Smartsheet Inc (SMAR) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Smartsheet Fourth Quarter Fiscal 2020 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions) I would now like to hand the conference over to your speaker today, Mr. Aaron Turner, Head of Investor Relations.

Thank you.

Please go ahead, sir.

Thank you, Christine.

Good afternoon, and welcome, everyone, to Smartsheet's fourth quarter and full fiscal year 2020 earnings call.

We will be discussing the results announced in our press release issued after the market closed today.

With me today are Smartsheet's CEO, Mark Mader; our CFO, Jennifer Ceran.

Our Chief Product Officer, Gene Farrell, will also be available during the Q&A.

Today's call is being webcast and will also be available for replay on our Investor Relations website at investors.smartsheet.com.

There's a slide presentation that accompanies Jennifer'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 federal security 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 adversely.

All forward-looking statements made during this call are based on information available to us as of today, and 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 U.S. GAAP financials, we will discuss certain non-GAAP financial measures.

A reconciliation to the most directly comparable U.S. 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.

Thanks, Aaron.

Good afternoon, everyone, and welcome to our Q4 earnings call.

We concluded FY '20 with a strong quarter.

Q4 revenue grew 51% year-over-year to $78.5 million, bringing our full year revenue to $270.9 million, up 52% to a year ago.

Billings for the quarter were a record $101.5 million, up 58% year-over-year.

Our growth was driven by continued strong execution across the business and significant expansion within our existing customers.

I want to begin by sharing some information on our response to the COVID-19 pandemic.

It will come as no surprise that the safety and well-being of our team, partners, customers and the communities in which we work is a top priority.

As such, and based on guidance from local health officials in the CDC, last week, we directed employees in all our offices in Bellevue, Boston, London, Edinburgh and Sydney to work from home unless there is a business-critical need for them to be in the office.

We are well equipped to continue running our business, operating our platform and supporting our prospects and customers, even with our teams working remotely.

We're doing everything we can to support our customers as they work through this period.

To that end, on March 6, we released a set of free Smartsheet templates modeled after assets we build for our own use that can be used to create a COVID-19 operations dashboard containing CDC documentation and other resources.

The dashboard serves as an information hub and a resource center for employees and can help any organization understand and assess risks and collect data on needs or health changes in their population.

We've made these resources available to both customers and those in trial.

The response in terms of both value and uptake has been strong with thousands of organizations deploying them already.

In addition, we successfully responded to a request this weekend from a global health care customer that's on the front lines of the private-public partnership to significantly expand the global testing capacity for COVID-19.

Within 48 hours of receiving the request, we were able to help them enhance and fully operationalize a Smartsheet solution they had internally developed.

This solution enables them to collect and share, with their federal agency partners, mission-critical information about the volume of tests conducted and current supply levels of their high throughput testing systems.

This will allow more testing to be completed in the shortest possible time.

We are proud to have the opportunity to be of service on this important endeavor.

We are also committed to supporting the government response to COVID-19.

That's why we're announcing today that we are making Smartsheet Gov, our FedRAMP authorized environment available for any U.S. government agency responding to the COVID-19 pandemic.

Government agencies can use Smartsheet to plan, coordinate, track and communicate the COVID-19 response free of charge and without any obligation.

We will begin outreach on this program today, but in the meantime, interested government agencies can get more details at www.smartsheet.com/enable-gov.

We continue to closely monitor the macro business environment and our daily performance metrics.

We have heard from many customers that our platform enables them to work from anywhere and remain engaged during this disruption to normal work patterns.

To date, we have not experienced any material change to our pipeline due to COVID-19.

At times like this, we value the diversity of our customer base with respect to industry and customer size and the ability for people to deploy high-value, low-cost solutions in a self-directed or remote low-touch manner.

But the economic headwinds are early and unpredictable in magnitude and duration.

So as Jenny will discuss, we are taking a balanced approach to our outlook.

Returning to results.

Smartsheet ended the year with over 6.3 million total users, including more than 950,000 paid licensed users.

Over 9,000 domain-based customers pay us $5,000 or more per year, now representing over 75% of our ARR.

Enterprises increasingly recognize the importance and benefits of empowering a dynamic workforce.

A workforce that is now viewed as a composite of employees, partners, suppliers and customers.

The Smartsheet platform enables business users to work more effectively through rapid configuration and deployment of solutions with a category-leading combination of capabilities and enterprise strength.

Our success with expansion continues to drive strong retention rates.

In Q4, our dollar net retention rate grew to 135%.

During the quarter, expansion within our base included 93 companies increasing their ARR by more than $50,000, up from 69 in Q3.

