Smartsheet Inc (SMAR) 2020 Q1 法說會逐字稿

Good afternoon.

My name is Mike, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Smartsheet First Quarter Fiscal 2020 Earnings Conference Call.

(Operator Instructions)

I will now turn the call over to Aaron Turner, Head of Investor Relations.

You may begin your conference.

Great.

Thank you, Mike.

Good afternoon and welcome, everyone, to Smartsheet's First Quarter of 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; and 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 is 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 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 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 U.S. GAAP financials, we will discuss certain non-GAAP financial measures.

A reconciliation to the most directly comparable U.S. GAAP measure 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, and good afternoon, everyone, and thanks for joining us today.

The momentum with which we ended fiscal year '19 continued in Q1 with revenue reaching $56.2 million, representing year-over-year growth of 55%.

The total number of all Smartsheet users across paid and collaborators is now more than 5.1 million.

Smartsheet's work execution platform continues to deliver differentiated solutions that drive operational excellence for enterprises of all sizes across many vertical markets.

We are well-positioned to help organizations meet their digital transformation objectives by delivering the type of increased agility, collaboration and visibility that empowers teams and unlocks organizational achievement.

Expansion within our base during Q1 included 34 companies increasing their annual recurring revenue, ARR, by more than $50,000, 13 of which increased their ARR by more than $100,000.

Notable expansions occurred at customers such as Seagate, Arc'teryx, American Electric Power, Providence Health and DocuSign.

We frequently hear from customers how Smartsheet is driving the automation and digitization of workflows and enterprises of all sizes.

Expansion within these customers is often fueled by licensed user growth and increasing use of our capability-based offerings such as Control Center, Accelerators and Dynamic View.

Capabilities as a percentage of our subscription revenue reached 9% in the quarter, up from 8% in the previous quarter.

We continue to expand our high-value offerings organically and through acquisition.

Most recently, we announced the acquisition of 10,000ft, a SaaS platform that features real-time capacity planning, resource management and reporting.

Our customers will benefit from the ability to plan and allocate resources across their projects, optimize resource allocation by function or skill set, track time against forecast and gain real-time portfolio level visibility into budgets and deliverables.

10,000ft's technology also strengthens our value proposition for customers in the marketing and professional services segments and complements the digital asset proofing and markup capabilities we added via our acquisition of Slope in January.

Ogilvy, one of the world's largest advertising, marketing and public relations agencies, has been a Smartsheet customer for nearly 5 years and a 10,000ft customer for 4 years.

They leverage Smartsheet to streamline project delivery by managing campaigns in thousands of related creative assets across numerous global teams.

Ogilvy's use of 10,000ft optimizes their staffing investments by allowing them to effectively manage their capacity planning and resource allocation for multiple projects simultaneously.

Together, Smartsheet and 10,000ft will enable a broad range of enterprises to improve decision-making and resource forecasting while more effectively planning, tracking, automating and reporting on work.

For many of our fastest-growing customers, their use of Smartsheet has evolved from being a valuable tool for collaboration and work tracking by individuals and teams to a means by which they automate and digitize high-value workflows, drive operationally important processes across their organization and delight their customers.

For example, at the Metropolitan School District of Lawrence Township, New Jersey, administrators sought a better way to understand the breadth of issues that impact students' lives and success in school, but data spanned multiple unconnected systems.

The district now uses Smartsheet to consolidate academic and behavioral information in a central location and, through the management and reporting capabilities of Dynamic View, make sensitive information available to specific teachers, counselors and administrators.

In another example, data analysts at Karyopharm, a global pharmaceutical company, leveraged our Data Uploader to streamline data import processes in clinical trials.

With Smartsheet's automation capability, it now takes 2 people 90 minutes instead of a full workday to upload, process and verify patient data.

By improving visibility between analysts and researchers, Smartsheet enables Karyopharm to more quickly identify trends and important correlations.

Customers frequently share with me it's the strength, breadth and flexibility of our platform that positions Smartsheet as a strategic partner in driving operational excellence.

Our increasingly central role in the success of enterprises of all sizes is based on delivering solutions that address a wide range of business challenges.

