Good afternoon, ladies and gentlemen. Welcome to the Smartsheet Q1 Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad, and if you would like to withdraw your question, simply press star one again. Now, at this time, I would like to turn things over to Mr. Aaron Turner, Head of Investor Relations. Please go ahead, sir. Thank you, Bill. Good afternoon, and welcome everyone to Smartsheet's Q1 of Fiscal Year 2024 Earnings Call. We will be discussing the results announced in our press release issued after the market closed today. With me today are Smartsheet CEO, Mark Mader, and our CFO, Pete Godbole. Today's call is being webcast and will also be available for replay on our investor relations website at investors.smartsheet.com. There is a slide presentation that accompanies Pete's prepared remarks, which can be viewed in the events section of our investor relations website. During this call, we will make forward-looking statements within the meaning of the federal securities laws. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends. These forward-looking statements are subject to a number of risks and other factors, including, but not limited to, those described in our SEC filings available on our investor relations website and on the SEC website at www.sec.gov. Although we believe that the expectations reflected in the forward-looking statements are reasonable, our actual results may differ materially and/or adversely. All forward-looking statements made during this call are based on information available to us as of today. We do not assume any obligation to update these statements as a result of new information or future events, except as required by law. In addition to the US GAAP financials, we will discuss certain non-GAAP financial measures. A reconciliation to the most directly comparable US GAAP measures is available in the presentation that accompanies this call, which can also be found on our investor relations website. With that, let me turn the call over to Mark. Thank you, Aaron. Good afternoon, everyone. Welcome to our Q1 Earnings Call for Fiscal Year 2024. While Pete will provide additional details, I'd like to highlight a few areas of our Q1 performance and share continued progress in our leadership of the enterprise collaborative work management market. Smartsheet revenue for the quarter exceeded our guidance and grew by 31% year-over-year to $219.9 million, and billings grew 20% year-over-year to $215.5 million. In Q1, we generated non-GAAP operating margins of 10%, more than double the high end of our guidance range, and free cash flow was $31.3 million. We ended the quarter with annual recurring revenue of $886 million and more than 12.8 million Smartsheet users. We continue to see strength with our larger customers, with 59 customers expanding their Smartsheet investment by more than $100,000 and 188 companies expanding it by over $50,000 in Q1. These expansions contributed to a net addition of 85 customers in our greater than $100,000 ACV customer cohort. Enterprise expansions for the quarter included Eli Lilly, Motorola Solutions, Foxtel, and NovoCure, among others, and we saw new customer wins at companies such as Liberty Media, Hostess Brands, and Eight Eleven Group. We also saw strength in our portfolio of capabilities-based products and our advance offering, with 143 customers either purchasing Advance for the first time or upgrading to a higher tier. Additionally, we are on track to launch the self-discovery of two of our most popular capabilities at the end of Q2. This will lower the friction required for our customers to experience these products, which should result in a faster time to value for our customers, as well as for our sales team. A leading financial services company upgraded to Advance Platinum this quarter. This meaningful expansion was driven by employee demand for our core platform, as well as the premium security and governance capabilities they received with Advance Platinum. Over the past year, their user growth has increased 52%, and they have created nearly 180% more WorkApps, 240% more Data Shuttle workflows. The company's marketing department is now transitioning from another CWM platform to Smartsheet. In addition to the momentum we've seen with Advance and our premium capabilities, we're seeing significant traction with our new free plan. In Q1, we launched our free plan worldwide, and the initial results are promising. With high engagement and conversion to paid in every customer-size segment. These free, engaged users should be an impactful component of our user acquisition strategy going forward. We continue to win due to Smartsheet's position as the enterprise CWM platform that enables organizations to effectively track and manage three critical dimensions of work: people, content, and the work itself. The people dimension reflects the deployment, assignment, and capacity planning of those engaged in the execution of work. Content represents the videos, images, documents, and other assets that are inputs or outputs of the work being done. work is the information about day-to-day activities, milestones, and workflows that underpin an organization's projects, programs, and processes. By connecting these three distinct dimensions of work, the Smartsheet enterprise platform enables customers to drive efficiencies across their entire Smartsheet ecosystem and allows them to extend value of the platform to their partners and customers. For example, one of the world's largest retailers is using Smartsheet to connect work and people management to unlock value. Nearly 12 business units across five countries are using Smartsheet to manage their portfolios and resource management to help them more accurately staff projects. This tighter alignment between managing work and people allows this retailer to adapt quickly to the changing project needs and gives them new insights into their team's capacity and performance. A large online travel company chose Smartsheet over other CWM solutions because of our ability to help them comprehensively connect the three dimensions of work. The company's global marketing department is going through a major transformation and adding a significant number of employees this year. The combination of our core offering, resource management, and Brandfolder will help them manage the transition, establish a new unified process for managing campaigns start to finish, and ensure leadership has the right level of insight across the company's brands, products, and programs. They see Smartsheet as an essential way to scale as their department grows, ultimately helping them achieve their marketing goals. To further support our large customers, we continue to make investments in scalability of our platform, greatly improving sheet performance, formula execution, and cross-sheet data processing. While every user benefits from these enhancements, they are especially valuable to portfolio managers and their teams using Control Center. We've enabled Control Center to support thousands of parallel projects already. We're on track to be able to support tens of thousands of projects per Control Center instance by the end of the fiscal year. We look forward to sharing more about how we lead the category in scale and manageability at our ENGAGE Customer Conference in September. Furthermore, we've seen a major increase in data being transferred from other systems to Smartsheet with Data Shuttle. In Q1 of last year, Data Shuttle ran about 25 million workflows, importing and exporting