world of physical operations came together for the event. At Beyond, we learned more about our customers' challenges and how they're looking to solve them with data and AI. They told us their top priorities include creating a system of record for their operations, standardizing their data, and using more AI for insights.

Speaker 2

These conversations are critical as they shape where we prioritize our R and D efforts to maximize customer impact. During Beyond, we also hosted our Connected Operations Award ceremony. We honored 15 global customers who had an outsized impact on our platform as well as our ecosystem partner of the year. I'd like to share the impact we've been driving with a few of our winners. Home Depot was our safest operator winner in the Americas.

Speaker 2

They're the world's largest home improvement retailer with over 2,300 stores and 475,000 employees. Together with their appliance delivery and installation company, TEMCO Logistics, they achieved an 80% reduction in auto instance by leveraging Samsara's video based safety application. Next, let's turn to Sterling Crane, our excellence and efficiency winner. They're one of the world's largest crane rental supply companies with over 625 cranes in their fleet. They saved $1,200,000 using Samsara from improved driver productivity and compliance.

Speaker 2

They also expect to save $2,500,000 for major maintenance costs. We're proud to partner with our customers to make a real world impact on their operations. To help meet the needs of our customers, we've been accelerating our flywheel of innovation. Our growing dataset and AI powered insights drive our flywheel. As it spins faster, we deliver more value from our platform and build more products and features for our customers.

Speaker 2

All of this innovation helps our customers take more action to improve the safety, efficiency and sustainability of their operations. At Beyond, we launched a new product, our asset tag. The asset tag is the industry's 1st industrial grade Bluetooth tag to help our customers track and manage their small high value assets. It can be used for a range of assets from toolboxes and chemicals totes to engines and hand carts. We expect over time this will help our customers save 1,000,000 of dollars a year through increasing asset utilization, preventing asset loss and improving worker efficiency by reducing the time needed to locate stolen or lost assets.

Speaker 2

In Q2, our Q1 selling asset tags, we reached approximately $1,000,000 in net new ACV. It's an exciting start and customer feedback has been strong. We are seeing demand from our customers across industries and geographies and learning about new use cases every week. A good example of this is TransCore, the leader in innovative tolling solutions. TransCore purchased a large amount of asset tags to help with inventory management, loss prevention and hardware functionality.

Speaker 2

They use this for technology hardware, fuel support assets, critical inventory and more. This technology is only possible because of the massive network we've built at Samsara. We have millions of devices around the globe that are connected to the Internet. The asset tag uses industrial grade Bluetooth to connect to the Samsara network. With the density of our network, organizations can get near real time visibility, and that will only improve as our network scales.

Speaker 2

At Beyond, we announced 2 new products to further digitize the worker experience, connected workflows and connected training. Our customers are using technology to transform the worker experience. Samsara is their trusted partner to make these jobs better and safer. Last year, we introduced connected forms to digitize paper processes for physical operations. Connected workflows takes us to the next level and goes beyond digitization to orchestrating multi step workflows.

Speaker 2

Connected workflows can automatically assign forms, manage approvals, and create tasks based on contextual insights. Now every department can easily automate workflows to make work safer and easier from the front lines to the back office. An example is De Silva Gates, a leading construction company in California. De Silva Gates is now automating truck inspections with connected workflows. Drivers are prompted to complete inspections on time.

Speaker 2

Any reported issues are submitted and addressed right away, and this has saved them about $45,000 a week or more than $2,000,000 on an annualized basis. The 2nd worker experience product we launched was Connected Training. Connected Training helps our customers reduce risk by giving them a way to train workers anytime and anywhere. It does this by giving customers remote access to courses on the Samsara mobile app. Now our customers can build customized learning itineraries to address each worker's largest risk areas.

Speaker 2

They can also streamline all their training requirements across their organization. Customers who use Connected Training are already seeing significant benefits. For example, Emory Sapp and Sons, a leading heavy civil construction contractor in the Midwest, saw 40% reduction in safety events with connected training. After launching new products, we continue to run our customer feedback loop to make our products better and more impactful for our customers. At Beyond, we announced new features and partnerships for our platform.

Speaker 2

To help our customers improve to help improve our customer safety programs, we launched new AI detections and shared updates to smart trailers. To help our customers improve the sustainability of their operations, we launched Charge Insights. This is part of our broader EV management offering. We also announced a new partnership with FirstNet built with AT and T, the only nationwide communications network created with and for public safety. Samsara is now FirstNet Trusted, so public safety customers can use Samsara in emergency response situations.

