We're gonna get started here. Thanks, everyone. Thanks for joining us today. My name is Scott Berg. I lead our enterprise software and SaaS research efforts here at Needham. Today with us, we have Smartsheet company CEO, Mark Mader. Thanks for joining us today. You bet. I'm gonna start off with two questions, a little bit off the cuff. The first one is, are you wearing your Smartsheet socks? 'Cause I am. I am. Good. These are the old school design. You have a newer vintage? I do have those, too. Do you? Yeah, I didn't wear them today. Yeah. Yeah. Very good. I figured you were. The more serious question is, you had a press release this morning. Yep. You crossed $1 billion in the ARR. Mm-hmm. Super impressive number. I guess two questions there is, what does that mean to the company, outside of being a really big number? And then, B, how do you think about your next aspirational goal for the company? Mm-hmm. It feels very similar to, what was it? March, April twenty-ninth, the day after IPO, where I think everyone on the outside viewed it as: "Oh, my God! Like, was it incredible? Like, what, what changed?" I'm like: Very little changed. We woke up the next day, and we flew back to Seattle, and we didn't throw a big party. We didn't spend a lot of shareholder money, throwing a big shindig. We're like: "How about we keep selling software? Mm. It's a super notable the billion is a super notable milestone. We started the business at zero, and there were a lot of doubters, and it's awesome to be able to point to the scoreboard and say: "Well, it's a non-zero number. It's actually a billion now. Mm-hmm. But I feel the same accountability as I did after the IPO. And I think there's a lot to be done, and I think while the world is much more complex today than it was, the world is larger, we have a greater bookings number we need to retire than we did five years ago. The number of things available to us and the ability to drive value quickly is more present today than it's ever been. And if you were to come into my office in Bellevue, Washington, you would see a set of hats on my windowsill, and each hat represents $100 million of ARR. And on each hat, I have this up and to the right graphic, and I put the month and the year. And the point is, how the hell do I get a lot of hats on my sill in an ever accelerating way? Yeah, and that's. This was a big thing, also. People were like: "So why'd you do a release on it?" I say, "Well, we released when we went public," and it's a big deal for our employees. Yeah. While it was no surprise to any investor, I think for a lot of our customers, they do appreciate knowing that we're a lasting company that they can invest in for a long time. Good. Well, congratulations. Yeah. It's an impressive milestone, as you said, and looking forward to the next goals, whatever they are. Mm-hmm. I guess on that note, we'll back up a second. Why don't you give a brief overview of who Smartsheet is, for the few people that might not be familiar? So Smartsheet is an enterprise work management platform, and we are helping companies in virtually all industries execute their operations better. So whether you look at that on the dimension of managing their people, and what those people are assigned to, and how busy they are, and whether they can make certain investments, do they have the capacity to deploy their people? We help them manage that. We help them collect information through forms, synthesize it, triage it, assign it, do automations against it, who's on first, not only to collect it and inspect it, but also to report off it in dashboards and such. And then we have a third part of the business, which is on the content side. We help companies like McLaren F1 take all these images, still and video images, classify them, tag them, so they can make sense of this huge asset and deploy them digitally. So that constitutes work. So there's probably someone in the audience who's like: "That doesn't sound that new. Didn't we, like, have automation already, and didn't we have dashboarding, and didn't we have an ability to store images?" Like, yep, you did. And I think the thing that people missed when they said this category probably wouldn't exist, is they missed that there's a very significant set of altitudes within companies, where you have different people flying. You have some people who are highly technical. They do bespoke development. They have a very high capacity for complexity and to build very large, durable enterprise systems. At the other end of the spectrum, you have the opposite of that. You have someone who can sort of figure out how to get onto a Zoom call, and they feel pretty confident about sending a message and writing a document. Very little technical skill needed. There's a huge range in the middle, where you have business operators who have real needs and need to move quickly, who can't wait for the technical person to do that configuration or that tracking or that automation for them. That's where we sell a lot of software. So we have functional teams, not only IT, but people in sales and service and finance, in HR, who use our tool to collect information, manage the people against their programs, and manage their digital content. Yep. So let's start off by talking about the industry, and I wanted to talk about TAM, only because it's amazing how much I still get this question. Mm-hmm. Last time I checked, you're a billion-dollar ARR company, as of this morning, as we found out, right? So the TAM has to be reasonably