customer data. In Q1 of this year, we executed over 53 million workflows, transferring tens of billions of rows of data. Additionally, we have added unified login support in Bridge, up-level administration capabilities for Data Shuttle and DataTable, and doubled the Bridge workflow scale to support customer demand. We've expanded our content automation offering for our Brandfolder product with a leading self-serve templating capability. This is the result of the successful integration of our acquisition of Outfit, which is enabling customers to innovate faster in content production and distribution at scale. We continue to make improvements in our dashboard capabilities. Hundreds of thousands of licensed users create dashboards to inform stakeholders and drive positive outcomes by centralizing, organizing, and presenting real-time data and statuses on a customizable canvas. We've also introduced policy controls for cross-functional collaboration and launched the Plan Insights dashboard, which gives customers a live view of the value they derive from Smartsheet. We're experiencing a significant moment for our industry, our customers, and our company. Generative AI, or GenAI, tools and technologies are rapidly evolving. The way that work gets done, from insights to execution, can change materially as a result of GenAI. We are using it internally and actively developing features to benefit our customers. We believe these changes will create new, higher-value work for people, opening up opportunities for innovation and more impactful work. On the product side, we continue to make progress on expanding the AI-based capabilities on our platform and are well-positioned to enable valuable customer use cases. This year, we have focused investments in three areas of GenAI that will help our customers work smarter, faster, and more effectively. The first is an intelligent assistant that allows users to quickly find answers that help best use, configure, and extend Smartsheet. The in-app assistant will help customers with everything ranging from early product discovery to understanding the full impact of the Smartsheet platform across sheets, dashboards, reports, automations, WorkApps, and more. This will drive adoption of additional capabilities and enhance the overall Smartsheet experience for our users. Second, project and portfolio intelligence. By harnessing the power of large language models, we will further differentiate by allowing users to leverage data within their sheets and use natural language to generate charts and calculate key metrics that they can save to their dashboards with a click of a button. These features, combined with Control Center's portfolio capability, to quickly absorb data across thousands of active projects to provide portfolio-wide key metrics, trends, and actionable insights. Third is image manipulation, auto-generation of video captions, and image descriptions. Brandfolder can auto-generate image descriptions and video captions, and detect various elements within an image. This makes for easy natural language searches and also allows users to separate foreground and background elements to remove or replace them. Brandfolder will be able to comb terabytes of customer-specific content to bring customers high-value capabilities that train AI models and generate content that is unique to their brand. As our customers experience the value of our GenAI features, we intend to pursue multiple monetization avenues. Our premium features will serve as a catalyst to compel customers to consider moving to a higher tier of licensing. For these premium GenAI capabilities, we plan to provide a base tier of consumption, beyond which greater volumes can also be purchased. Additionally, we see this as a mechanism to drive user licensing, as some AI features will be only available for licensed users. Select customers will be invited to experience our GenAI features in beta next month, with broader enrollment planned after our customer conference in September. While we have not built any material contributions from GenAI into guidance for this fiscal year, we do anticipate additional revenue opportunities in FY 2025. In closing, as a company approaching $1 billion in ARR, we are optimistic about fiscal year 2024 and beyond. As the leader in enterprise collaborative work management, we will continue to thoughtfully invest in our platform, go-to-market initiatives, and GenAI to capitalize on the sizable market opportunity in front of us. Now, let me turn the call over to Pete. Pete? Thank you, Mark. As Mark mentioned, we exceeded our Q1 revenue guidance and delivered Q1 non-GAAP operating margin of 10%, more than double the high end of our guidance range, showing the strength of our business model. The macro environment remains challenging, the effects of which are most pronounced in our higher-velocity transactional opportunities that are often associated with our SMB and mid-market customers. We also see the macro impacting the length of sales cycles for our larger opportunities and the demand environment for our marketing solutions. Consistent with our approach from previous quarters, we are electing to remain conservative with respect to our full-year guidance. With that said, Mark mentioned a number of areas that would support our growth this year and beyond, including healthy demand for our capability-based products, our newly introduced free plan, and the self-discovery and usage of capabilities. Additionally, we are making marketing investments that we expect to generate a contribution in the second half of this year. I will now go through our financial results for the Q1. Unless otherwise stated, all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release presentation that was posted before the call. Q1 revenue came in at $219.9 million, up 31% year-over-year. Subscription revenue was $206 million, representing year-over-year growth of 33%. Services revenue was $13.9 million, representing year-over-year growth of 7%. Revenue from capabilities grew 60% year-over-year and made up 33% of subscription revenue, up from 27% of revenue in Q1 of last year. Turning to billings. Q1 billings came in at $215.5 million, representing year-over-year growth of 20%. Approximately 93% of subscription billings were annual, with 4% monthly. Quarterly and semiannual represented approximately 3% of the total. Multiyear billings represented less than 1% of total billings. Moving on to our reported metrics. The number of customers with ARR over $50,000 grew 33% year-over-year to 3,343, and the number of customers with ARR over $100,000 grew 42% year-over-year to 1,569. These customer segments now represent 63% and 49%, respectively, of total ARR. The percentage of our ARR coming from customers with ARR over $5,000 is now 90%. Our domain average ACV grew 18% year- over- year to $8,520. We ended the quarter with a dollar-based net retention rate encompassing all of our customers at 123%. The full churn rate remains below 4%. We continue to expect our dollar-based net retention rate to trend lower into the high teens by the end of the year. Turning back to the financials. Our total gross margin was 82%. Our Q1 subscription gross margin was 86%. We expect our gross margin for FY '24 to remain above 80%. Overall operating income in the quarter was $22.8 million, or 10% of revenue, which represents a 6 percentage point sequential margin improvement. For modeling purposes, we expect our Q2 and Q3 operating margins to be lower due to the timing of