One such example is our recent introduction in partnership with a global consulting firm of a GDPR Accelerator.

Designed to help identify, catalog and manage the technical and organizational measures required to comply with GDPR regulations, this solution adds to an expanding set of accelerators that address common, high-value enterprise needs.

We also recently launched new automated workflows that enable users to specify multiple conditional paths, build multistep approvals and be more effective by automating work.

By helping business users easily automate and digitize workflows without a single line of code or requiring help from IT, we unlock individual team and organizational productivity.

As we continue to lead a fast-growing, highly dynamic market, it is critically important that we attract and retain world-class talent at all levels of our team.

I was pleased to recently see Smartsheet rank in the top 10 of a list of public cloud companies with the highest levels of employee satisfaction.

That type of independent validation, in this case from Battery Ventures, is a testament to the culture and team we are building at the company.

The most recent addition to our senior executive team is Anna Griffin, who joined us as our Chief Marketing Officer in late April.

Anna, who led large-scale global branding and marketing efforts at CA and Juniper Networks, is the kind of innovative and creative marketing leader who will help elevate Smartsheet's profile among enterprise buyers.

Anna's impact is already being felt in the planning and execution of our ENGAGE global customer conference scheduled for September 30 through October 2. The event has doubled in size each of its first 2 years and, this year, we're on track to welcome more than 3,500 Smartsheet customers to Seattle to learn, share and be inspired.

We hope to see many of you at what is shaping up to be a great event.

In closing, I'm pleased with our strong start to FY '20 and our continued progress against our priorities.

We're committed to empowering every person in every organization to improve how they work and to unlocking achievement in its many and varied forms.

We will do that by continuing to expand our product and platform offerings, by enhancing the capabilities and geographic footprint of our sales and services organizations, by increasing our presence as a market leader and by continuing to hire and develop great talent.

I'm grateful for the position Smartsheet is in and for the continued support of our customers and more than 1,200 team members whose passion and commitment to serving those customers makes me proud to work with them.

With that, I'll hand it over to Jenny to review the financial results.

Jenny?

Thank you, Mark, and welcome, everyone.

As Mark mentioned, revenue came in at $56.2 million for the quarter, up 55% versus a year ago.

Billings came in at $69.1 million, up 52% versus a year ago.

Our dollar-based net retention rate was 134% and our average annualized contract value or ACV per domain-based customer grew 48% year-over-year.

We also added just over 1,300 net new logos to end the quarter with 80,280 domain-based customers.

First quarter non-GAAP operating loss was $14.1 million as we continued to make investments in our platform and go-to-market capabilities.

And non-GAAP net loss per share was $0.12.

Operating cash flow was negative $9.2 million and free cash flow was negative $13.1 million.

And we ended the quarter with a cash balance of approximately $209 million.

Let me dive a bit more into revenue for the quarter.

Of our $56.2 million in total revenue, subscription revenue was $50.3 million, a 57% increase versus a year ago.

Services revenue came in at $5.9 million, up 38% versus a year ago and represented 10% of total revenue.

The services revenue growth rate was tempered by the continued success of Accelerators, our pre-built solution.

Accelerators reduced the consulting time required for deployment compared to configuring custom solutions and create an uplift to subscription revenue.

We expect services revenue to be in the range of 9% to 11% of total revenue for the remainder of this fiscal year.

Moving on to metrics.

We continue to see strong growth in our larger customers.

6,779 customers are now paying us $5,000 or more per year, 518 are now paying us $50,000 or more per year and 189 are now paying us $100,000 or more per year.

These customer segments grew year-over-year by 56%, 117% and 139%, respectively, and now represent approximately 68%, 29% and 19% of total ACV.

This growth is being driven both by seat expansion and newer capabilities such as Dynamic View and our Accelerators, which contributed to our average ACV per domain-based customer increasing to $2,675 for the quarter.

And as mentioned earlier, our dollar-based net retention rate was 134%, consistent with the prior quarter and 4 percentage points above the same quarter a year ago.

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 first quarter, overall gross margin was 82%.

Subscription gross margin was 88%, flat with the prior quarter and 1 percentage point better than the year-ago quarter, driven primarily by scale and data center hosting and credit card processing costs.