large, especially given your growth rate still. But so I get this question all the time. I've always viewed it as some sort of a subset of the 1.2 billion, you know, Excel seats that are in the market today, or maybe the knowledge worker population's around 1 billion, maybe it's some subset of that. But you already have 100,000-plus customers. You have a lot of customers. Yeah. How do we think about your opportunity to attract new customers and/or penetrate those existing customers further? Because there's a lot of investors that think, "Hey, you've got to be relatively topped out in your runway, right? Yeah, I think the question- Or- I think the question comes up. I think when we went public, we had a pretty simplistic method for articulating TAM, and it was more to the, "Hey, there are about 1 billion professional knowledge workers out there. Like, how many of them could use this?" We're like, "I don't know, 25%?" I mean, it was a little more scientific than that, but not too much more. Very simplistic, and we looked at attach rates of productivity tools in market. Like a huge, we have a huge number of workloads that graduate from more traditional mechanisms of tracking work into a more structured tracking mechanism for work, which is Smartsheet. So people graduating things from spreadsheets to Smartsheet dashboards. I don't think that thesis was wrong earlier, and we kind of went out like, "It's about a $25 billion market." The thing we got wrong was that we should have looked at the adjacent areas that surround that tracking of work, the money spent on customization for automation, and the customization on dashboarding, the customization on BI. All those things, we were, like, not including in our TAM analysis initially. And then when we started to get evidence of companies at scale purchasing Smartsheet, like the 59 customers as of the last earnings call, that were paying us over $1 million, like, we're like: Hmm, so how are they deriving value from us? And then how are we selling into those opportunities? And we found that the answer was far beyond seats. So the initial simplistic way of, well, about 25% of the population could probably see value, and we'll get some penetration of that over the years. We totally underestimated the element of additional value things that carve away from the spend they have in BI, from the spend they have in automation, and we've built now a portfolio and a platform that we're selling across our customer base. That portfolio and platform view is, I think, a great lead into my next question. Your incremental functionality releases over the last several years have really been, you know, focused on driving what you call enterprise-grade functionality. I love the term because I think it's the right viewpoint. But I guess, why is this the right strategy today within the work management space, and how do you accentuate it further, do you think? Well, it's the right strategy today, and it's the right one for tomorrow because the last thing you want to do as a service provider is get to a point where someone said, "You were wonderful for my first nine years of subscription, but I'm graduating from you." Like, that's a really bad day in a SaaS company's life. So our strategy was pick your swim lanes where we are gonna have offerings, and then add to the portfolio so that as your largest of large enterprises say, "But we need this thing to take that workload we're using today, but we need to supersize it, or we need to scale it," you better have an answer to that. And it's not, it's not as simplistic as: and just be able to support a lot of data. No, it's like you need functional offerings that help someone who maybe has a huge home run win on using Smartsheet to deliver a warehouse, where the CFO says: "Hey, you saved us three days, which was $1 million a day, by getting it done earlier. I want you to do that for every single warehouse build and renovation in our portfolio." So the person who was the winner was like: Ruh-roh! Like, how do I do that? Do I, like, have a Zoom call where I educate people on how to do it? No, that's not how you do it. What you do is you go to Smartsheet and you say: "I want to buy a Control Center from you, which helps me define a blueprint for these, and I can scale this thing out in a way which is super rational and cohesive." They pay us extra for that, they being our customers, 'cause they assign a ton of value to that. So as opposed... And that's a very different strategy than saying, "We built a cool, like, $700 million business here, and now we're gonna branch into other areas of tech." And when you have a $2 trillion global spend, there are so many places you can go as a company. And I think what's happening in the category now is you're starting to see the strategies emerge, where you have companies saying: Here are our areas of focus. We're gonna continue to have logical building blocks in these areas. And others who are taking a different strategy, not necessarily a bad strategy, but a different one, which says: We're gonna branch into other sectors of tech. And there are a lot of ways to make a subscription dollar. And I think what's happening with investors now, they're starting to appreciate those differences within the category. So at your customer conference, ENGAGE, in September, I, of course, was there. I had the chance to speak to your Chief Product Officer, PG. Mm-hmm. He's great. I've had a lot of history with your chief product guys the last five or six years. I think they're fantastic. But