And 28 companies increasing their ARR by more than $100,000, up from 17 in Q3.

Longtime customer SAP expanded its use of our platform to track participation and report results for a global skills management program, involving nearly 16,000 employees.

Smartsheet provides a single source of accurate data with updates automatically populated to the sheets in which data resides.

In addition, dashboards provide senior executives with customized view while protecting underlying data from accidental changes.

The ability to easily scale the program as additional departments and geographies are brought online means that SAP can focus on the program and its effectiveness, not on the means by which the content is distributed and tracked.

Expansion by our customers is fueled through both licensed user growth and attach rates for our capability-based offerings.

More than 4,000 unique customers have purchased 1 or more of these premium platform capabilities since their introduction.

I'm encouraged by the early uptake of our marketing accelerators, designed to enable organizations to drive greater effectiveness across a range of high-value marketing activities.

These accelerators for marketing shared services, event management and campaign management enable marketing teams to meet the challenges of complexity, constant change and blurred organizational borders.

Additional marketing offerings include our recently introduced content collaboration capabilities, resource management capabilities through 10,000 feet and an integration with Adobe Creative Cloud that help creative teams eliminate manual work so they can focus on creating great content.

Smartsheet is focused on building and delivering a set of elite experiences for marketers.

By offering an expanding range of marketing specific capabilities and solutions that integrate with our core platform, we will enable these teams to execute, measure and report on the effectiveness of their investments.

Let me share an example of how our focus on marketing is delivering value for customers.

Young Living Essential Oils, a fast-growing direct sales organization with nearly $2 billion in revenue, uses Smartsheet to manage hundreds of project requests coming from all over the organization to the North American marketing and creative teams.

They have created a standardized process for prioritizing and assigning work to the right people at the right time as well as collaborating on content, all in a single solution.

Doing so has brought clarity to Young Living's cross-functional projects, greater visibility into their highest priority projects and better equips them to make smarter decisions for their customers.

We are committed to ongoing investments to deliver high-value solutions built specifically to address the well-documented challenges faced by today's marketers.

With the increased attention on our space, I appreciate our ability to draw on many years of experience, translating the market signal we've received and the lessons learned from thousands of customer interactions every year.

We use these insights to create products, services and solutions that make a real and meaningful difference for our customers' businesses.

Among buyers, industry analysts and others, there is now an understanding of our relevance and value, and that's important.

That was made clear to me late last year when I was invited to speak to the CIOs from 50 of the world's largest companies to address a private forum, where they meet to gather information on important trends and concepts.

We were invited to help share our perspective on why no co-development is important to their workforces and organizations.

This invitation was reflective of CIOs recognizing the need to be more proactive about how they can empower and activate a dynamic workforce by supporting the implementation of tools like Smartsheet in their organizations.

In addition, we're also now seeing large-cap software companies such as Microsoft, Adobe and Salesforce recognize that there's an orchestration layer sitting either above or below their solutions in an increasing number of enterprises.

This recognition gives me further confidence in explaining to customers Smartsheet's role in their enterprise software stack.

Our expansion into new geographies remains on track, with a strong base of existing customers on which to build our newly established office in Sydney is now online.

We look forward to continuing to expand Smartsheet's position in the Australian market and APAC more broadly.

In closing, I'm pleased with Smartsheet's strong Q4, our full year results and the opportunity that exists ahead of us.

Despite the current uncertain macroeconomic climate, I firmly believe the company is well positioned in the short term and for the future.

And with that, I'll turn the call over to Jenny.

Jenny?

Thank you, Mark, and welcome, everyone.

As Mark mentioned, our fourth quarter revenue came in at $78.5 million, up 51% versus a year ago.

Billings came in at $101.5 million, up 58% versus a year ago.

Our dollar-based net retention rate increased to 135%, and our average annualized contract value, or ACV per domain-based customer grew 48% year-over-year.

And we ended the quarter with approximately 84,000 domain-based customers.

Fourth quarter non-GAAP operating loss was $17.3 million as we continue to make investments in our platform and go-to-market capabilities.

And non-GAAP net loss per share was $0.13.

Operating cash flow was negative $42,000, and free cash flow was negative $3.6 million, and we ended the quarter with a strong cash and short-term investment position of $566 million.

For our full fiscal year 2020, we ended with total revenue of $270.9 million, up 52% year-over-year and billings of $333.6 million, up 54% year-over-year.

Our full year non-GAAP operating loss was $62.8 million, representing a non-GAAP operating margin of negative 23%.

Our free cash flow was negative $26.9 million, representing a free cash flow margin of negative 10%.