As I mentioned on the last call, we have begun to migrate our services from our colocation facilities to the public cloud.

We are making this transition at a measured pace to reduce operating risk and minimize costs.

Professional services margin was 31%, consistent with prior quarters.

Turning to operating expenses.

General and administrative costs in the first quarter were $9.2 million, representing 16% of total revenue, 1 percentage point below the prior and year-ago quarters as we begin to show scale.

Research and development was $17.9 million or 32% of total revenue, an increase of 4 percentage points from the prior quarter and down 2 percentage points from the year-ago quarter.

The increase versus the prior quarter was driven by additions to headcount for product enhancements and new features.

Finally, sales and marketing expense was $33.3 million or 59% of revenue versus 54% of revenue in the prior quarter and 60% in the year-ago quarter.

The sequential increase in sales and marketing as a percentage of revenue was driven primarily by hiring.

Turning to operating loss and free cash flow.

Operating loss was $14.1 million, representing a negative operating margin of 25%.

Approximately 68% of total expenses were headcount-related, and we ended the quarter with just over 1,200 employees.

Free cash flow was negative $13.1 million, which includes CapEx spend, capitalized internal-use software and principal payments on leases totaling 7% of revenue.

As a reminder, we also paid out our annual bonus in the first quarter.

Now turning to billings.

Our first quarter billings were $69.1 million, up 52% versus a year ago.

Approximately 90% of our subscription billings were annual with 9% monthly.

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

I will now provide our guidance for the second quarter and the full fiscal year 2020.

As Mark mentioned, on May 1, we acquired 10,000ft, paying approximately $27.5 million in cash for the company.

After considering the anticipated impacts of purchase accounting on acquired deferred revenue as well as the timing of the acquisition, we expect to recognize about $2 million of 10,000ft revenue this year, most of which will be realized in the second half of the year.

Additionally, we are adding approximately $4 million to our billings guidance for fiscal year '20.

Finally, while 10,000ft had been generating positive free cash flow as a stand-alone operation, we are assuming incremental integration spend and a net neutral impact on consolidated free cash flow in fiscal year '20.

Our updated guidance incorporates the full impact of the acquisition.

For the second quarter, we expect total revenue of $63 million to $64 million, representing year-over-year growth of 49% to 51%.

We expect non-GAAP operating loss to come in between $18 million and $17 million and non-GAAP net loss per share to be between $0.16 and $0.15 based on weighted average shares outstanding of 106.5 million.

We also expect our free cash flow in Q2 to be up to negative $8 million.

Both our operating loss and free cash flow reflects some deferred first quarter planned spend that has now been shifted into the second quarter.

For the full fiscal year, we expect total revenue to be in the range of $262 million to $265 million, representing growth of 47% to 49%.

We expect non-GAAP operating loss to be between $65 million and $60 million and non-GAAP net loss per share of between $0.59 and $0.54 for the year based on approximately 106.5 million weighted average shares outstanding.

We expect billings to be in the range of $316 million to $320 million for the full fiscal year, representing growth of 46% to 48% versus last year.

And for modeling purposes, please assume historical trends for quarterly billings for the remaining quarters on an organic basis.

For free cash flow, we are maintaining our full year guidance of up to negative $20 million to preserve flexibility to make investments in the business.

With that, we'll now turn it back to the operator to take your questions.

Operator?

(Operator Instructions) Your first question comes from John DiFucci from Jefferies.

I guess, I'll start off just talking about this quarter.

So Mark and Jenny, your numbers look really strong here.

I guess, if you can talk a little bit about what were you seeing strength from.

Was it like -- or how much of the strength is coming from sort of the core market, your seat additions versus some of the new things that are actually relatively new.

I knew some of your Accelerators you had for a couple -- few quarters now, but it's still relatively new.

And Mark, you mentioned the GDPR Accelerator.

How -- maybe bring us up to speed on how many Accelerators you have.

And then how much contribution beyond seat -- adding seats within new business and could be attributed to some of these trends?

Okay.

Hey, John.