Speaker 2

It was another successful beyond, and I'm happy to share we're hosting the next event next summer in San Diego. We look forward to bringing together even more of our customers, partners and leaders across the world of physical operations. Digitizing physical operations will be a multi decade journey. As we build for the long term, we continue to invest in our leadership and our culture. First, I'm excited to welcome Elyssa Henry to our Board of Directors.

Speaker 2

Elyssa brings over 25 years of experience as a product and technical leader at some of the world's most influential technology companies. This includes her role as CEO of Square at Block and senior leadership positions at Amazon and Microsoft. She has a proven track record of driving innovation and significant growth in the tech sector. 2nd, we are also happy to welcome Megan Eisenberg as our Chief Marketing Officer. Megan is joining us from Lacework, where she was their CMO through their recent acquisition by Fortinet.

Speaker 2

Before that, she was the CMO at both TripActions and MongoDB. She has great experience engaging customers, driving growth and building brands at many successful companies. We are thrilled to have Alyssa and Megan join our team. And lastly, Samsara continues to be a destination for some of the world's top talent. This is important as we scale to meet customer demand.

Speaker 2

This quarter, Samsara was recognized by a great place to work for development, well-being and women. We are proud of the impact we're making on our customers. We are operating at scale with our customers generating more than 10,000,000,000,000 data points, 85,000,000,000 API calls and 70,000,000,000 miles driven across our platform annually. Our growing data asset drives more AI powered insights, so our customers can get clear and fast ROI. Every year, the impact we make with our customers continues to compound.

Speaker 2

We're excited for the decades long opportunity ahead. Thank you to our customers, partners, investors and Samsarians across the globe for joining us on this journey. I'll now hand it over to Dominic to go over the financial highlights for the quarter.

Speaker 3

Thank you, Sanjit. Q2 was another quarter of sustained high growth at scale and continued operating leverage. In particular, the quarter was highlighted by maintaining the same year over year revenue growth rate for the 3rd consecutive quarter at a larger scale, surpassing 2,000 large customers, including adding a quarterly record number of $1,000,000 plus ARR customers, adding approximately $1,000,000 of asset tags net new ACV in our Q1 of selling and achieving a quarterly record operating margin while sustaining a quarterly record gross margin. Q2 ending ARR was 1 point 264,000,000,000 growing 36 percent year over year. Within this, we added $88,000,000 of net new ARR, representing 20% year over year growth.

Speaker 3

And q2 revenue was $300,000,000 growing 37% year over year, which is the same year over year growth rate for the 3rd consecutive quarter at a larger scale. Several factors drove our strong top line performance in Q2. First, we continue to focus on serving large enterprise customers to drive durable and efficient growth at scale. We now have 2,133100 ks Plus ARR customers, representing 41% year over year growth, including a quarterly increase of 169, which is our 2nd highest quarter ever. And within that, we also added a quarterly record $14,100,000 plus ARR customers in the quarter.

Speaker 3

In addition to adding more large customers, we also grew our average ARR per large customer to 318,000, up from 306,000 1 year ago. The combination of more large customers added and a higher average ARR per large customer increased our ARR mix for 100 ks plus ARR customers to 54% in q2, up from 50% 1 year ago and 46% 2 years ago. 2nd, our customers increasingly utilized Samsara as a system of record for physical operations by subscribing to multiple applications all on one unified platform. 94% of our 100 ks plus ARR customers subscribe to multiple products, and 59% subscribe to 3 or more. We're also seeing multi product adoption at scale.

Speaker 3

Our 2 vehicle based applications, video based safety and vehicle telematics, each represent more than 500 $1,000,000 of ARR. In addition to large scale, each of these 3 product categories continued to grow more than 30% year over year. We also saw a number of large multi product transactions in q2. 9 of the top 10 new logos in q2 included 2 or more products, and 6 included 3 or more. Notably, one of our largest q2 new logos, Kastens Transport Company, 1 of the largest auto haulers in the US, landed with 4 different products.

Speaker 3

In addition to licensing our 2 vehicle based applications, Kastens also purchased equipment monitoring and one of our newer software only SKUs, Connected Training, in their initial transaction. Additionally, all of our top 10 expansions included 2 or more products, and 5 included 3 or more. This expansion strength allowed us to achieve our target dollar based net retention rate of 115% 120% for core and large customers, respectively. And 3rd, we demonstrated strong execution across several frontier markets. 16% of net new ACV came from international geographies in q 2, driven by strength in Europe, which had its 4th consecutive quarter of accelerating year over year ARR growth at a larger scale.