hiring, incremental marketing campaigns, and our ENGAGE conference. We expect the operating margin to expand sequentially from Q3 to Q4. Free cash flow in the quarter was $31.3 million. Now, let me move on to guidance. For the Q2 of FY 2024, we expect revenue to be in the range of $228 to 231 million, and non-GAAP operating income to be in the range of $7 to 9 million. We expect non-GAAP net income per share to be $0.07 to $0.8, based on diluted weighted average shares outstanding of 138.5 million. For the full fiscal year, we are reiterating our revenue guidance of $943 to 948 million, representing growth of 23% to 24%. We expect services to be 6% of total revenue. We expect our non-GAAP operating income to be in the range of $43 to 53 million, representing an operating margin of 5%-6%, and non-GAAP net income per share to be $0.37 to $0.44 for the year, based on 139 million diluted weighted average shares outstanding. We are reiterating our FY '24 billings growth of 20% and our free cash flow for FY '24 of $110 million. For modeling purposes, we expect our Q2 billings to grow sequentially by around 6%, and then accelerate sequentially from Q2 to Q3 and from Q3 to Q4. To conclude, we are in the early stages of a large enterprise collaborative work management market opportunity and are investing appropriately to drive top line growth with a focus in efficiency. Our leading enterprise platform, go-to-market strategy, and focused execution, we believe, will have a long runway of sustainable growth and margin expansion ahead. Now let me turn the call over to the operator. Operator? Thank you, Mr. Godbole. Ladies and gentlemen, at this time, if you do you have any questions, simply press star one. Just a reminder, we do ask that you please limit yourself to one question and one follow-up question. We'll take our first question this afternoon from Terry Tillman at Truist Securities. Yeah, thanks for taking my questions. Great job on the cash flow in the quarter. I guess the first question for you, Mark, is the enterprise business does seem like it remains strong. You know, I don't know how much we should hang our hat on, you know, kind of 100,000 K ACV growth, but it was 42%, so not off much from last quarter. Is that a good proxy for the enterprise business? Do you expect that to stay above 40%? You know, we didn't get the benchmark on how many customers over a $1 million ACV. Maybe you could help us on that, and then I have a follow-up for Pete. Thank you. Hi, Terry. Yeah, we did add $1 million customers. We're at 47 right now. In terms of that being a proxy, like 40, the over, under on the 40, I would just say we continue to have very good engagement in these larger opportunities. We added net 85 over 100K this quarter, and when I look at what customers are looking for investing in platforms, it maps really well to the enterprise offering right now. They're looking for both productivity wins for their teams and then how do they climb the curve on things that are higher value. Those tie out really well. I talk about these three dimensions of work, right? The people, the content, and the work. We have offerings in all three of those. What I will say is, people are really trying to gain a high level of confidence before they make a buy decision. As you map to larger opportunities, which are multifaceted, people are asking more questions, wanting to get more comfort, and that does play out in an elongation. I see the hand strengthening in that upper band. Okay, duly noted. I guess the follow-up for Pete. You did maintain the 20% billings growth guidance for the year, and you gave commentary that I don't think you typically do for each quarter in the progression, but you called out the higher velocity business being sluggish, sales cycle lengthening, and then maybe some of these marketing-related deals getting, you know, a bit tougher. I'm just trying to understand the puts and takes in terms of the level of conservativism in the 20%, because those sound like things, I don't know if they're incrementally tougher dynamics that you called out, but then you have the free plan, you have the discovery dynamics starting at the end of Q2. Just trying to understand how much kind of battle test is that 20%. Is it more conservative now? Is it about where it was? Just a little bit more on kind of risk mitigating the 20% billing. Thank you. Terry, the two parts to your question are, one, about how we've set the guide. It's a composite on, sort of what I call the dynamics we saw in Q1, which there was some softness relative to our expectations, and I called out those areas for you. Our high-velocity transactional business, typically associated with our SMB and mid-market customers. You'll remember the same thing happened during COVID, when COVID hit us, so that transactional business was an impact area. We've seen the rest of our business perform according to our expectation, which was based on a, what I call a macro that we expected to have worsened. What we did see is the lengthening of sales cycles, and what that means is when you think of that means more of our opportunities push into the back half of the year, and that's consistent with the type of customers we work with, which are enterprise customers, which have generally more back-end loaded budgets. That's the reason why we've sort of given you the guide that says we're maintaining our guide on billings, but it's a composite of those two effects and the timing of when deals happen. Duly noted. Thank you. Good luck. Great. Thanks, Terry. We'll go next now to Scott Berg at Needham. Hi, everyone. Congrats on the quarter, and thanks for taking my questions. I guess as a follow-up to Terry's last question there, and Pete, your answer, as enterprise software companies get larger and sell more to the enterprise, we typically see their businesses being more seasonally weighted towards the back half of the year. Do you think this is a one-year phenomenon or something that you see maybe more consistently going forward with these larger deals having that disposition in the second half of the year? Scott, you're gonna see that in the enterprise, we'll continue to get more back-end loaded because that's the nature of enterprise budgets and enterprise cycles. What you have to do is you have to overlay on that how the macro for a year plays out. A lot of companies are taking the approach of slanting their own budgets to be more back-end loaded, so you're gonna find that weight changes a little bit in how what I call companies are operating in the macro they're in. Got it. Helpful. Mark, you spoke pretty positively on the traction within your, you know, recently released free plan, getting conversions across, quote-unquote, "Every customer segment." I guess, how should we think about that opportunity contributing to- ... you know, bookings or billings this year, is this going to be a material driver for you, or is this really about kind of seeding this opportunity and driving better opportunities into FY 2025? Thank you. Hi, Scott. I think it's a really important, what I call sort of a seeding exercise. When I think of where many of our new customers click in, it's at a fairly low level of contribution, but what was a really pleasant surprise was, as we launched this in a targeted region in the second half of last year, we were surprised to see that a meaningful percentage, like north of a third of all organizations that were trialing free and operating in a free environment, were companies over 10,000 employees in size. I