I'll speak to just what we're observing in terms of strength in market and then I'll let Gene speak to the Accelerator portfolio.

One of the things that's encouraging as someone who's been here for 13 years now is that as the engineering team continues to grow, a lot of the things that are coming to market are what I would say fall into the core category.

So when you think of the straight up the middle automation that we provide people and enhancements that I spoke to a second ago, these are things that are really getting traction.

And the types of workflows that people are implementing, the majority of motion and demand we see continues to be from our core offering.

And as our customers see improvements, whether it be on automation capabilities, they see signal in terms of us buying things like Slope and incorporating content markup or advanced PPM and forecasting, these are all topic areas that customers have been speaking about for years.

So we see continued seat expansion as being the primary driver for the business.

I would say the Accelerators are more signs of where we believe the offering set should go based on what people are looking to add in addition to straight Smartsheet licensing.

And the GDPR Accelerator is a good example.

While we have just gone to market with this offering and we think this is going to affect total addressable market in the -- far fewer than our overall TAM, it's a really sort of niche higher value offering that we're going to be catering with this partner to the market on.

The -- I think the diversity in those offerings, some of them are broad-based, some of them are very targeted.

Gene, you want to talk a little bit about how many we have now and sort of how their makeup looks?

Yes.

So John, we started the quarter with 5 Accelerators, including an IT PMO, Professional Services, M&A integration, Sales Rep Onboarding and Customer Engagements.

During the quarter, we launched a Sales Forecasting Accelerator and we just -- we literally just introduced the GDPR Accelerator.

In fact, some of the marketing is -- will be following shortly.

And so we're continuing to invest.

And one of the key learnings we've had there is that really partnering with industry experts in areas where there are best practices that we can incorporate an Accelerator is an area that customers have a lot of interest in.

And GDPR is one where companies across the spectrum are really working hard to make sure they're in compliance.

And I think last year was a real learning experience.

And this is where we think there's an opportunity to bring a higher value solution to market and really help them ensure that they meet a critical regulation.

I think, John, one thing to add.

I think as we've spoke on a previous call, one of the benefits of having these offerings also is that it gains you access to people who are making strategic decisions at customer sites.

And while it absolutely contributes revenue and bookings to the business, it also creates a relationship with a platform for introducing a mainline offering.

And I think those play off each other very, very nicely.

Yes, for sure.

For sure.

Okay.

If you could -- if I could just get a clarification, Mark.

When you launch them with new automated workflows, that's an integral part of the core offering, that's what you're talking about there?

Yes.

That's not something in addition that you had to take...

Yes.

No, that's an integral part of the core offering we launched this quarter.

We introduced our multistep workflows that allow customers to build multistep approvals and update requests and really build much more complex automations in Smartsheet to eliminate manual effort across a spectrum of use cases.

Your next question comes from Stan Zlotsky from Morgan Stanley.

I wanted to start off with the sales organization.

And you guys obviously hired a lot last year.

And maybe just give us a quick update on what you saw for the quarter as far as sales productivity, both your inside sales reps as well as your outbound sales reps, and if there's been any changes as far as how you think about the hiring plans for the sales organization for the rest of the year.

And then I have a quick follow-up.

Hey, Stan.

This is Jenny.

So we saw good productivity by the sales team for the quarter.

Every team outperformed their goals.

Also on the digital sales front, we started seeing some better momentum on that versus what we had seen last year.

So some of the things we've been working on with respect to digital is actually helping.

We're seeing some yield.

With respect to the headcount, we added about 25 reps this quarter.

We're approaching 250 reps.

And we've added a bunch of reps now, a total of 11, to the U.K. office.

And so U.K. team is ramping.

They're doing well.

We're seeing improvement in our international dollar net retention rates, which I think is really showing that having people on the ground, getting closer to the customer is the right strategy for us.

Perfect.

And Jenny, since we already have you, what is giving you the confidence in bumping up your full year billings outlook even on an organic basis outside of the $4 million contribution from the acquisition, and especially in light of the tougher compares that we have coming up in the second half of the year?

That's it for me.

Yes.

Well, part of it, as you mentioned, was the benefit from our acquisition.

We also saw outperformance versus the first quarter and just the overall strength of the business.