Speaker 3

Construction drove the highest net new ACV mix of all industries for the 4th consecutive quarter, and field services had the 2nd highest mix for the 2nd consecutive quarter. In total, 87% of Q2 net new ACV came from non transportation verticals, an increase from 83% in Q2 last year. And lastly, we also saw strength in emerging products. We achieved roughly $1,000,000 of asset tags net new ACV in our Q1 of selling, including a more than 300 ks expansion with a top 100 customer in the construction industry. We also added roughly $1,000,000 of connected workflows net new ACV in Q2, including 4 separate 100 ks plus ARR transactions.

Speaker 3

And we signed an approximately 250 ks connected training expansion in our Q1 of selling the product with a top 30 customer in the logistics industry. In addition to driving strong top line growth, we continued to deliver operating leverage across our business as we scale. Non GAAP gross margin was 77% in q2, which was tied for a quarterly record. Non GAAP operating margin was a quarterly record 6% or 9 percentage points higher year over year, and adjusted free cash flow margin was 4% in what is our seasonally weakest free cash flow quarter. Okay, now turning to guidance.

Speaker 3

We're raising our guidance across all key metrics because of our Q2 performance and outlook for the rest of FY 'twenty five. For q three, we expect total revenue to be between $309,000,000 $311,000,000 representing year over year growth between 30% 31%, non GAAP operating margin to be approximately 4%, and non GAAP EPS to be between $0.3 4. For full year f y 25, we expect revenue to be between 1.224 $1,228,000,000 representing year over year adjusted revenue growth between 33% 34%, non GAAP operating margin to be approximately 5% and non GAAP EPS to be between $0.16 $0.18 And finally, please see additional modeling notes in our shareholder letter. So to wrap up, we are pleased with our first half performance and our improved outlook for FY 'twenty five. In Q2, we sustained our revenue growth rate at a larger scale while also delivering more operating leverage.

Speaker 3

And looking forward, we believe we're well positioned to continue delivering durable and efficient growth because we're digitizing the world of physical operations, which is a very large and underserved market opportunity, and that's driving strong customer demand. Our products offer real ROI and a fast payback period to to our customers, and we're targeting a very different operations budget. We're proud to partner with our customers and are excited to continue helping them operate more safely, efficiently, and sustainably.

Speaker 4

And with

Speaker 3

that, I'll hand it over to Mike to moderate q and a.

Speaker 1

Thanks, Omnic. We'll now open the line for questions. When it's your turn, please limit your questions to one main question and one follow-up question. The first question today comes from Kash Rangan with Goldman Sachs, followed by Ag Zukin with Wolfe Research.

Speaker 5

Thank you, guys. What a phenomenal quarter. It looks like the tone of new business seems to have picked up, if I can tell, from the net new ACV growth rate you've experienced in the quarter and also the $1,000,000 ACV contracts you entered in the quarter. Can you talk about any potential changes to the buying environment you've noticed in the past month or so? Also, Sanjit, curious to get your take on the impact of the tremendous new product innovation that you've laid forth here.

Speaker 5

How could that translate into better pricing power for the company and also better retention rates as your products, like the workflow, which we had a lot of fun talking about at our conferences, those things start to take hold. How do you envision the stickiness, renewal, and pricing part of the company? Thank you so much.

Speaker 2

Sure. Kash, this is Sanjit. So first of all, I think the adoption of the platform has been really strong. This really is a continued pattern we've seen for a couple of quarters now. So I wouldn't say that this was especially different in terms of buying environment, other than customers are really seeing clear and fast ROI with the platform and they want to do more.

Speaker 2

So not just safety and telematics, but monitor equipment, track those assets, like you said, connect their workflows into the system. So the impact of new products, I think it strengthens our platform story for our customer. They're already in the system. They have lots of frontline and back office employees using Samsara. And ultimately, that helps us deliver more value for them.

Speaker 2

In terms of pricing power, you know, I think really it's about delivering great value for our customers. We're seeing strong renewal rates. And that's what I focus on is making sure our customers are happy that they're getting tons of value from the product. And if we do that, they're going to keep coming back.

Speaker 1

The next question comes from Alex Zukin with Wolfe, followed by Keith Weiss with Morgan Stanley.

Speaker 6

Hey, guys. Can you hear me okay?

Speaker 2

Yeah.

Speaker 6

Perfect. Thanks for taking the question, and congrats on another great quarter. I guess maybe just 2 for me. The first one, if you think about the asset tag product, the industrial asset tag, it's pretty remarkable to hear about a multi $100,000 deal in like basically the 1st weeks of availability. So just if you can give us your sense Sanjay for like the trajectory of how to ballpark the TAM for this product relative to telematics, video based safety, and and others.