mean, I would have not placed that bet going into this. That is a really encouraging stat. The second piece, which is encouraging, that the conversion rate of organizations who are in free exceeds the rate of conversion to paid than folks converting from trial. We've unlocked this opportunity of there's a population of companies and people who want to be in the platform longer before making that decision. Seeing that rate higher than our trial conversion rate, very encouraging. You know, there are thousands of people coming and joining every single week here. We're talking hundreds of new logos that were added as paid customers in the last couple of months, who otherwise wouldn't be with us today. Again, on a contribution, like, new bookings contribution, very small, like, rounding error. We know how it works, right? You get a 10,000 employee customer contributing a little bit, look five years down the road, they're a multimillion-dollar customer. That's really encouraging. Again, as we focus, and I talked about this in the past earnings calls, we focus on excellence at the enterprise. It's paired with how do you lower the leading edge? I think those will play out very well against each other over time. Great. That's all I have. Thanks for taking my questions. We'll go next now to Brent Thill at Jefferies. Hi, thank you. This is Sang-Jin Byun on behalf of Brent Thill. Maybe two quick ones related to the environment. I'm wondering if you could share some more color on the linearity during the quarter, how things progressed in, you know, either in deal activity or billings, and how it's looked so far, you know, five, six weeks into Q2, and any color on verticals will be interesting. Thank you very much. The way the quarter shaped out for us is, you know, it was significant contributions from our second and third months. It sort of built up as we went through it. The close rates followed the seasonal patterns we had seen from the previous quarter. You were seeing the close rates sort of manifest themselves as we went, and improve as we went through the quarter. What we've seen for May is May looks very much like February in terms of close rates. The pipeline is higher, but we're seeing the same sort of deal dynamics with its associated deal cycle, elongation, deal compression. All of those are very much the same as they were in February, probably a tad bit worse. Thank you. We go next now to John DiFucci at Guggenheim. Thank you. I have a question for Mark, and then a follow-up for Pete. Mark, you're obviously seeing some effects on your business from the macro backdrop, as just about everybody is, but your business has held up better for longer than others, at least from our calculations, it did. When you speak with customers, are you hearing anything different this quarter from previous quarter? Pete talked a little bit about elongated sales cycles for the enterprise, but anything more? Are there any differences in the enterprise versus data you have for the SMB or the mid-market? Hi, John. One of the things that's worked well for us this past quarter, a couple of examples I shared during my remarks, was evidence of companies looking to try and get more workloads over to Smartsheet. We had one big travel company that was able to retire a different marketing system in favor of Smartsheet. I think they view that as a double win, right? We get an app that our team's asking for. We're also able to consolidate. That's favorable for us. The themes haven't really changed, though. People are looking to make the bigger the investment decision, the more confidence they want to have, and the more they want it to tie out to quantitative factors. To what degree can you articulate the return on the dollar spend beyond a qualitative factor, like, "We like the app," or, "We feel more productive"? I would say if anything, it's maybe gotten a little bit more pronounced, but I wouldn't say a major deviation or change from the recent two quarters. Okay. Okay, thank you. Pete, I'm gonna go back, you know, I'm gonna let other people ask the billings question, because that's the one big question that... been a couple. I'm gonna ask something else. Free cash flow was really strong this quarter, especially, in your case, it's interesting, right? Because you're not a mature company, you're still growing a lot. There's a lot of opportunity, and you're still increasing your scale. How much of that growth or that strength in free cash flow has to do with just the leverage in the software model, which we've talked about before, is wonderful, versus active management of the business against sort of a tough macro backdrop? Can you sort of gauge that? I would say that the first factor, which is the natural scale in the model, is coming through. I think it's coming through loud and clear as you look at the ability to generate cash. We provided a guide for the full year at $110 million. As you recall, that was up from, call it, sub $10 million the previous year. The natural scale in the model is playing through. We are making improvements in how we come up with that number outside the scale by being efficient. When we talk about reducing, you know, our operating expense for things which are not directly tied to revenue and making operations more streamlined, using locations other than the expensive, high-cost locations we have, that's a part of it. I would say both are significant contributors, but the business model is probably the predominant one. Okay. Okay, great. Thanks a lot, guys. Of course, John. We'll go next now to Ryan McWilliams at Barclays. Hey, thanks for taking the question. I know it's still early days on generative AI, and I appreciate your early thoughts on how generative AI could be added to your platform and to pricing, but any early thoughts around how you could add, you know, generative AI or ChatGPT to some of your capability-based offerings? Yeah, I think one of the things that I spoke to in the remarks was how this analytics AI component that we're gonna be releasing shortly, how that plays with Control Center, which is really the crown jewel of our capabilities offering. Control Center is all about aggregating and scaling programs and projects. The datasets are usually very large, very often consistent, someone who's trying to replicate a program broadly. To understand the value of those programs, people build dashboards, they generate widgets, they ask questions against the datasets. What's really promising about this one offering is that it dramatically drives down the cost of analysis. I talked about hundreds of thousands of people building dashboards and widgets. Today, you need to understand how to build a dashboard, how to create a widget, how to add trend, how to style it, all those things. You get to now ask a question. If I reduce the cost of your question by 95%, I guarantee you will ask more questions. You'll probably be more successful, you'll look better internally, and you'll probably get budget next time you ask for it. This is like, it's one of those it's one of these huge accelerants. When I saw this recently developed by our engineering team, I asked the question, "Could I ask a question that you hadn't prepared for this demo?" They said, "Sure, fire away." I asked the question, and within 10 seconds, my set of charts with the trend, with the specific filters applied, was automatically done. That will play really well with customers. We know there's a lot of intent already to want to answer these questions. When you pair that with