We felt that we could increase that guidance.

Your next question comes from Mark Murphy from JPMorgan.

This is Pinjalim sitting in for Mark.

And congrats on the quarter, guys.

I'll ask a question on the competitive landscape since we're talking to everybody.

But on some of the private players that we hear out there, Asana, Airtable, it seems like they're doing pretty well overall and growing rapidly and some has pretty good scale as well.

And none of you guys are actually seeing each other that much, it seems like.

Do you -- I mean, do you think that at some point in time you'd bump into each other?

Or do you think it's more of a different budget essentially that those guys are going after versus you?

I think, in some cases, Mark, in some cases, you do have different personas or groups who have preferences for certain brands, but I would say when your addressable market is coming up on 1 billion individuals worldwide, there is a lot of field to play in.

And this is -- I think, what's happening is the category is getting established.

You have multiple players all claiming to be successful.

And what we see -- we look very closely at competitive mentions on new opportunities, very closely competitive mentions on expansions.

And as I've consistently said now for years, I don't think it's the right strategy to try and be the only player in every business because some of our customers have thousands of SaaS subscriptions, literally thousands.

So your job is to be the biggest, to have the biggest footprint, deliver the most value and -- but I would say that the frequency with which we are seeing others in our pursuits has not meaningfully changed in the last 2 quarters.

Got it.

And Jenny, on the dollar net retention, obviously pretty stable despite the increasing scale.

I think you mentioned improvement in international on that metric.

But is there -- was there any improvement on gross retention or churn as you are landing other deals?

Yes, there was.

On -- so our loss rate last quarter rounded up to 10%.

We saw a 50 basis point improvement in that.

So our loss rate now is -- rounds down to 9%.

So we continue to see the trend.

And as we get deeper into an existing customer, the product becomes stickier.

Your next question comes from Richard Davis from Canaccord.

Quick question.

It seems to me that a key to kind of getting your customers successful is -- and happy is you need to have not only good training, but good customer success teams.

And our field checks indicate you're doing well and obviously your numbers seems to validate that.

But just as a broad question, how do you -- I mean, obviously, more is better, but how do you kind of think about that effort?

Some firms have -- like I remember back in the day Ultimate Software gave away their training for free.

You have some free stuff, but how do you just kind of think about titrating that out, balancing whatever success and cost?

Richard, it's Mark.

The -- I look at it really it's multidimensional in the sense that people obviously play a huge role in customer success, but what we're also hearing from clients is that they want mechanisms where they can guide themselves, whether that's via the community, whether that is through online training mechanisms where they get to set the schedule.

And it really depends on the client's preference.

You have some customers who won't take any significant strategic step without you by their side, but others who say we'd rather not have you work with us.

We got it.

So I think being mindful of those preferences -- and it does differ by vertical, by industry, by functional group.

So it's having a -- I think having a portfolio of both people and then tooling that is sort of appropriate for who you're serving.

And I would say, in some cases, we have what I would consider white glove service for our biggest, fastest-growing, highest value customers.

In other cases, we really empower someone on a self-directed basis.

So I think it's -- I don't think there's one playbook with 3 plays in it.

I think it's a very thick playbook with many, many plays.

Your next question comes from Bhavan Suri from William Blair.

It's actually Arjun Bhatia on for Bhavan.

Just wanted to touch on your domain customers, right?

Your ACV is still -- it's sub $3,000 per year.

So it seems like there's a lot of room to increase this.

Where do you think penetration levels are at existing customers?

And what do you kind of see as the really low-hanging fruit geared to continue to grow this that number over time between either seats or upselling, et cetera?

Yes.

I mean, I feel confident that the trend is going up.

Like, it's been going up 48% to 50% every quarter.

I don't see that changing materially.

We've got a large number of customers as you can imagine.

We're now in 95 of the Fortune 100.

We're in over 75%.

We have a presence in the Fortune 500.

And yet, the average ACV is still on -- it's above $50,000 for the Fortune 500 and just above $100,000 in the Fortune 100.

So we still have just a long way to go.

I think we're just not -- we're not end-to-end right now in the enterprise.