I'll paraphrase his comment that I thought was super insightful: if a product needs to have deep functionality, there's often a trade-off between the functionality and the user experience. The less one needs, the product should be really easy to stand up and use. But when a customer requires more functionality, products are usually a little bit more complex to use. You give more functionality, they have to weave through some of it. But how should we think about the Smartsheet platform going forward in terms of your ability to weave in a great customer experience, but with also all this enterprise-grade functionality that your customers are clearly clamoring for? Yeah. I think one needs to be really thoughtful about the customer journey. And when someone starts out with you, and they're getting oriented, don't overwhelm them with a bunch of noise that they can't make sense of. So I think be situationally aware of where someone is in that process. So, for instance, in your first four minutes of using Smartsheet, the right strategy wouldn't be to say: "Hey, I can, like, launch 100 simultaneous warehouse projects for you in this really amazing way," and you're like, I haven't even done the first thing. It would be the wrong time to do that. So I think we need to be, and we are taking steps to introducing those things at the right time. I do think someone's capacity... I think, to build a great product, great doesn't need to always mean simplistic. Simple, but not simplistic. So if you have a really formidable thing that you're trying to design, deploy, make it simple, make it rational, but don't, don't try and solve for simplicity that cannot exist. And when we think about some of the really big things we do at scale, companies don't- companies' expectations aren't, "I need this done in 13 minutes with, like, no training."... That's not their expectation. They're like: "We're gonna invest our best people to it, and tell us how we can de-risk that again? Okay, use that partner, and, and we're gonna pay for your best architect." You're like: "But you could do this." "We totally get we could do this, but we're de-risking." I think that's one of the things people forget with these really large environments. They are not paid... Like, the value they get by saving four minutes is a terrible trade. They're like: "We'll spend the four minutes, and we're gonna increase our certainty from 96% to 99%." That's the enterprise mindset, and, and I think that's one thing that we've really taken to heart in these last few years. So in the work that we've done in the space, I think a key issue that's come up with customers, and it's not just of Smartsheet, but it's other competitive solutions as well, is just around adoption. And it's very similar to other software categories I cover, is companies purchase software. It's not always adopted right away. If you don't get use in adoption, you get churn. It's come up a little bit more frequently with vendors in the space, though, and I think it's just 'cause, it maybe because it's a new product category, and they're still trying to figure out what to, you know, how to do it. Yep. But how do you change that adoption curve to accelerate it? Not a lot, like you said. It can't be all 13 minutes, and you're duplicating these warehouses, but change that shift just a little bit, so you can, you know, make it stickier right away. I think it's really important to be calibrated with your customer around what the definition of adoption is. So if I had a tool that I was selling, that was a messaging tool, and that was your only way to message, it would be super odd if you didn't use the tool daily. If I was selling a tool that powered your quarterly access review process for your systems that are part of your annual audit, it would be weird for you to think that would be a daily use tool. Maybe I've used it for the last 16 years quarterly without fail. I would say that's a highly sticky platform. So it really depends on what you're serving somebody- Hmm. and some of those workloads are not daily use, but they assign massive value to them. I think to have a really... I like diversity in the offering, so I like some things that are high frequency, maybe lower value, and certain things that are really low usage but extraordinarily important to a customer. And sometimes those are the best margin opportunities. Sure. You use it rarely, it doesn't take up much room- Yeah. and you assign ton of value. Great! Let's find some more of those. But I do think there are things that we're launching this coming year, which are decidedly right up the middle to what I could see someone using every day, and those are great. I like that. I like having diversity in that, because what you might capture in someone's first 30 minutes with you, it might be on that dimension of low complexity, valuable, but not something you would ever anchor an enterprise sales on. So what, what helps you get someone in the door and compelled to take the next step may be super different from what ends up selling a big Advance deal for us- Hmm ... four years down the line. So let's talk a little bit more about product, specifically on the AI side of the house. Mm-hmm. It's been kinda popular over the last year for some reason- Yeah especially in my space. But you all announced a handful of new AI capabilities at ENGAGE. But how have your customers responded to date? Is there some functionality they've naturally gravitated to, that's been a little bit better than others, or has it