an enabling technology that's easily understood, it doesn't require a lot of sales oversight or customer success oversight. We will launch this with some beta customers next month, ramping to our ENGAGE conference. I really believe when people see the return that it can provide, I think there'll be very significant appetite. That's probably the one that's most clear. The other piece is around the assistant. When I think of 40% of all of our cases that come into our company being around advanced configuration, unlocking greater value on the things that are unique to Smartsheet in terms of what we can pull off from a calculation standpoint, the round-trip time on support will fall significantly. You know, the benefit to us, call deflection, the benefit of the customer in terms of getting your question answered quickly and correctly, those are really big deals. It's difficult to quantify the benefit or the revenue opportunity for us this far, but there's no confusion about whether this will add value. I agree. I think driving that knowledge worker productivity definitely accrues the software, and efficiency. Just one for Pete. Were there any deals that slipped out of 1Q and closed in 2Q? Any early signs of stabilization within the higher velocity transactional opportunities you talked about? Thanks. First of all, you know, we always have deals that slip in a quarter to the next quarter. We've had consistent close rates on those deals, so the close rate is sort of staying consistent. As far as the other pieces, other part of your question, which is, you know, are we seeing any trends emerge? There's nothing that's unusual. Thank you. We go next now to George Iwanyc at Oppenheimer. Mr. Iwanyc, your line is open, sir. Could you have a question? Thank you for taking my question. Pete, maybe could you give us some perspective on sales productivity, you know, with the challenges you're seeing in the macro environment, you know, how are you responding from a sales perspective? George, when we looked at sales productivity, as you look at the environment, we're seeing the sales productivity be reflected in that number. We're seeing the productivity obviously decline as the macro impacts people's ability to close business. What we are finding is our sales teams are generating opportunity at a brisk pace, including sometimes faster than earlier quarters. Pipeline builds are working. It's the close rate in the macro that's driving sales productivity lower than prior quarters. All right. Maybe you can build in on the marketing effort that you're planning for the second half of the year. Are those some new direct marketing efforts? Is this something with the ecosystem that you're planning in partners? George, we're launching incremental marketing programs to drive to sort of what I call high-value conversions. That is incremental to what we've done. That should reflect itself in second half bookings. We're doing that on the back of sort of very predictable cohorts that we've seen materialize with an approach that we've sort of been working on for the last quarter, which gives us confidence in our second half guide that we provided as well. Thank you. Thank you. We go next now to Michael Berg at Wells Fargo. Hey, thanks for taking my question. Piggybacking off the margin, how can we think about any change in conservatism or assumptions baked into the margin guidance? I got a follow-up. I think our margin guidance appropriately considers the investments we would like to make, as well as our overall guides for the year. We feel confident with the $43 to 53 million op margin guide we've provided. We raised it from the $35 to 45 million, which was there before, we feel good about it. I think some of this is going to be about it's early in the year, as the year progresses, we'll be making real-time decisions on sort of how we invest while maintaining our guidance that we have at $43 to 53 million. Great. Great, helpful. The quick follow-up to that is, you mentioned that part of the outperformance on margins in the quarter was due to hiring. I guess, where are you on sales ramp or net new quota carrying rep hiring? G iven what you're seeing in the macro, are there any changes to that, or like you just said, that's going to be more of a real-time decision? Our... You know, we've got some hiring, which is progressing through. It's not a large part of it on the sales side. We feel good about where we are in capacity. There will be some additions, but it's not anywhere near sort of where we've added in the last fiscal year. So that's a part of it. There's positions in R&D and other parts of the organization as well, which we're adding in, which are what I would call in a smaller nature of investment we're building in. We're not ramping our hiring engine till we see how the macro looks beyond that. Helpful. Thank you. Great. Thank you. We go next now to Alex Zukin at Wolfe Research. Hey, this is Ethan Bruck for Alex Zukin. Thank you for taking my question. I just have two quick ones. One is just help explain some of maybe the difference in discrepancy between taking up the op margin guide and leaving the cash flow unchanged for the years. It's just leaving some room for kind of investments. I guess the other one is just, are you seeing kind of this kind of uptake from the free stuff or the free offering as kind of a way, natural way to kind of shift go-to-market efforts to upmarket to enterprise as, like, a potential upside to the margin targets for the year? Thank you. Ethan, I didn't catch the first part of your question. It looked like you were asking about billings and free cash flow and the relationship. Did I get you right? Just in terms of the full year guide, you guys took up the op margin guide slightly, but left free cash flow unchanged for the year. Is that just, kind of leaving room for, I guess, to invest in capacity in the back half as demand starts to pick up? The OP margin. You should think of OP margin and sort of revenue going together. You should think of billings and free cash flow working together. We haven't changed our billings guide, we haven't changed our free cash flow guide from what we provided as an estimate. We haven't changed our revenue, but what we have passed through is the efficiencies we've found and which we feel comfortable with, which we've moved through into the op margin incremental sort of guide we've provided. Okay, great. Thank you. Thank you. We go next now to Jake Roberge at William Blair. Hey, guys. Thanks for taking my questions. Pete, just going back to the billings growth acceleration in the back half of the year, could you talk about the confidence in that? It seems like it's related to the seasonality of enterprise deals landing in Q4. Is there anything else in the model that's helping that? Is there any potential risk that some of those larger deals get pushed actually out more into fiscal 2025, or have you accounted for some of that potential risk within the back half acceleration guide? Jake, you know, essentially, we've looked at the deals, and we've looked at our larger deals. We've looked at the close rates on those deals. We see those closing. They're just taking longer in elongated sales cycles. We know the timing of when these deals now come into our ecosystem, if you will. We know that our customer budgets are heavier in the second half. Marrying the deal elongation and sales cycle with customer budgets, we feel good about sort of where that number is in terms of how we set the guide. We always know that