We have an opportunity to continue to grow that.

Great.

That's helpful.

And then maybe another quick one.

You've talked about reducing the friction in the buying process for customers.

Just wondering where you are on these initiatives and whether you've seen more self-service as a result of some of the investments you've made over the past few quarters?

Yes.

Well, as Jenny mentioned earlier, we are seeing some fruits from the investments we've made on the digital sales side, both in improving the trial sign-up as well as the customer onboarding process.

And so I think that we'll continue to invest there.

We've got a long list of initiatives.

And early returns are really positive, but I think we're just getting started.

Your next question comes from Terry Tillman from SunTrust.

I guess, the first question, maybe, Mark, this is for you.

I'm just curious, I mean, you guys are still adding lots of customers, like well over 1,000 customers a quarter.

What I'm interested in is as this work execution market continues to mature and maybe the sophistication of the buyer starts -- or is picking up, are you seeing a change in terms of when customers initially land, are they landing with more capabilities, bigger size or more use cases?

And then the speed to that first purchase, are you seeing any change in some of those dynamics just because of the maturation of the market?

That's the first multipart question.

Yes.

I think -- hey, Terry.

I think the -- it's helpful when you can solve something right out of the gate.

I think if I were to come to you and say, "Hey, Terry.

I got this amazing set of LEGOs.

What do you want to build?" I'd say we're going to be hanging out for quite some time talking about what we're going to build.

But if I come to you and say, "Hey, I got this spaceship and here is the instruction set, and we're going to get this thing built in 60 minutes." You're like, "Great.

Let's do it." So I think when you come to someone with a set of automation capabilities or Accelerators or Control Centers and you connect to a real problem, it can mature and lead to close more quickly.

So I would say though that, that doesn't necessarily mean that they start solving 10 things at once, but they attack that problem very quickly and they get success.

So again, our whole earned enterprise approach isn't to let's solve 18 things for Terry out of the gate.

Let's still solve a few high-value things and then position ourselves for growth over time.

Okay.

And maybe, Jenny, appreciated the color on the revenue and the billings contribution from 10,000ft.

But on the $4 million, and I know it's not a big percentage of total billings, but confidence and visibility in that.

Do they have a lot of late-stage activity already?

Or is this visibility into the opening balance sheet?

Just curious on the kind of the risk, if any, around the $4 million opening balance.

Yes.

I mean, we -- there's really 2 things.

One is kind of where were they when we acquired them on May 1. And clearly, they're selling product.

It's a good product.

We've also seen a lot of demand from our existing customers for a product like theirs.

So it's also based on where we think we can sell into our customer base.

Your next question comes from Ittai Kidron from Oppenheimer.

I guess, I wanted to start where the conversation started in -- with Accelerators.

It was nice to see that it's going well for you.

Mark, can you give us a little bit more color on what Accelerators are more popular than others?

Are there specific verticals where this is seeing more success than not?

And how do I think about what percent -- I mean, do customers start sometimes with Accelerators?

Do you see that happening?

Or they typically start with some of your core offerings and then move to Accelerators?

Hi, Ittai.

I think with many of our bookings coming from expansion, a lot of these concepts are presented to people who already know Smartsheet.

There is evidence.

We had a couple of customers who did start with Accelerators as their out-of-the-gate move.

So that was great to see, encouraging to see, but again, it's -- those new bookings are a minority of our overall bookings.

So it's -- they're mostly relevant in those expansion settings today.

I do think it gives you opportunity to go-to-market, right?

If you're talking about offering a certain capability, delivering a certain value, you can market on that dimension.

It's one of the things that we're excited about teaming with Anna on as she comes onboard and we take these offerings to market in a more declarative way, intentional way.

And in terms of the popularity, Gene, you want to talk a little bit about what we're seeing activity-wise?

Yes.

I would say our largest contributor to sales has been the IT PMO Accelerator.

And interestingly, we have seen customers that deploy that against more than just IT.

Many customers see the Accelerator and say, "Well, I've got actually places beyond IT where I want to go deploy that."

It's also really important to remember though that when you start the conversation with Accelerator, it doesn't always end up closing as an Accelerator deal.