been something that they've looked at and maybe discarded right away? You have, you have various segments within our base. You have the SMB, you have the mid commercial, and you have the large enterprise. While interest remains extraordinarily high, and you'll see this within other reports that, that analysts have written up, you still have a certain class of large enterprise that's still getting its bearings on risk- Hmm on the freedom that they're gonna give their users to utilize these things. So I think that will settle over the next year. But I would say we've through our early adopter program, or beta, if you will, we have seen enough resonance where we feel compelled to flip the bit for two of these skills that we have, that tie out to how someone applies logic into Smartsheet and how someone can, within the context of our product, do things like helpful routines like translation, language improvement, things like that. Those will be available in the next quarter and be part of our enterprise plan. So anybody who's a user on the product gets access to it. It's an opportunity for us to sell move people from our business plan to our higher tier. But I would say it's still early, in the sense that, while there's been a lot of inquiry on it, there has been... I wouldn't say it is, like, the dominant theme that is compelling people to trial the product and to buy the product yet. I think what will change on that, Scott, is when we start getting a collection of evidence where we can present to our prospects and our customers, "Here are the concrete savings that you can get. You do these routines 68 times in a quarter," and we're able to demonstrate that you have an 85% saving on that. Like, it needs to be... People really like being-- What we've heard is people really like being able to apply the AI to a situation they have experience with. So rather than standing up a brand-new AI function that is solving things they've never done before, we did the exact opposite. We said: We know you build a lot of dashboards. We know you do a lot of inquiry on your data sets. We know you apply a lot of logic, and we're gonna put our, we're gonna put our dev talent against solving those things better, more quickly. So I'm excited about it, but in terms of our outlook, I'm not at a point yet where I'm like, "This is gonna be the major driver." I think it's an amazing enhancer, but I'm not yet at the point where it's gonna be the economic boost that so many people are positing. You just mentioned some of the functionality, how customers can adopt- Mm-hmm ... is moving into a higher price tier. Yep. I think some of the functionality is also just being baked into it, but I think you're trying to drive customers to the higher tier. Yep. Why is that the right mechanism to capture that versus a separate SKU or module that you sell and say, "Hey, buy AI for an extra $X a month? ... We get to exercise that choice, and we have a lot of things in our portfolio that are available to people to opt into. This was one where we believe that many customers would be asked about whether Smartsheet is incorporating AI, and I didn't want to have a paywall prevent people from experiencing it. I think it's an opportunity for us to deploy better solutions for our clients, and I wanted that available to that entire tier. Well, it's also not a one-way door, Scott, where the decisions we take on these skills prohibit us from doing something different in the future. I don't like whipsawing clients around, so I think for these skills, I'm pretty sure we're gonna be on this path for some time. But there can be a ton of innovations where AI is introduced, where we get to deploy that potentially in different ways. Just like you said, there are some of those skills that are gonna be available to everyone. So how someone onboards and how someone gets grounded in what's possible and ramping into Smartsheet, that'll be available to everybody who tries our product. If we move to Advance, Mm-hmm. You know, Advance was released about two years ago, I think, roughly. And on your third quarter call, you noted that it was included in 250 of your expansions in the quarter. Mm-hmm. That's a decent number. That's a really good number. How has that stacked up relative to your expectations of that product? 'Cause it to me, on one hand, it seemed like a, all right, no-brainer. Package all that functionality together. I get it. Yet on the other hand, I think customers initially were... In our viewpoint in chatting with them, they're like: "Yeah, it sounds interesting, but I don't know if I'm going to use it. I think one of the things we did really well with Advance is we didn't pick some arbitrary hurdle height, where we said: "Okay, for you to participate in Advance, you need to step up to this huge check." So of those 250 expansions, Scott, some of those are people going from, "I've never bought Advance," to, "I'm buying Advance" expansion, and then other people went from buying Advance to buying more Advance. Hmm. So it's not like there's a fixed rate. There is a, depending on how much value you're deriving from it, there's a sliding scale. So I love how us getting more subscription dollars from our customer is directly tied to the value they're receiving from it. And, when I think about getting that enterprise commit, there's so much software out there where enterprises are asked to write a very big check before the value is delivered. And since the beginning of this company, we've grounded it on what we call the earned enterprise. I want to get paid more when I deliver more value to you. And I really like that Advance is very much geared towards that philosophy. Given the step up in awareness and what those different tiers of functionality looks like, and really, I think you've done a nice job of communicating that to your customers and where that value lies. How have your module sales or expansion opportunities rendered in this macro relative- Mm-hmm ... to your expectations? 