there's going to be some level of deal pushout that takes place. It's factored into our guide. The additional item I mentioned was we've started incremental marketing program investment based on high LTV customers with high value and fidelity of return. That's what we've added into the mix as well. Between those factors, we're pretty comfortable with our guide for FY 2024 on the billings and revenue side of it. Okay, great. Very helpful. Could you talk more about the demand that you're seeing in some of your newer products? Seems like Advance had a pretty solid quarter, could you just provide some more color on what's driving demand for that product suite? Just thinking about the broader platform, have you seen any solutions get more or less prioritized, just given the uncertain macro environment? Yeah, when I think about the products that have gained a lot of traction, that I've seen sort of, really resonate well, I think there's two layers to it. One is we are seeing Advance. We gave the stats of 143 people either buying Advance or upgrading to Advance Platinum. You're seeing that play out where customers are buying packages because they see it as the simplest way to generate value in an environment where they know there's proven ROI. I think we're seeing that with our largest customers. We're also seeing traction for individual capabilities. You know, in this current environment, people are taking the approach of buying by the drink, by the individual capability. We know that's fine because a lot of these customers start by buying one capability, but it sets them on this seeded journey to buy Advance eventually, or buy more capabilities eventually. We're seeing that play out pretty well. I think in general, we've seen great traction with some of our capabilities like Data Shuttle. We've seen sort of what I call great demand for some part of our product portfolio, which we called out here. Helpful. Thanks for taking my question. Of course, Jake. Thank you. We go next now to Shebly Seyrafi at FBN Securities. Thank you very much. You beat your fiscal Q1 revenue guidance by about $6 million, and you're guiding pretty much in line with consensus in fiscal Q2 for revenue. Yet you kept your annual revenue range unchanged at $943 to 948. Implicitly, you might be, you know, lowering your expectation by $6 million in the back half. Is that the right way to look at it? You know, what we've done is, our approach to guidance over the last several quarters has been to be conservative, sort of given the macro we're in. The macro is sort of dynamic for us. Given this macro, we're still early in the year, we've elected to remain conservative as we thought of guidance. That's why we haven't changed the guide for the year, despite the overperformance in Q1. Okay. Any international call-outs? You know, I think we were sort of the performance that we had in international was according to our expectations. Obviously, there's more of a headwind internationally, and we saw that come through, but it's completely aligned with what our expectations were for those regions. Okay. Thank you. Thank you very much. We go next now to Steve Enders at Citi. Mr. Enders, your line is open, sir, if you have a question. Hearing no response, we'll take our next question now from Pinjalim Bora at J.P. Morgan. Oh, great. Hey, thanks for taking the question. The sales discovery of capabilities is interesting. I want to ask you if you are already piloting that with customers, what are you seeing with that respect? Will that also include kind of ability for the customers to buy the products online on a self-serve basis, or would that still require kind of a sales effort as people look to, you know, get into Data Shuttle or something else? Then thirdly, are you modeling some of benefit from this as it goes online in the second half in terms of bookings? Yeah, we have not modeled any uplift from that into the second half. What we're solving for, what we're releasing in July, is the discovery and the usage of. Someone in a self-directed way will be able to, in context, see these, understand how it applies to what they're trying to do, whether it's in the context of advanced sharing or Data Shuttle, be able to start using it immediately. It will still engage a member of our team to take the order, but there will be no friction in the identification of it, the utilization of it, et cetera. That's a very significant win. We have, as I shared last time, we have, you know, well under 10% of our customers buying a second product from us, so we think this is the launch point to really get cross-product attach. Understood. One quick follow-up for Pete. Pete, the deferred revenue, I think, sequentially, was down probably, for the first time, at least when I was looking backward in a while. Can you kind of tease out how much is that, you know, because of the SMB weakness, the mid-market weakness versus kind of being pushed out because of longer sales cycles? Any way to understand that? You know, the way I would characterize it is the large contributor was the high velocity transactional business associated with, you know, what I call generally associated with SMB and mid-market. The other elements is that demand for our marketing solutions and the elongation of sales cycle are probably, you know, on a similar order of magnitude, but next up. Got it. Thank you. Thank you. We're next now to Jackson Ader at SVB MoffettNathanson. Great, thanks. This is Kyle on for Jackson. I think we talked a lot about the macro, but maybe could you just give us an update on the competitive environment and maybe how it compared to early last year? you know, if you're seeing anyone more or less, and then how win rates are looking. I do just have a quick follow-up on just kind of, I think, Mark, you may have mentioned that there was an expansion where you guys pushed out another tool. If there's just maybe a few use cases that you guys have tended to see be the catalyst for kind of a standardization, that would be great. Thanks. Over a longer horizon, I'd say over the last two years, we have seen an increase in our conversion rate, our win rate on new. That has progressed. Again, from a bookings contribution standpoint, those new wins don't accumulate to much, but they do serve as that planting of seeds. That is on pace. In terms of expansion, once we're in the account, there's not a material change to the frequency with which we're seeing people. I would say, as we continue to improve how the three dimensions of work that I talk about get more deeply integrated, the greater the return for a customer is to say, "I'm gonna go with Smartsheet for content and work, or people and content and work." I think that does then put a lot of pressure on those providers who are only delivering on one of those dimensions. It's how do you unify? How do you simplify? How do you get those economies of scale? I think, again, as I said, the hand is strengthening on that side. I have not seen anybody in category make moves to talk about those unifying those three dimensions of work within their portfolio. Through integrations, potentially, but that's very different than having it sole source. When you look at where most companies still are today, the leading competitor is the status quo, which is not anybody in our category today. It's still the number one. I would expect that to be the case probably for the next two years. Thank you. We go next now to Jason Celino at KeyBanc Capital Markets. Hey, guys. Thanks for fitting me in. Just two