Many times, a customer will get into it and say, "Wow, I love this capability, but I've got some unique needs.

I actually would rather engage with your professional services team to build a bespoke solution." And so we really see Accelerators both as a catalyst for growth and actually selling Accelerators, but also in driving a broader discussion with customers.

Got it.

And then, Jenny, just as a follow-up on the net expansion, I just want to make sure I understand your commentary here.

I don't want to nitpick.

Don't get me wrong, 134% is a great number.

But you did talk about international expansion improving and I think loss rates declining.

So am I gathering from this that expansion rate in the U.S. declined on a quarter-over-quarter basis?

No.

No, no.

My comment was not quarter-to-quarter.

It was year-over-year.

It's our -- our Q4 and our Q1 were the same dollar net retention rate of 134%.

So looking at Q1 a year ago versus Q1 of this year, both the U.S. rate and international rate improved.

Very good.

How would you like us to think about this rate for the remainder of the fiscal year?

Yes.

So right now, we are modeling on the kind of mid to high 120s, and that's a number that we would achieve by the end of the year, so by January of 31.

And what we typically do is -- well, what we do is every quarter, as we get the next quarter's rate, we'll update that number, but we're modeling right now mid to high 20s -- 120s.

Your next question comes from Rishi Jaluria from D.A. Davidson.

I wanted to start off in terms of market awareness.

And obviously, numbers are bearing out really well, but I wanted to get a sense for maybe some of the investments you're making in driving greater market awareness of your product because it at least seems from my perspective that, relative to the opportunity, Smartsheet is still a relative unknown.

And I think alongside that, what would need to happen to maybe -- not that you don't already have a little bit of virality in your product, but what would it take to get the level of virality that we see in a lot of other adjacent areas within collaboration software like we see with Atlassian or Slack or even Dropbox?

I think one aspect around awareness is what I would call just straight up marketing, marketing awareness.

I mean, one of the reasons we teamed up with Anna here was to take the story much more broadly here in the U.S. and then also globally.

And I think the other important part though in addition to marketing is build better product, build really good product that people love using where they engage with others.

And we have been huge beneficiaries of sharing and viral motion over the years.

It's why it's been so helpful to our expansion performance over the years.

But when I think about the things that Gene is leading us on in terms of our product innovation, whether it be Slope on the content side, whether it be some of the things we've talked about -- tying all the way back to our roadshow, we talked about our vision around communication and how we integrate with teams and Slack and what we're doing natively to propel that, I think our hand is improving on that front.

So we look very closely in what we see as catalysts happening in adjacent spaces and we're trying to be very thoughtful about how to fold some of those concepts into our offering.

And with an ever-growing engineering group and a product team that is coming up with good plans, as I shared with Aaron yesterday, probably the most excited I've been in a couple of years in terms of product road map.

Your next question comes from Robert Simmons from RBC.

Can you give us some color on FedRAMP?

How big of an opportunity you see that as possibly being?

And how quickly do you think it will show up in results?

So as I said in the last call, we reached FedRAMP Ready status heading -- that we reported out in Q4.

And we are now in process.

Officially, it's the next step within the move to full authorization.

Again, the feds are deciding that time line.

They control that fully, but we're confident that we're going to achieve that this year.

In terms of the opportunity, we continue to see demand.

While we have been waiting for a full authorization, our team, which is based in DC, has been working hard getting beta accounts setup.

So we're in agencies.

We're having conversations with them.

We're deploying Smartsheet today.

Again, it has not been fully activated, but the agencies are showing demand, showing signs of interest.

And there's really not a huge surprise there to us in the sense that the agencies have been looking outside, seeing what's happening in the commercial realm, and they have seen what works, right?

They see the emerging categories, whether it's in our category or messaging, and they're wanting to participate.

So until we actually get authorization and deals start transacting, we're going to be somewhat muted in terms of forecasting, but we're really excited to get the puck on the ice.

And that was our last question.

At this time, I will turn the call back over to the presenters.

Great.

Thanks.

Thank you all for joining us today.

We look forward to speaking with you again next quarter.

This concludes today's conference call.

You may now disconnect.