Speaker 6

Where does this kind of fit in in that in that gain? And how fast relative to those other products can this ramp over the course of the coming year? And I got it over coming years. And then I got a quick follow-up.

Speaker 2

Sure. So, Alex, it's hard to do a compare versus safety and telematics because when we released those products, we were a much smaller company. We weren't as well known in the market. And so we're very pleased with how asset tags has kind of jumped off the line. There was a lot of excitement at the customer conference when we released it.

Speaker 2

And I think it's because it got our customers thinking about all the other assets they have in their operation that go well beyond vehicles and even trailers, all the smaller assets, fiber splicers, tools, things that get left behind a job site. So, overall, it feels very strong. There's a lot of strong customer pull and interest in it. But again, it's hard to kind of compare it to products that we launched many years ago as a smaller company.

Speaker 4

Okay,

Speaker 6

understood. And then maybe, Dom might not like this question, but the Federal Motor Carrier Safety Administration seems to be planning to revisit the ELD mandate in June of 'twenty five. Is there any tailwind that you can kind of see or have visibility on? Because it seems like that would expand your telematics ARR. Like if it ends up being applicable to fleets that have free 2,000 engines.

Speaker 6

How applicable would like, how much more coverage do you feel like that could unlock within your existing large customers?

Speaker 3

Yeah. I think the way that we're going to continue to drive growth out of the business is really being more on offense, meaning customers are buying Samsara and really using us as a system of record across multiple products because they're getting ROI. They're finding ways to operate more safely and more efficiently and reduce their costs, improve their asset utilization and worker productivity. There may be other regulatory compliance things that ultimately kind of pop up, but we're not necessarily tracking that or relying on that to kind of drive future growth. It's really more about kind of being on offense and providing ROI for customers.

Speaker 3

And we'll take those things as they kind of come up, but none of that's kind of on our radar right now.

Speaker 6

Perfect. Had to ask. Thanks, guys.

Speaker 1

The next question comes from Keith Weiss with Morgan Stanley followed by Kirk Materne with Evercore.

Speaker 4

Hey, guys. This is Chris Quintero on for Keith. Thanks for taking the questions here. I wanted to go back to an interesting slide you had at Analyst Day where more than half the market does not use a telematics solution and even higher percentage does not use a video safety solution. So curious to hear your thoughts on why these companies are not using a a provider today, and are there any potential challenges around getting these customers to adopt the solution, or is it really just a timing thing and and eventually everyone will?

Speaker 3

Yeah. So the dynamics are obviously different in, on the telemarket side. Again, it's a industry, you know, it's a product set that's been around for, you know, for multiple decades. And as you said, more than half or roughly 50 percent of commercial vehicles in North America are not using a solution today. And so most of our customers are multiproduct, and so it's often the case that they're subscribing to multiple products, which ultimately helps convince them to maybe adopt telematics technology when they weren't using it previously.

Speaker 3

On the other side, safety, it's really tied more to recent technology tailwinds. You know, going to 4 gs or HD videos, it has really kind of unlocked the ability to sell a solution and safety, and we're seeing that that market rapidly start to adopt new technology. And so maybe at the time of the IPO, only 5% of commercial vehicles had a solution now. We're up to 10% and a lot of our safety ARR and growth is coming from new use cases for customers.

Speaker 7

[SPEAKER CHRISTOPHER MANDEVILLE:] And Chris,

Speaker 2

if I can just add one more point there. If you zoom way out, historically, telematics had been viewed as something that was prevalent in the transportation industry. So kind of long haul trucking. As we described earlier in the prepared remarks, 87% of our business came from industries outside of that. Field services, construction were very strong.

Speaker 2

And so what we're seeing is even for applications like telematics, new industries that had not previously adopted GPS tracking or adopting it. And then to Dominic's point around video based safety, that's enabled by new technologies, the connection, the quality of the cameras, but also AI, being able to go sift through all the safety events and deliver value for the customer.

Speaker 4

Got it. That's that's super helpful. And then my second question is is for both of you. Clearly, things are firing on all cylinders at Samsara and and the results clearly back that up. But just at a high level, we all can always improve.

Speaker 4

So I'm curious from both of your perspectives, what are some areas at Sensara that you're looking to improve on or or get better at today?