quick ones from me. Interesting to see the launch of the free plan. I guess, what is the plan to, you know, drive interest in those types of customers, will that be mostly paid marketing driven? Second, can you just elaborate on the opportunity to maybe convert some of these free users to paid users, you know, over time? Thanks. I'll take the first part of it, which is, you know, on the marketing effort to go after it. You know, as I said, we are launching marketing programs, at, you know, the end of last quarter, beginning of this quarter, which really go after high-value conversions, high LTV customers. A part of that marketing demand spills over into people getting interested in the free plan. It's not our focus in going after it, but it naturally helps the free plan. The rest of it comes from people discovering those free plans as they look for ways to solve their collaborative work management problem, which really drives this process into high gear. Mark, take the second part. Yeah, and then in terms of the tactics to get an engaged population in free to spend first dollar with you have the full portfolio available to us. As we start getting our self-discovered feature set, introduced to people, as we start to deploy GenAI experiences, we get to make those choices in terms of what we want to put in front of somebody. The good news is that we are already seeing a higher, disproportionately higher conversion rate to paid from that population. As you allow them to experience some of these premium things, some of these innovative elements, I would expect that to be a continued tailwind to getting those people on side. It's an ever-growing population. We're adding a lot of companies to this realm, and we'll be watching that conversion rate closely as we introduce some of these new capabilities. Excellent. Thank you. Thanks. Go next now to Josh Baer at Morgan Stanley. Thanks for the question. Mark, I think you gave a great overview of some of the areas that you're intending to release AI capabilities and the ways that you should be able to monetize. Hoping you could do two things. From the customer perspective, could you talk a little bit more about how your conversations with customers are evolving around AI? Are they looking to you to help bring AI into their organizations? Is this something that they're actively, you know, engaging around from a timeline perspective? Second, I think it sounds like those three areas of GenAI are relatively near-term initiatives. Just hoping you could sort of help with our imagination, thinking about your platform, the data you have, and, like, the longer-term potential for additional AI use cases or AI outside of those three main buckets that you outlined so far. Yeah. We serve such a diverse set of companies, ranging from manufacturing, to education, to health, to technology, to services providers. I would say that the AI conversations are as diverse. It's ranging from the very inquisitive, well-informed prospect or customer who wants to go deep on the topic, to the other end of the spectrum, which is: Can you just give me the basic education on what it means? Is it safe? How will you be secure and responsible in terms of how you're applying AI to your realm? Does my data leave your boundary? Does it get shipped off to some service provider to improve their model? Like, how does it work? I think there's a really good opportunity right now to become a trusted advisor. As we talk about our advanced analytics that we're flipping on for people, we focus on the fact that we get to take advantage of OpenAI, we get to take advantage of these large language models, we get to take advantage of having their data not leave our boundary. That's a huge deal. As we think about this opportunity to educate, become the trusted advisor, and to have them look at us being able to say: Smartsheet is a mechanism for us to apply AI to our operations safely and securely. Like, that's something that they're having to report out internally to their stakeholders. I think there are various phases of the game on the AI piece. One of it, I look at sort of the customer journey, someone starting out with us, trying to get educated, trying to unlock the potential, see how they can maximize the value, all the way up to the highly sophisticated, fully enabled Control Center person deploying a 2,000 wind turbine farm. Very advanced situation. I think what our duty is to be able to help someone at every phase of that journey. I think it's very different using AI to help someone convert to paid for the first time, versus the person trying to add another seven figures of ARR contribution to us. When I think of the long-term opportunity for us, it's how do you not only provide the convenience of AI to help them move more quickly, but how do you allow them to capitalize on the data set that's already been stored with you, in some cases, for years? How do you unlock insights in it? Again, that is more pertinent to someone who's been with you for a long time, but our model is so well set up because we have a clear understanding of intent. If you were an ad hoc model that allowed people to collaborate in a fully unstructured way, that's fine. We happen to be the huge beneficiaries of knowing exactly what our customers are trying to do. Their data models describe their intent, their interaction gives us insight into who's pertinent and who's most relevant. We get to use all of that on their behalf to apply AI to it. I think we look at AI in two ways also. One is very much inwardly, what can we do within our ecosystem? What can we do as a partner with other ecosystems? When you look about what Microsoft announced at Build, how do you co-opt a Microsoft Teams Copilot-infused experience with the tooling we already have to align with Teams? It's not just how do you apply AI to maximize the Smartsheet features, it's how do you apply it to get maximum utility out of the other enterprise platforms they have today? I think, I think customers are looking for coaching on both fronts. So much of our growth over the years has been coming in with an informed point of view and then listening very intently to what customers want. I think our AI strategy that we've built so far is absolutely influenced by what our customers are doing. The assistant, the analytics, the content generation, it's all predicated on where we see activity today. As we deploy this, we're gonna get a lot smarter about where people's sensitivities are, where their needs are, and I think that strategy will emerge very, very clearly as we enter next year. Great. Thank you very much. We go next now to Keith Bachman at BMO. Hey, hey, team. Thanks. Sorry, I do want to go back to the billings guide, 'cause I'm a little confused. You used a couple times in the discussion this evening, the word conservatism, that you usually approach guidance with conservatism. I think you said that you thought billings would grow by 6% sequentially in July quarter, and perhaps I misunderstood that, but that implies something like 11% to 12% year-over-year billings growth. The first part of the question is, when you say back half of the year, do you mean both the October and Jan. quarter, or are you really sort of pushing everything to the Jan. quarter? Secondly, when you say you're being, you know, conservative on your guidance, and I think to be fair, the previous question was related to revenue, but it doesn't seem like you're being conservative on this billings guide. Maybe just help me understand a little