'Cause we'll take the seat expansions out of the way. We know what's happening on the seat expansions, right? To cross-sell those modules, has that, in general, been kind of in line or- Better than a year ago. Better than a year ago. And you might say, "Wow, you, like, changed a lot of physics, Mark. It's like, I thought macro was bad." It's like, yeah, macro's been super tough. But again, macro is one element. Yeah. The way you inject into that situation is a huge determinant on whether you're successful or not. But like, so how'd you do it? Well, we moved our, a lot of our capabilities from being 100% gated by a human being on a call or a Zoom video to educate you, to one of self-discovery, where we have a couple of our capabilities now, which, again, are not seat based. These are additional modules you can buy, where someone now, in the course of using Smartsheet, can, one, know that they exist, and two, start using it without having to ask a rep to have it activated for them. You might say, "Well, that's sort of natural." It's like: Well, it hasn't been natural for us. Much of our portfolio has been behind a paywall. Mm-hmm. And I love the fact that, you know, Praerit, PG, the person Scott referenced, and I and others are highly aligned on, we're gonna take our best capabilities, unify the experiences, and present those to anybody who uses our product in a self-directed way. And the pessimist would say: "Well, some of these things are pretty advanced. Like, are you do you really think everyone's gonna be able to figure it out?" I'm like: "No. No. But that's fine." The number is much greater than zero, and if you have it behind a paywall that's human driven, you're 100% gated. Like, you will get zero self-directed. I love the fact that we're starting to get more portfolio out there, and the evidence we've seen in the last two quarters is we've had hundreds upon hundreds of organizations who have started using some of these capabilities, and half of the transactions we've sold as a result are to organizations who've never bought a capability from us in the past. Hmm. All they've been is a seat purchaser of Smartsheet. That's a really big deal. So when we look at our next $1 billion of ARR, I think we'll look back and say: "Boy, they did a great job of cross selling their portfolio to their clients who got a ton of value from it. So if we think about that $2 billion goal, next $1 billion of ARR, how much of that's driven by, you know, ARPU expansion, module expansion, versus the traditional seat or, you know, net new customer expansion mode, do you think? They're both gonna be huge contributors, and when someone asks me the question of, "Well, what do you think the percentage is?" I'm like: "Well, it depends on how much we flex on the other side." It's a fucking, so I like to talk aggregate dollars rather than percentages. Sure. So they will both be big contributors, and depending on what we tweak, what we introduce. For instance, we have a couple of things coming out in the next year, which tie out to seat expansion. So to consume that feature, you will be a paid user. And we've had one of the real hallmarks of Smartsheet for many years has been, we've been, like, the best deal in town, in the sense that the people who create stuff in our world, they pay, and the people who just contribute, do it for free. It's like it's a smoking deal. So we have these huge enterprise. We have tens of thousands of people in our ecosystem, some of whom pay, many of whom don't. And early days, it was hilarious. People used to say: "Well, how are you going to build a business doing that?" And I'd say, "Well, trust me, there are a lot of people who will see this, say, 'I want to build something.'" But now, as the features have gotten bigger and there's value assigned to them, like AI, you will not be able to use the AI feature unless you're a paid user. That's a difference than how it used to be, and I love that. I love that we have now opportunity to monetize for those features that we're delivering. Change course to competitive dynamics just a little bit. Ever since you went public, I'm sure you guys get it all the time, too, a lot of questions around the other competition- Mm-hmm in the space. Not a surprise there. I actually like those questions because that means the space is usually bigger than what people think. The biggest markets out there have a lot of competition, and that's not a bad thing. The small markets usually only have one or two competitors, and then growth is an issue, but my viewpoint on competition at least. But would love to get your viewpoint on some of the recent product announcements coming out of Microsoft- Mm-hmm ... in particular. There's an investor set that believes they're just going to crush all the vendors in the space, obviously, including you guys, because they own Excel, they own the mind share of, of IT and a lot of vendors. But do you see what they're doing to be a real competitive, you know, challenge for you over time? I really look at the customers and what they're