Let me dive more into revenue for the quarter.

Of our $78.5 million in total revenue, subscription revenue was $71.1 million, a 53% increase versus a year ago.

Services revenue came in at $7.5 million, up 31% versus a year ago and represented 9% of total revenue.

Let me move on to metrics.

We saw strong growth in our larger customers.

9,079 customers now pay us $5,000 or more per year, 961 now pay us $50,000 or more per year, and 350 now pay us $100,000 or more per year.

These customer segments grew year-over-year by 47%, 116% and 138%, respectively, and now represent approximately 75%, 38% and 25% of total ACV.

Our average ACV per domain-based customer increased to $3,643 for the quarter and our dollar-based net retention rate was 135%, a 1-point increase versus the prior and year-ago quarters.

The 1-point increase versus the prior quarter was due to small improvements in both net expansion and churn and our churn rate is now below 8%.

Next, I'll provide color on the rest of our income statement and a few highlights from our balance sheet.

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 and presentation that was posted before the call.

In the fourth quarter, overall gross margin rounded up to 82%, stable with prior quarters.

Subscription gross margin was 88% and professional services margin was 25%.

Professional services margin declined compared to the prior quarter as we added more consultants and used some third-parties to deliver on services projects.

Turning to operating expenses.

General and administrative costs in the fourth quarter were $12.1 million, representing 15% of total revenue, flat with the prior quarter as we continued to incur expenses related to SOX readiness.

Research and development was $23.2 million or 30% of total revenue, flat with the prior quarter.

Finally, sales and marketing expense was $46.2 million or 59% of revenue versus 66% of revenue in the prior quarter and 54% in the year ago quarter.

Sales and marketing as a percentage of revenue improved quarter-over-quarter with our ENGAGE conference behind us, while the year-over-year step-up reflected the incremental investments we are making in brand advertising.

Turning to operating loss and free cash flow.

Operating loss was $17.3 million, representing a negative operating margin of 22%.

Approximately 67% of our total expenses were head count related, and we ended the fourth quarter with nearly 1,600 employees.

Free cash flow was negative $3.6 million, which includes CapEx spend, capitalized internal use software and principal payments on leases totaling approximately 4% of revenue.

For the full year, free cash flow was negative $26.9 million, approximately $2 million higher than our previous guidance.

The increase was driven primarily by a payroll change we made in January from paying employees twice monthly to paying them biweekly, which resulted in an extra step payroll run in the fourth quarter.

Now turning to billings.

Our fourth quarter billings were $101.5 million, up 58% versus a year ago.

We saw acceleration in growth versus the prior quarter, driven by continued strong expansion within our larger customers and an increase in the number of deals over $50,000 and $100,000.

Approximately 92% of our subscription billings were annual with 7% monthly.

Quarterly and multiyear billings represented about 1% of the total.

Before I move on to guidance, I wanted to give you an update on a change we'll be making to our metric disclosures beginning this fiscal year.

We will be removing total domain count from our list of key metrics.

Now that 75% of our ARR comes from customers who pay us over $5,000 per year, we will focus our customer count disclosures on the number of customers with ARR over $5,000, $50,000 and $100,000.

We believe the customer growth in those segments provides the best insight into the effectiveness of our growth strategies.

However, our dollar net retention rate will continue to be based on all of our customer segments regardless of size.

I will now provide our guidance for the first quarter and the full fiscal year 2021.

To date, we have seen no material impact from COVID-19 to our first quarter, either positive or negative, and our pipeline is healthy.

Estimating the potential impact from the COVID-19 pandemic beyond the first quarter, however, is a bit more challenging.

As Mark said, we are taking a balanced approach to guidance.

Our current full year guidance reflects the composite of our current internal metrics and our best assessment of the risk and opportunities for the remainder of the year.

For the first quarter, we expect total revenue of $82 million to $83 million, representing year-over-year growth of 46% to 48%.

We expect non-GAAP operating loss to come in between $26 million and $24 million and non-GAAP net loss per share to be between $0.21 and $0.19 based on weighted average shares outstanding of 118.5 million.

We expect first quarter billings in the range of $97 million to $98 million, representing growth of 40% to 42%.

For the full fiscal year 2021, we expect total revenue to be in the range of $373 million to $378 million, representing growth of 38% to 40%.

We expect non-GAAP operating loss to be between $75 million and $67 million and non-GAAP net loss per share of between $0.62 and $0.55 for the year based on approximately 119 million weighted average shares outstanding.

We expect billings to be in the range of $450 million to $455 million for the full fiscal year, representing growth of 35% to 36% versus last year.