Speaker 2

There's

Speaker 3

a lot that that obviously that we can, you know, improve on. I think it's just about, you know, execution. Can we make sure that we're hiring the right people and retaining the right people and creating the right kind of company culture and ultimately improving sales capacity and productivity? Can we make sure that we're making the right capital allocation decisions around R and D and building the right products, not only focused on kind of near term growth, but as we've demonstrated over recent product announcements, making sure that we're planting seeds for medium and longer term growth to drive that durability, make sure that we're constantly taking customer feedback and making improvements. And so there's just a lot of execution that's required, obviously, as we continue to scale, and we're very focused on that.

Speaker 2

Yeah. I would I think I would echo Dominic's points around, you know, there's there's a lot that we can do. And one of our, operating principles at our company is to build for the long term. I feel like we can always do a better job, spending time with customers in the field, hearing what else they want us to build and put on the platform. So, if I had more hours in the day, that's what I would go do is go spend even more time with the customers.

Speaker 4

Awesome. Thanks, guys.

Speaker 1

Alright. So the next question comes from Kirk Materne with Evercore, followed by Matt Hedberg with RBC.

Speaker 8

Great. Thanks, guys. And I'll echo the congrats on a great quarter. Sanjit, I was wondering, I realize asset tags are incredibly early on for you all, but one of the things that's kind of interesting about is that these tags can be used for incredibly high value assets as well as maybe lower value assets. I'm just kind of curious if customers are leaning one way or the other.

Speaker 8

I think you guys gave the example of everything from a toolbox to, you know, a train car full of potash. I was just kind of curious, are they going after the high asset value and assets at all? And, you know, does that inform your thought process on pricing longer term? Again, I realize it's like the Q1 end, but just kind of curious, what you're seeing out there.

Speaker 2

Sure. As you said, it's it's very early, but it's exciting to see all the different use cases. And I I think we mentioned earlier, we're seeing basically a new use case every week. It's hard to see a specific pattern related to asset value. A lot of what we're hearing about are assets that are left behind that were historically untracked.

Speaker 2

And these are ones that often don't have power, so they're not connected to a vehicle or they don't have, you know, a fuel source or battery in them. So that's a lot of it. And that that encompasses tools. But there's all kinds of accessories in the world of physical operations. If you think about an excavator, for example, the little bucket at the end gets left behind at a job site, those can cost 1,000 of dollars.

Speaker 2

We've heard same thing about crane parts and so on. So I would say a lot of different kinds of assets is the pattern, if there is 1. But we should see a little more of kind of the high value versus low value over the next couple of quarters. Stepping back, we have a portfolio strategy when it comes to equipment. We offer powered equipment tracker trackers.

Speaker 2

We have unpowered whole family, really. And so we kind of view it as a portfolio, and we can kind of mix and match within a customer's deployment to meet their needs.

Speaker 8

Okay. That's super helpful. And then, Dom, just a really quick follow-up. Obviously, great to see the leverage flowing through the cash flow numbers and the operating margins. Given the strength in demand, how are you thinking about hiring heading into calendar 25?

Speaker 8

I realize it's early, but I assume you're, you know, starting to think about that now. I was just kind of trying to think about how that might impact, sort of your thought process over the next, call it, couple of quarters.

Speaker 3

You know, it's it's still really too early to kind get into calendar 25. I think we're just kicking off our annual operating plan review process. And so we'll have more details on that in a couple of quarters. But the hiring has continued to be robust. We obviously had a kind of an accelerated hiring year last year.

Speaker 3

We've continued to hire aggressively this year, and we're kind of on track with our plans. And we'll work through our annual operating plan review process and figure out what we're going to do for next year.

Speaker 8

Super. Thank you all.

Speaker 1

The next question comes from Matt Hedberg with RBC, followed by Jim Fish with Piper Sandler.

Speaker 7

Great. Thanks guys for the questions. Congrats again. Really do appreciate the sizing the asset tags just in the Q1. That was helpful.

Speaker 7

I'm curious and I know again it's early, but looking at that customer where you saw 300,000 uplift, I mean, do you get a sense like that's like an initial purchase? Is it did they think about scoping that like that's going to keep get them going for the next year? I'm just sort of curious on because that's a big number. Any perspective on where that order would be in their asset tag journey?

Speaker 3

I think for that customer and for other customers that are at least in the pipeline, there's really more of a phased rollout approach of you know, we're going to go after one use case upfront, and then we're going to find other things that we ultimately want to track and bring into the Samsara cloud. And so I think this kind of quarter will be indicative of future quarters where it's more of more of a land and expand over time.

Speaker 2

And if I can add to that a little bit, some of our customers, they once they try the asset tags, they're discovering new use cases within their operations. One of the examples we shared in their remarks, I met the customer and they ordered a few 1,000 tags. One of the departments had a project in mind and another department swooped in and said, Wow, this is super useful. We'd like half of those. And so they had to come back and order some more.