bit. Keith, you know, I'll first confirm the question you asked in terms of what you're, what you're sort of calculating. We did give you a sort of a steer on sort of how we would think of modeling Q2, which was a 6% sequential increase. I think when you look at that number and you say: How does that come about, and what gives you the confidence in the back half? There's two elements I pointed to which are specific. One, we have an elongation of the sales cycle, but the deals close, and we see they're closing. We see that, we know that the enterprise budgets, as we looked at customers and evaluated what they have, are set up for a back half sort of expenditure rate, which is consistent with enterprises. Our elongated sales cycles, timing of when they close, intersecting with customer budgets, is something we've seen fairly well, and that's what's sort of giving us the confidence across both Q3 and Q4. We've sort of built that in. That's one. The second part of it is, we've made incremental and significant investments in marketing programs, which are based on high LTV customers that provide high value. We know that those dollars convert with fidelity to what we expect our booking contributions for the second half. That's the way we've built it in. I think, you know, our, what do you call? Guidance is on billings, is thoughtful, and we've sort of considered the macro and how we expect that to evolve as well. All right. Just to... Again, sorry, I got to tease this out, but, you know, many companies would suggest that if you have billing along, excuse me, a deal elongation, that's gonna continue, such that there's just frankly slippage through the out the year. Are you assuming that there's some, there's an improved close rate, so to speak, as you get towards the end of the year, that's facilitating getting to 20 and/or, you know, an improvement in the macro? We're not factoring an improvement in the macro. We're assuming on the longer deal cycles with enterprise budgets, our close rates do improve as you think of those. That's a key part of the sort of how we're thinking of the guide. Then the other part, Keith, you've got to remember is, you know, we're dealing with a macro where the comps get much easier as you go into Q3 and Q4. When you look at Q3 and Q4, and you look at the growth rate in billings, you're doing it for a comp where the macro already started to manifest itself in our results last year. Between those two, I think we feel good about sort of how the year plays out. Okay. I submit that the comps are easier, certainly in Q4, but they're, it's a relatively hard comparing in Q3 as well. I will cede the floor. Thank you. Thanks, Keith. We go next now to Robert Simmons at D.A. Davidson. Hey, thanks for taking my question. You guys have been leaning a bit into your partner ecosystem. Can you update us on how that's going? How much of your new business is actually driven or influenced by it? You know, the partners are a key part of sort of how we go to market, because they bring unique capability in markets like international. They play an integral part in co-selling with us. Our percentage of what I call partner-touched revenue has increased from Q1 of last year to Q1 of this year, and it's now sitting in the mid-teens in terms of sort of how we think of that contribution. In terms of the reliance on third parties to bring us business, where it's really partner-led entirely, that's a small minority of the business today. Where they have proven quite helpful is in that co-selling, as Pete said. I think you asked specifically about them bringing us business. I would say it's, that has been a substantially less than 15% of our total, but still very helpful to have their participation. Got it. What do you see in terms of, like, the big ger [inaudible] building out their practices? Is that progressing to plan, or you can color there would be helpful? Yeah, we anticipate having some news on that in the second half. As I reported out last quarter, we have a number of the global SIs who have built practice areas in Smartsheet. It's, when I compare that to, you know, the large SIs who are doing exclusively system implementation and config on behalf of clients, what's interesting about two of the large ones that we're working with right now is that they're actually building service delivery practices on Smartsheet. After they have concluded, whether it's on an accounting dimension or on an M&A or divestiture dimension, Smartsheet is left behind to help the client operate. It's very different than being hired to do a system implementation on behalf of the customer. It's really them delivering their services and leaving Smartsheet with the customer post-project. we'll have more to report on that on the second half. Great. Thanks. Thank you. We'll take our final question today from Fred Lee of Credit Suisse. Hey, nice work on the profitability side of the house, and also on the cash generation. I have a question with regard to the introduction of free and the potential impact to the existing install base in that. With weaker macro, what we've seen are some customers at other software companies electing to actually downgrade to free in the near term. How do you protect against this? You know, because this could potentially elevate risk to the base of the pyramid. When we initiated free last year, we did a lot of design work on this, and we were very prudent, I would say, in our approach to what free provides somebody. While you can use our different views and our dashboards and elements of automation, the constraint is put in terms of who you can share your work with. When we look at the sharing need within our organizations, our customers, it's significant, and it can give you a good taste today. You can share it with up to two people, but we obviously had a lot of work in the quarters leading up to launching it globally to understand the impact. We saw no impact to our conversion to our paying plans, and we see no evidence of people downgrading to free at our at our paid customers today of any significance. That was a key part of our research before we launched it globally. Again, we've seen nothing different since launching it globally from what we saw in those quarters running up. Got it. Thank you. That's extremely helpful. Just a quick one for Pete. Last quarter, you said NRR would end in the high teens towards the end of the year, and I might have missed it, but did you give an update here? Then if you could talk a little bit on pricing and whether it's been stable or if there's been any degradation sequentially from Q4. Thank you very much. I think we, in the, in my prepared remarks, said we expect the net dollar retention rate to end the year in the high teens. We sort of reiterated what we said before, so we set that out. Are we seeing any price degradation in the market? You know, I think we're seeing our prices, or we're seeing demand vectors of what I call the high-velocity business, where people just decide they're not going to go for the quick projects that you can start and sort of go to town with right away within a short period of time. That's where we're seeing it. We're not seeing a giant price degradation happening. Thank you very much. Thank you. Mr. Turner, I'd like to turn the conference back to you, sir, for any closing remarks. Great. Thanks, Bill. Thanks, everyone, for joining us today, and we'll speak with you again next quarter. Thank you, gentlemen. Again, ladies and gentlemen, that will conclude the Smartsheet Q1 Fiscal