For the full year, we are expecting free cash flow margin to be between 0 and negative 3% as we continue on our path towards profitability.

We are projecting our Q1 free cash flow to be between negative $30 million and negative $27 million.

Consistent with prior quarters, this number is seasonally impacted by our annual bonus payout and compensation increases, seasonal payments to suppliers and expanding our sales team in the U.S., U.K. and Australia.

This concludes our prepared remarks.

We will now turn it back to the operator to take your questions.

Operator?

(Operator Instructions) Your first question comes from the line of Stan Zlotsky from Morgan Stanley.

Congratulations on a very strong quarter.

A couple of questions from my end.

Jenny, as much as you mentioned you're very cognizant of COVID-19 impact, maybe just put a finer point on it, what considerations did you contemplate as you kind of thought about your guidance for Q1 as well as the full fiscal year?

And then I have a quick follow-up.

Yes, sure.

So we've done like a number of scenario analysis over the last week.

We've also looked at all of our sort of leading indicator metrics day by day.

So we look at pipeline, we look at bookings that have been closed, any losses, any deals being pushed, any deals being accelerated, how collections are coming, and we took all of these things into account and sort of providing this balance that Mark mentioned to set guidance for the year.

We also factored in the fact that on Sunday we had 100 basis point drop in interest rates.

That did reduce on -- or did put some reduction in incoming cash flow for the year and that did influence the guide on our cash flow.

Got it.

But more -- maybe more broadly, did you maybe tweak some of your forward close rate assumptions or your sales productivity assumptions or anything along those lines?

Is there anything versus how you may have been looking at your pipeline same time a year ago?

Like I said, we looked at the current metrics that are in front of us, Stan, and then we took a balanced approach in getting to where we are at for right now.

Okay, got it.

And then just, very high level.

With everything that's going on, how are you thinking about your international expansion and the ability to bring people on board to go after Asia Pacific and continued expansion in Europe?

And that's it for me.

Stan, it's Mark.

I think we're really fortunate on timing, right?

We got our team recruited late last year, we got every -- we set the table for onboarding with our SKO, which happened to precede this uptick that we're now seeing.

So again, we feel very grateful for that timing.

So our U.K. teams and our Australia teams are in place and productive today.

Everyone working remotely, but we're continuing forward.

We also continue to onboard employees.

The mechanisms we have around, how we're distributing equipment, how we're training them via Zoom-based methods, those are underway now.

Your next question comes from the line of Mark Murphy from JPMorgan.

Congrats on the billings acceleration and the improvement in churn, very nice to see that, very nice surprises.

Mark, we did notice how quickly you pivoted your messaging on the website, you have the templates for the coronavirus awareness.

You're talking about the ability to work from anywhere while staying connected and how to handle the transition to remote teams.

I guess, I'm just curious how well is that pivot resonating with customers?

Is there a tangible tailwind to bookings that you see here?

Or is it more of an emphasis on some of the free products that you seem to be providing to help people through the crisis?

Yes.

In terms of a tailwind, Mark, we're really not seeing a monster tailwind yet.

I think what I would say, much like when people asked me a year ago, Mark, what would you most like to have?

The best engineers, the best salesperson, the best new feature?

And I would say, I would love people to understand the possibilities of what's available to them.

And I think what this has done is this has become a forcing function for many people to understand how to utilize technology to their advantage.

So that is being discovered now.

People are having to discover that.

So part of our job is not just to say, here's a device or here's an app, but informing them of how to do it.

So one of the reasons we put templates out.

These are mechanisms to get introduced to our world.

And would we all wish that this wasn't the mechanism to do it?

Absolutely, but you have to educate, you have to enroll and give people confidence to move forward.

And I think some of the things we're doing are giving people comfort.

I wanted to ask you as well, I think that Slack commented on seeing a bit of a jump in some of the new free user sign ups as a result of this kind of work from home trend, is that anything that you've seen or expect to see?

Or is there any -- or can you talk to us at a high level in terms of just what's going on with the base of nonpaying users or collaborators?

Yes, we haven't seen any meaningful jumps, I would say, in our market, unlike a communication or video conferencing market, where you have the option, if you're working in your office to speak to someone face-to-face.

In our world, the product and the ability to collaborate was always technology based.

It wasn't the alternative.

Okay, now we're going to manually track all this information.

So there really hasn't been a major change in that respect of the work pattern.

I would say in terms of the free trials and the uptick, we're continuing to see growth, though we have not seen a dramatic uptick as a result of this.

Okay.

One last one.

Jenny, maybe you could comment on this.

The number of deals or the percentage of situations, which had a competitor present in them in Q4.