Speaker 2

And it's exciting because that means we're providing value for these customers.

Speaker 7

That's great. Great color. Congrats on that launch. And then maybe reflecting back on your user event, which I thought was a well done event, there's a lot of buzz about generative AI and I think trying to find that killer use case that your customer base is looking for. Can you give any perspective on sort of like where we're at in that journey?

Speaker 7

I mean is that something that we're thinking about in the next year or so? Because I have to imagine there's lots of opportunities to leverage that form of technology within your connected platform. [SPEAKER MIHAEL POLYMEROPOULOS:]

Speaker 2

Yes, absolutely. Matt, if you recall in our Investor Day, we shared a demo of basically a chat environment that is powered by the unique data asset that we've been creating here at Samsara. So we talked about maintenance, for example, being able to in plain English or plain Spanish, whichever you prefer, be able to tell you which vehicles need maintenance next, what's wrong with them, you know, all that kind of detail. So, we're excited to experiment. I think this technology is absolutely transformational.

Speaker 2

It can deliver a lot of value for the customers. It needs to be practical and and useful in terms of how we deliver it. So over the next couple of months, we're rolling that out to customers and getting their feedback and enhancing it through our feedback loop.

Speaker 7

Got it. Thanks a lot, guys.

Speaker 1

The next question comes from Jim Fish with Piper Sandler, followed by Michael Chern with Wells Fargo.

Speaker 9

Hey, guys. Thanks for the questions here. I guess underneath, it does look like the mid market ARR accelerated. And so, Dom, how much of that was driven by sort of SMB expansion versus net new? And just generally overall, should we think about the percentage of ACV from new versus existing this quarter?

Speaker 3

Yeah. Like like, in our most recent quarters, it was pretty balanced. It it it tilted slightly towards expansion. So it was very strong expansion quarter. We talked about getting to our net retention rate targets, but it was also a really strong new logo quarter.

Speaker 3

It was our 2nd highest quarter ever in terms of new core customers added. We talked about 9 of the top 10 new logos were multiproduct transactions. And so, similar to the kind of the most recent quarters, it continued to be very balanced.

Speaker 9

And look, in your outlook, in the back pages there, you talked about net new ARR and that you're embedding macro worsening, in your ARR outlook. But are you actually seeing any impact to the business today, how are deal cycles relative to 90 days ago?

Speaker 3

No. Customer demand continues to be robust. I think we're just making sure that, you know, we're we're we're setting up, expectations, in a in a way that we feel highly confident that we can hit. Obviously, there's, you know, talks about slowing macroeconomics, and we're in an election year. And so there's just more inherent kind of uncertainty.

Speaker 3

But with that, we want to make sure that we're setting expectations that we feel good about hitting. And again, we're not seeing an impact in customer demand, but it's something that we're always watching out for.

Speaker 9

Thanks, guys.

Speaker 1

The next question comes from Michael Turrin with Wells Fargo, followed by Dylan Becker with William Blair.

Speaker 10

Hey. Great. Appreciate you taking the question. It's something we've we've probably touched on before, but the diversity of logos you're landing certainly stands out. It's actually the state of Maine, a US supermarket, 2 Fortune 500.

Speaker 10

So maybe you can just go back to the diversification the business holds and how Samsara's go to market and underlying platform are able to address all of those different types of customers as effectively as you are.

Speaker 2

So Michael, I think one of the interesting things we've learned over the last few years is how much commonality there is across these different industries. So whether you're in construction or field services or the state of Maine, you're always trying to be more efficient. You're trying to understand how to be safer, how well your assets are utilized. So we focus on those common use cases and find that they really do apply across these different industries. We do break out our public sector team because the way the deal cycles work is a little bit different and contracting with government agencies is a bit different.

Speaker 2

But we have otherwise a pretty much a generalist sales team who are able to sell across these industries.

Speaker 10

Great. And Dom, in the materials, there's some commentary around the operating margin improvement flowing through to free cash flow. Maybe you can just help level set all of us as we're working through models just in thinking through the delta between those 2, how we should expect that to progress going forward?

Speaker 3

Yeah. And so we did talk about, yeah, 200 basis points of the of operating leverage improvement for for the year, and then that 200 basis points would flow through to free cash flow. There is more seasonality in free cash flow where Q1 and Q3 tend to be a little bit higher than Q2. Q1 gets the benefit, obviously, of the collections coming in from Q4, which is our seasonally strongest net new ACV quarter. And then Q4 tends to be our largest free cash flow quarter because Q4 is our largest, seasonally largest net new ACV quarter.