exhibiting. Are they, most of our customers, especially at scale, are huge Microsoft shops, and they're making very large Smartsheet investments alongside of that. So the people who are buying Microsoft are highly aware of their offering set, they're highly exposed to the marketing- Mm-hmm. And they're also buying Smartsheet. So that decision to continue to invest in both is high. I think what customers really appreciate is that we've invested in certain things that are important to the Microsoft portfolio, like Teams integration. People love the fact that we've continued to partner with Microsoft in developing that. They like the fact that the AI is powered by some of the Microsoft underlying technology. It tells a very cohesive story. I think the... You know, we look at every major release that is announced by Microsoft to say: Is it a repackage of an existing tool set, or is it a new capability? And there's, they have a very large portfolio, and some of that is, I would say, good marketing. Mm-hmm. But we're always aware of what's coming out, and I think they have a very established franchise. I think one of the things that remains a challenge for anybody who has many billions of established and SaaS recurring revenue is the decisions you make can't be made without taking into consideration how it would affect your existing franchise. I think that's one of the things that has continued to help us. Hmm. Where the M365 offering is robust, it's strong, there's an expected capability set. It would be a bold move to come in one day and say, "We're going to torpedo that entire approach and come up with something brand new." And I don't think Copilot is, Copilot is an enhancer to that, as opposed to a complete reframing of what those tools are. Hmm. Two more from me, and then we'll probably open it up to audience Q&A. You talked about million-dollar deals earlier. Mm-hmm. Fifty nine, uh Yep I think, was the number as of Q3. I can envision a day when there is probably a, multiple $5 million customers we're talking about, and you might be there today, not sure. But we're going to talk about bigger metrics- Yep ... I'm sure, at some point over time. But how do you think about the go-to-market side of that? Because this is a space that's been heavy PLG- Yep ... or inside sales, but if I'm Target's large customer of yours on record, at least one call is- Mm-hmm. If I'm going to spend $5 million or $10 million for you, how do you do that and not have some sort of a field sales force? We've had field sales people for 10 years. So we have more of them now than we had 10 years ago, but we absolutely had people. We had people getting on airplanes, going to talk to clients in far-off countries and states. Yep. Happened. Like, we have huge companies in Germany who we visited. We've actually sold them in an enterprise way. What is different today than it was five, seven years ago is that the mechanisms around repeatability, around doing discovery with those customers, establishing a journey for them, having a map to the journey, like, that is being done at scale now. Hmm. So it's less of a, "We have this one really amazing salesperson. Let's get them two." Now, it's like, now we have a group of people, and here's the process, and here's how we're going to support that client at scale. But that's been going on for some time. I think it's one of the real differentiators in the offering today. It's both what we have and then how we engage with customers. People do not write... I shouldn't say do, it's rare to have a $5 million deal or an eight-figure deal happen in a PLG motion. Right. So- Most think it's still done that way in this space, but it's not- No ... important. It's not. Last question from me. We were on stage a year ago- Mm-hmm ... talking about your 10% free cash flow margin. Pretty confident about your ability to get there in 24 months. You're not guiding to fiscal 2025 yet. Hell, you haven't even finished fiscal 2024. Yeah. You got another week. How do you feel about comfort around that goal a year into it? Great. I think we're, I think we are a year ahead of plan, which is on some of those dimensions. I think the big thing, too, that we've been getting questions on is, you know, so was this like a one-hit wonder, where you returned some great margin and free cash, and now you're going to go back into investment mode? Our position is, we're going to build from here. We're not planning on going in reverse. We're not going to justify to you why that makes sense. We think we could be a both company, which is, we will continue to grow, and we will continue to show improved operating margins and free cash. And that has a multifaceted effect in the sense that it also gives us the ability to attract talent differently, compensate people differently. It helps us be more efficient on the amount of equity we grant, dilution for shareholders. These are all things that all come together. And I think when we've worked for 19 years to get to this point of having meaningful free cash, we sure as hell aren't going back. And now we want to be really good stewards of the cash we're generating, and we have such a better option set available to us now in terms of what we can do with it. We can invest, we can dilute less, some wonderful things. Good. All right, we have a few minutes left. Happy to open it up to audience Q&A. We have a big group, but they're quiet today. Well, in that case, we'll give everyone a few extra minutes to go fight the elevators. Thanks, everyone, for joining,