Can you talk to us at a high level what you've seen there?

Yes, I mean, the trends haven't changed at all, Mark.

We still see very few competitive deals in our space right now.

Your next question comes from the line of Richard Davis from Canaccord.

So this is a question I get from all the, I know my companies.

But for you guys, would it be off by a lot if I kind of estimated that hospitality, transportation, energy is like 15% of revenues, is that a ballpark?

I'm just trying to help investors think through the life and times that we're in.

Yes, our exposure, Richard, to hospitality, airlines, retail, 3.8% of our total ARR.

Okay, so even smaller.

Cool.

Yes and I think it's -- yes, I think it's one of the great things, Richard, about having a diverse set of industries representing our ARR.

Even when you look at super categories around the technology realm, that is still, as a super category, less than 20% of our ARR.

So we do not have this exposure to any one grouping.

And in this case, I think that will help defend the fort nicely.

Your next question comes from the line of Alex Zukin from RBC Capital Markets.

And Mark, just applauding you guys for the help you're providing to federal government dealing with this crisis.

I guess, maybe just the first question is, what are you seeing in terms of incremental adoption trends of some of the capabilities, products that you're putting out there?

And anything in terms of some more use case driven modules that you've put out there over the recent quarter that's maybe driven some of that increase in enterprise activity and the billings acceleration?

Alex, this is Gene Farrell.

I'll chime in on this one.

I think that there's probably -- I'll call out 3 areas where we're seeing increased adoption.

And specific to marketing and content use cases, we're seeing very nice pickup in our content collaboration capabilities that we launched through ENGAGE last year.

We've literally seen thousands of customers start to adopt those capabilities, and we're seeing double-digit increases week-over-week of usage and creation of proofs and using that capability to collaborate around content.

And those are built into our marketing accelerators as well, which are some of the fastest-growing accelerators we've seen, they were -- we've sold -- all 3 of the marketing accelerator sold in the fourth quarter and contributed to our best quarter for accelerator sales.

Outside of that, 10,000ft and resource management is another bright spot for us.

We're seeing a lot of customer interest and uptake in leveraging a combination of 10,000ft and Smartsheet to manage their resources more effectively.

And then the last thing I would touch on is the new conversations and contacts capability that we launched at ENGAGE.

We've seen a meaningful increase in the number of conversations and commenting that's happening within Sheets and the amount of collaboration that's happening around content and work being managed with Smartsheet.

And Alex, just to add on to capabilities as a percentage of revenue, is now at -- of subscription revenue, is now at 12% versus 10% in Q3.

And as a percentage of billings, they're at 15% versus 11% in Q3.

So we are seeing nice uptick overall there.

That's super helpful.

And I guess, maybe just as a follow-up, maybe for Mark or for you Jenny.

As we think about, just in general, your level of insulation from disruption from either a sales and go-to-market perspective, whether there's more direct selling involved or more of an inside sales motion or whether you're driving most of your revenue from net new logos versus monetization of existing, just remind us or help set the stage for us around what makes your model potentially maybe more insulated in times of volatility versus maybe some of your peers or others in the industry?

Yes, Alex, I think it's -- I guess, we're going to be pretty balanced in terms of calling the ball and whether or not we're insulated or not.

But I look at sort of practical approaches to reaching out to someone trying to contact.

The vast majority of our quota-carrying reps sell to territories that are entirely comprised of existing customer relationships.

So if I reach out to you, Alex, wanting a sales call and you've never heard of me before, the likelihood you pick up the phone and respond to me, I would say, is lower than someone with whom I have a relationship.

And I think we -- that will serve as a -- potentially an insulating effect for us.

Most of our -- 90% of our quota-carrying reps are inside based.

They are already communicating digitally with their customers.

The fact that they're doing that from their home, that doesn't change that dynamic.

And even our field-based reps, a minority of our field -- 10% of our quota-carrying reps, a minority of their time is spent physically on-site at our customers.

So those are a few attributes that I think serve us well.

And I think I'd just add.

We also, of course, offer an online self-service solution, which allows customers to get up and running really quickly if they want to and they don't want to talk to anybody.

Your next question comes from the line of Brent Thill from Jefferies.

Mark, if you could just expand on the strength you're seeing among large enterprise and how you look at this year versus kind of last year.

And Jenny, you had set a goal for 300 sales reps.

Did you achieve that goal?

I think we're within 2?

Yes.

So the answer is yes.

Yes.

And I think in terms of the enterprise success, we're still not talking about 7-figure deals wall-to-wall transactions, but we are definitely climbing the ladder of divisional success, getting visibility at the C-suite and solving and addressing solution needs.