Speaker 3

And so a lot of benefits from that quarter. Then, obviously, all of the kind of the second and third year kind of billings from the contracts that were booked in previous years. So there's a little bit more kind of lumpiness within free cash flow, but for the rest of the year, we do expect another kind of 200 basis points to flow through to both operating margin and the free cash flow margins versus, what we guided to in consensus.

Speaker 1

Alright. The next question comes from Dylan Becker with William Blair, followed by Matt Bullock with BofA. Okay. Let's let's go with, looks like Dylan's not there. Let's go with Matt Bullock with BofA, followed by Alexey Gogolev with JPMorgan.

Speaker 11

Excellent. Hi. Thanks for taking my question. A few if I could on the new product launches. So great to see the early traction with the asset tag.

Speaker 11

Understanding it's early days, can you talk about how we should think about the pricing and packaging strategy there now that there's been a little bit of time to collect feedback from the broader customer base?

Speaker 2

I'll start with that one. I think the initial pricing that we set on the asset tag seems to be working well. Feedback's been strong. And like we talked about earlier, there have been pretty significant orders on it. We do think of the asset tag again as part of a portfolio within our connected equipment line.

Speaker 2

So there's lots of different tracking products we offer for non vehicle assets. And I think it fits in well, especially because it gives you the ability to track some of the less expensive smaller assets that are out there in operations.

Speaker 11

Super helpful. Thanks. And then just one quick follow-up on the continued strength in Europe. I think you said it was the 4th consecutive quarter of accelerating ARR growth. What would you attribute that to?

Speaker 11

Is that just building up a larger base of reference customers, better sales infrastructure, or just improvements to the product market fit?

Speaker 3

I think it's really all of the above. Obviously, Europe's a really big market opportunity for us. I mean, if just on the commercial vehicle side, there's more commercial vehicles and physical operations assets in Europe than there are in North America. And so a scenario that we've been focused on, a lot of sales capacity, building pipeline, making sure that we have the right products for those given regions, and just kind of consistent investment has really paid off in particular over the last 4 quarters.

Speaker 11

Excellent. Thank you very much.

Speaker 1

It looks like we have Dylan back. So let's go with Dylan Becker with William Blair followed by Alexi with JPMorgan.

Speaker 12

Great. Thanks, guys. Sorry about that. Maybe starting, with Sanjit or Dom here, given that the ROI is so high, and obviously you're seeing, healthy demand in the ecosystem, I guess what's keeping customers from adopting even faster and and realizing some of the value that they that you guys deliver? I know that there's phased rollouts maybe, but, is there a way to think about how we should think about that evolution of of cross sell and upsell kind of playing out within the existing base?

Speaker 3

I just a lot of these physical operations customers are really in the early innings of digital transformation. And so adopting technology, there's, you know, change management required internally, but really ensuring that they get, ROI and therefore they do it more in a kind of a phased rollout way. And we're fine working with customers, you know, whether they want to kind of take down all the licenses upfront or they want to do a phased rollout for us. We just want to make sure that they're they're getting value and, and they're they're getting real, ROI and really kind of depends on, you know, customer by customer basis based on kind of where they are in their journey in terms of adopting technology.

Speaker 12

Okay. Okay. That makes sense. And then sticking to, I think, kind of some of the highlights as well too on the large customer side, step up in both new logo ads and revenue per customer. Dom, I guess for you, yeah, how does this help fuel confidence in that outlook given this is becoming an incrementally kind of more strategic and larger segment that's growing faster than the aggregate mix here?

Speaker 3

Yeah. It's been incredibly consistent. I mean, like over the last several several quarters, you know, kind of 1 percentage point of of mix continues to move towards the large customers. We're now at 54%. I said 50% a year ago and 46% a year before that.

Speaker 3

And so this is an area where we continue to make more and more investments. We're really purpose built for these large enterprises with complex physical operations. They have the ability to take on more products. We can just have more impact and drive more ROI for those customers. And so that will continue to be an important part of our growth strategy.

Speaker 12

Great. Thanks, guys.

Speaker 1

The next question comes from Alexey with JPMorgan followed by Derek with TD Cowen.

Speaker 13

Good evening. This is Ella Smith calling on behalf of Alexey Gogolov. Thank you for taking your questions. So first, I was hoping that you could share whether there are any products to call out that customers cross attach either particularly fast, but then also particularly slowly.