And I think what helps is when you have a combination of the ability to automate information, automate work, visualize work through dashboards, like the SAP example I gave on the earnings call, that is very helpful.

And then engaging IT and saying, how does IT not only approve, but how does IT start to advocate?

And when you look at the offering set now, whether it's on the content work that people have, which in the past has been an IT initiative, in many cases, we are able to respond better.

So I think that compositive IT executive worker, that is serving us well in some of this growth.

Your next question comes from the line of Ittai Kidron from Oppenheimer.

Maybe you can talk about the FedRAMP, how that's been going for you?

And then again, I'm sorry to try to dig in a little bit too deep on this, but can you comment specifically on your business in Europe?

I'm not imagining you're doing too much over there, but Italy, France, Germany, U.K., it's just hard to believe nothing has changed in the last 2, 3 weeks over there.

Yes, Ittai, good to speak with you.

In terms of those markets for us, those are very, very small in terms of our overall ARR, in terms of looking at the lead growth in those affected markets.

That is the level of detail, it's below the level of materiality for us.

So that has not been our top objective in terms of tracking and making decisions on guide.

In terms of the FedRAMP status, times like this get us front and center with agencies that are having to react to a situation.

We are not looking at this in the immediate term as an economic pursuit.

We are looking to have an impact with them.

I think through demonstrating amazing solutions, I think they're going to be surprised how quickly we can move and the types of value we can deliver.

Hopefully, that pays dividends for us as we get into this year and as we get past this pandemic.

Got it.

And then 1 follow-up.

Things are changing very quickly.

And I guess, I was wondering, even though you haven't seen much impact, if at all, on your business at this point, have anything in your operating assumptions has changed?

And then when you -- and when -- I mean that is it specific with respect to hiring?

Are you at the very least on the margin, holding things off, delaying hiring decisions?

Or you're still moving along at the same pace relative to your plan for the year?

Yes, I think this is one of those, Ittai, where you have to be -- you have a lot of conviction around your capital allocation.

And then having worked and lived through 2000, having worked and lived through 2007, '08 and now living through this, we've seen a lot of different types of reactions.

We have over $0.5 billion in our balance sheet.

We have no debt.

We expect to be a company that succeeds over the long term.

So the wrong move, we believe, is to pull back on product development and innovation.

We look daily, we have daily stand-ups now with a senior leadership team at 8:30 every morning.

We assess a series of early indicators that give us a sense for our heartbeat.

And we have a number of levers that we can pull on things that are discretionary spend.

We are continuing to onboard sales reps.

And until we see indicators that tell us otherwise, we're going to continue to do that full force.

Your next question comes from the line of Arjun Bhatia from William Blair.

Congrats on the quarter and glad to hear all the steps you're taking to support the testing efforts.

Maybe to start off on the marketing front.

I know you've taken -- you've introduced a handful of accelerators and the Slope acquisition and the Adobe integration.

But how should we think about this audience for -- the marketing audience for Smartsheet?

Is this a new user group that you're trying to attract with all these product development efforts in addition to the project managers and IT apps folks that you have already?

Or is this a group that you have a foothold in and you're just trying to equip them with maybe a more curated solution and more advanced tools?

Arjun, this is Gene.

I'll take this one.

I think for us, it's really a recognition.

We've got lots of marketing use cases that we support today.

But I think it was a recognition on our part of a need that we thought we weren't meeting for some of our customers for more advanced marketing workflows.

And marketing is one of those functions that really exist in almost every company in industry and many times is a lighthouse or a very visible part of how companies actually execute in market.

It's also an area where you're typically collaborating across both internal and external stakeholders with agencies and other creative groups.

And so we felt it was really well suited for us to invest to provide higher level solutions.

So adding content collaboration, adding the resource management capabilities, and we've got a fairly aggressive investment pipeline to build out additional capabilities to really support those use cases in a very robust way.

So in a way, I would say it's an expansion of an area where we've landed in many companies, but really an opportunity for us to up-level and support them with truly elite capabilities and experiences.

Got it.

And Jenny, maybe a follow-up for you.

Nice to see the uptick in the net dollar retention rate in Q4.

Can you just maybe help us stage how -- what we should expect going into 2020?

Are you still seeing some of the older cohorts expand?

And maybe buy more accelerators and just higher level, what should we expect on the net dollar retention rate front going into the next fiscal year here?

Yes.

So our best estimate for Q1 is that we'll continue to see a net dollar retention rate above 130%, so very healthy.

In terms of the full year, our guidance right now currently contemplates a non -- a net dollar retention rate in the mid-120s by the end of the year.

And that's subject to change as we get through each quarter.

Your next question comes from the line of Terry Tillman from SunTrust Robinson.

Mark, Jenny and Aaron.

Congrats on the quarter.

I guess, Mark, first question is for you, and not to put you on the spot, but sitting in front of 50 CIOs, well, first of all, I think that's kind of symbolic in where we are with the market and the kind of realization of this category.

But I was curious if maybe you actually sold any business when you were in front of that group, but I guess, more broadly speaking, talking to CIOs and C-level executives, do you foresee at some point though, where this starts to be a conversation about wall-to-wall and standardization?

And I've asked this in the past, but you do tend to see markets kind of evolve that way.

So I would love to hear a little bit more on maybe the feedback you're getting from those CIOs and C-level folks.

Yes.

Terry, my view on this is, I think there's a lot of focus on wall-to-wall, and it may be premature.

I think, first, we need people to understand how it fits in the stack.

There's a lot of enterprise software that's purchased, that is not wall-to-wall.

That doesn't touch every end user.

So that's actually not how CIOs are thinking about many solutions.

First, they're getting comfortable with what is it, how does it sit alongside my other systems?

Where does it sit in my stack?

Who can use this?

Is this my core team?

Is this the business users?

Is this my citizen developer?

Those conversations are happening.

I love the opening volley, it was actually 2 groups of 25 in private session and my opening volley and second one was, one of the reasons I'm here is because I'm available to you to answer how Smartsheet is being used in your organizations because it exists in 90% of your organizations.

And then there was a long pause.

And it's that type of dynamic.

They recognize it's there.

And what I'm sensing is a shift in CIOs from they still care deeply about rationalization, making smart choices, but they're no longer centered on, I need 1 solution for everything or even 1 solution in this specific category.

They're saying, "I need fewer," and they're picking the best ones.

So that's the -- that's how the conversation is going.

In terms of did we sell any biz, we did get a couple of great conversations subsequent, which were -- which happened in Q4.

One of them, I know culminated in business.

And I think over time, it's really a stair step.

And I do expect over time, we're talking years, I expect us to have some wall-to-wall.

But again, that does not -- that is not the key thing we're marking as success right now.

Understood.

I guess, Jenny, a question.

I think this was the last quarter, but I think you caveated in terms of there could be some puts and takes in terms of the billings and revenue coming from capability-based products because of the product and packaging and maybe how you bundle.

Going forward, is there any kind of potential opportunity where you could be bundling some of these capability-based products in the core offering, so we may not necessarily see the separate breakouts, maybe a little bit more on that?

Yes.

In fact, we do do that.

We have a license called premium, which includes some of the capabilities, and that's been growing really nicely.

It is excluded from the numbers I gave you.

But if you added that in, you would see further increase in the capabilities as a percentage of revenue and billings.

Terry, let me chime in as well.

This is Gene.

The other thing that we're evaluating is, with some of our larger customers, we are looking at some new packaging and pricing configurations that bundle the vast majority of our capabilities into a platform-based licensing structure to really enable organizations to really leverage the entire suite to really extend and expand the power of Smartsheet across their business.

So we're absolutely starting to experiment with those types of offerings.

Your next question comes from the line of Scott Berg from Needham.

Congrats on a great quarter.

I guess, I got 2 quick ones.

First of all, on the international front, you guys are clearly making a stronger push there.

Do you see any difference on how the customers use the capability solutions first of all?

And then second, kind of in conjunction with that is the buying kind of pattern, does that differ at all internationally from what you see domestically?

Scott, I would say from what we've seen and probably the most evidence we have is from the U.K., we don't see a material difference.

In fact, what we find is that customers, particularly when they -- when we have reps on the ground that can better understand their business and help them configure solutions, we see very similar patterns to what we see in the U.S., and I think that's evidenced by our net dollar retention actually starting to catch up in other parts of the world where we have boots on the ground with the U.S. And so we've got many customers in Europe that are leveraging our premium capabilities.

So we think that's -- the pattern that we have in the U.S., we think we can replicate in most other developed markets.

Got it.

Helpful.

And then from a follow-up perspective, Jenny, you mentioned your services gross margins were a little bit weaker based on some consultants and third-parties that were involved with implementations.

Maybe, Mark or maybe it's for Jenny.

Can you comment on the overall health or environment of your partner ecosystem and their ability to flex kind of right now or maybe over the next quarter or 2 based on what your sales requirements are?

Yes, we're definitely increasing capacity in the system.

When we launched our new partner program last year, we had a couple of hundred partners already enrolled.

What we're looking, what we've done in the last couple of months is, we've identified some additional service delivery partners on the capacity side, which allow us to respond more quickly to the growing demand.