Speaker 3

I think there's a consistent pattern. Most of our customers are are adopting multiple products. Obviously, our 2 largest video based safety and vehicle telematics tend to be the most common. But equipment monitoring and some of the emerging products combined for more than $150,000,000 of ARR. So again, it really depends on individual customers and what the use cases are, and we see different combinations of products across all of our customers.

Speaker 13

Very helpful. Thank you. For my second question, are you interested in investing in additional product development? Are you satisfied with your product portfolio at this juncture?

Speaker 10

Well, I

Speaker 2

think I can say as a technology oriented founder, we're here to build products that go solve problems for our customers. So we're absolutely investing in r and d. Investing in R and D. And it's an area that we get a lot of great ideas from our customers on. So we're going to keep improving the products we have and investing in some new ones.

Speaker 13

Great. Thank you both.

Speaker 1

The next question comes from Derek with TD Cowen followed by Junaid with Truist.

Speaker 14

Great. Thanks. Congrats. Another strong quarter. Sandro, could you dive a little bit into the technology behind the new asset tags?

Speaker 14

I know this uses Bluetooth instead of your typical vehicle gateway systems. What are the differences between using Bluetooth versus gateways? Obviously, this helps target a lot more assets to light up and track, but what capabilities do you give up that you have to rely on other networks? And what are the implications for your COGS requirement?

Speaker 2

Yeah. So in terms of how these asset tags connect, they are absolutely powered by Bluetooth, but we have an industrial grade Bluetooth implementation. So a bit of a broader range. It's designed with security in mind as well. But again, Bluetooth doesn't connect to the cellular network.

Speaker 2

Instead, these devices connect to the Samsara gateways that are out there. We have millions of gateways out there. There's a high enough density now that we can achieve near real time tracking with them. And that's really a byproduct of the scale that we've achieved as a company. We basically created this big network across where operations happens.

Speaker 2

So very excited to be able to do that. The the implications of that are that the Bluetooth radios do cost less than the cellular modems. They're also more power efficient because they don't broadcast all the way to a cell tower. So the battery life is enhanced. So in a very small form factor, the tag is kind of the size of a fun sized candy bar.

Speaker 2

We're able to achieve multiyear, about 4 year battery life for our customers while doing that real time tracking. So again, not something we could have done with cellular and not something that we could have done until we achieved the scale and density of the the Samsara network that we have with

Speaker 10

the millions of gateways out there.

Speaker 14

Got it. That's helpful color. Dom, I know we only get total customer count once a year, but can you speak to the just the velocity of how total customer count is trending versus historic levels and how you're feeling about making sure you've got kind of a funnel to keep graduating a healthy level of customers into that 100 ks number and drive good growth in that 100 ks number?

Speaker 3

Yeah. I as I I said in the earlier, answer, it was our 2nd highest quarter ever in terms of new, new core customer logos added. So really strong, and again, it drove, you know, roughly close to 50% of the overall kind of net new ACV, and it was a little bit slightly of a larger expansion quarter. And so kind of similar to these previous quarters. Landing new logos is really important for us because obviously that leads to future expansion opportunities, and it was very kind of consistent mix, you know, from from previous quarters.

Speaker 14

Great. Thank you.

Speaker 1

Thanks, Eric. Our last question today comes from Junaid with Truist.

Speaker 10

Great. Thank you for taking my question. Just on that large customer count, as you continue to shift your focus on serving these larger enterprises, which has been growing pretty impressively, what are some of the additional levers that you can use apart from maybe hiring more quota carrying reps to further drive that large customer penetration?

Speaker 3

I think a big part of it is this capital allocation and r and d investment. The more products that we can create and obviously we're reaching a pretty good velocity on a kind of an annual basis, it just opens up more opportunities for us to have conversations with customers and ultimately solve more of their problems and create more ROI and have more impact for them. And if we can continue to do that, that will allow us to continue to grow the large customer cohort fast.

Speaker 4

Great. Thank you.

Speaker 1

Okay. This concludes the question and answer portion. Thank you for attending our Q2 fiscal year 2025 earnings call. Before I let you go, I have a few short announcements. We'll be attending the Goldman Sachs Communicopia Conference in San Francisco on September 9th, the Wolf Technology Conference in San Francisco on September 10th, the Piper Sandler Growth Frontiers Conference in Nashville on September 11th, and the JPMorgan Software Forum in NAPA on October 8th.

Speaker 1

We hope to see you at one of these events. That's it for today's meeting. If you have any follow-up questions, you can email us at irsamsar.com. Thanks again. Bye, everyone.

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Samsara Q2 2025
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