And again, a lot of this services work is delivered remotely, in the form of either training or configuration services or implementation of accelerators.

But I would expect us to continue to lean heavily on those scaled resources.

Your next question comes from the line of Keith Bachman from Bank of Montreal.

I had 2 questions.

The first is, I wanted to understand both in the growth of average domain ACV and the dollar-based net retention, which are really strong metrics, how important has price increases on a like-for-like basis, not mix, but price increases been on the growth of those attributes?

It's been de minimis.

We have -- the approach we've taken on the vast majority of new offerings has been, it's either a new plan or it's a new capability that someone can opt into, I would say, well under -- well low single digits of impact in terms of price increase driving these figures.

Okay, excellent.

And then the second question, building off the F '21 guidance or FY '21 guidance, I should say, can you just confirm that investors should expect the operating income and free cash flow to continue to move towards your longer-term targets, there's been no change in aspirations there?

That's correct.

Your next question comes from the line of Steve Koenig from Wedbush Securities.

I'll just leave it at 1 question here.

You all talked a little bit about what was driving your sales and marketing up as a percentage of revenue, the investments in the branding and awareness.

How do we think about that trend this year on sales and marketing?

Has this started to come down as a percent, et cetera?

Maybe in your baseline scenario, and then maybe you could -- Mark you addressed your commitment to continuing to invest in product innovation, any contingency plans on sales and marketing in some of your other scenarios?

Yes.

So on the sales and the marketing specifically for this coming year, we're going to be spending about the same amount as we did last year, maybe slightly up, but on a percentage basis, it should come down.

And is that marketing only?

Or is that -- that's the whole sales and marketing bundled?

Overall, sales and marketing, incorporating the marketing should come down as a percentage of revenue a bit.

Got it.

Got it.

And then any thoughts on contingency planning around if situations get a lot worse out there?

Yes.

I mean we definitely are monitoring really closely our key metrics every day.

If things turn negative for any reason, we have a number of levers to pull.

And that includes slowing down our pace of hiring, but we are hiring this year.

So I do expect the number of folks at Smartsheet to increase.

We'll look at some other expenses like travel, already travels coming down a bit since no one can travel at the moment.

And then we'll look at marketing, but as Mark mentioned, this is also an opportunity to really invest and help customers, help our employees, and that's really what we're focused on right now.

Your next question comes from the line of Rishi Jaluria from D.A. Davidson.

This is Hannah on for Rishi today.

So you've talked about what you've seen from customers and your business model, but have you seen any noticeable disruption within your business given you're headquartered in Bellevue?

We have, and I think what I would give real kudos to is our people operations team, who I would say was leading in our city.

We were not a follower.

So the steps we took immediately was to inform people when we transition to a work from home model, it was no surprise.

We had, I would say, really good advanced notice.

People felt informed.

And I think when you look at the inputs to what makes for a smooth transition, it's not just do you have the infrastructure?

Do you have the tooling?

Do you have people psychologically aligned correctly?

And I would say that's what our team really did nicely.

Okay, good to hear.

And then on 10,000ft, was the performance of that in 2019 in line with what you initially expected?

And is there anything left to do on integration front there?

Yes, it was absolutely in line.

We're really happy with that acquisition.

And I would say, yes, we continue to work on integration, but we're making good progress.

Yes, I'd just add, we are right now in private Beta with the integration with many customers, and we expect to have that available to all customers in the next 2 months.

So really excited about the path forward there.

Your next question comes from the line of Brett Knoblauch from Berenberg.

Congrats on the good quarter.

Regarding your revenue guide, I guess, relative to last year, are you assuming similar contributions from existing customers and new customers, I guess, or maybe is this year maybe more heavily weighted to existing customers given the macro backdrop?

So in terms of our guidance this year relative to last year, it's not significantly different in terms of what we expect from a net expansion perspective, dollar net retention rate, new business, it's still pretty consistent.

Okay.

And then if, I guess, the macro backdrop kind of continues to worsen, would you think of kind of reducing the advertising spend to kind of grow brand awareness, given you would probably see a lower ROI just from kind of IT budgets getting slashed.

So I guess, less opportunities for new business expansion?

Yes, I mean, that's -- we're looking -- we look at all of our spend areas to determine which ones are generating lower ROI than others and marketing could be one area.

If we're not seeing yield from it, we'll certainly pull back until the market environment changes.

There are no further questions at this time.

Mr. Aaron Turner, I turn the call back over to you.

Great.

Well, thank you all for joining us today.

We look forward to speaking with you again next quarter.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.