Scott Berg: Got it. Helpful. And then, Mark, you talked about a lot of several new modules that are coming out, whether they’re AI-based or other items here this fall and into next year. But how should we think about what might be the next Advance or the next Data Shuttle or control center, something that will have a meaningful cross-sell opportunity that we can talk about maybe 12 to 24 months.
Mark Mader: I think a few things we’ve had in the portfolio, Scott, that have not been fully presented to all of our customers will be presented to them in the coming years. So when I think about the value we delivered to certain customers with our advanced resource management, our Brandfolder experiences, you should expect those to come mainline in the coming year. So what I mean by that is the average user who are [indiscernible] with Smartsheet will have a pathway to seeing what those platforms can provide and start to engage with those. And I think the largest — one of the largest revenue opportunities for us is in getting these capabilities into more hands of our — into the hands of more customers. Today, we are mid single digits penetrated on our capabilities.
It already produces contributes north of 30% of our revenue. So I think one of the fastest path in our next $1 billion of ARR is to really proliferate this value into the base. So I think we are always tempted by the next newest thing, Gen AI is a great example of the next newest thing that we acted on, and I think it’s going to bring a ton of value. But as you’re doing that, don’t forget about what’s in the portfolio and how you maximize that. And I think that will be actually as big a chapter in our history as Gen AI will be.
Scott Berg: Excellent. Congrats and thanks again.
Operator: Your next question comes from the line of Keith Bachman with BMO Capital. Your line is open.
Keith Bachman: Hi. Many thanks and the cash flow performance looks particularly solid this quarter. So congratulations on that. I wanted to go back to the dollar-based net retention, though. You mentioned for a prior question, you didn’t want to call the bottom. But what are the contributing factors taken it down from, say, 121 to, I think you said 116, 117? I’m just surprised because a lot of the comments have been stabilization product portfolio is actually improving, may not contribute near-term. But what are the contributing factors from there? And at least how do you want us to think about the puts and takes associated with where that may stabilize because it sounds like the portfolio is getting much richer, but don’t want to get too far ahead of yourself, but maybe any puts and takes we should think about? And what are the contributing factors taking it down to the 116, 117.
Pete Godbole: Keith, so when I look at your question and I break it down, I would go back and say you’re going to find that there’s three elements of it. There’s gross churn, which isn’t changing a lot, there’s reductions which are, I call it, picking up modestly, not a lot, but just sort of moving up with the pace of the economy were in, it all comes down to net expansions and how that’s moving. So our view on net expansion is, as you look at the progression of the quarters and the play through, we are going to continue to see net expansions be pressured. Especially, I mentioned elements like transactional business that’s growing, that transactional business hasn’t recovered. It’s still facing the pressures of the macro headwinds we’ve seen. So that’s what’s contributing to this.
Keith Bachman: Okay. And anything you want us to keep in mind as we look out over the horizon, again, it just seems simplistically your portfolio is getting better.
Pete Godbole: It is getting better. Keith, the only thing I’d say is the laws of physics apply to anything you put out there. When you think of all the things Mark mentioned, we are super excited about those. Thousands of customers who’ve never ever purchased the capability, get to experience it. But the time it takes for them to try the capability, experience it, go through their process of how it applies to their work, all of that takes time. So I don’t see that as contributing. We haven’t built that into the contributions into the back half of the year. That’s the wait and see after they’ve tried it.
Keith Bachman: Okay. Well, let me transition to Mark for my second question though, particularly interested in the free-to-paid scenario. And is there any dimensions you could give us about what that ratio looks like? In other words, what is your installed base in total and how much of that is paid? And how should we be thinking about — you mentioned Gen AI. I agree could be a contributing factor to maybe changing that rate to get greater conversions. But anything you want to call out? And if you could give us some more specifics on what does that installed base look like today?
Mark Mader: Yes. I think what I’d be comfortable sharing is that the majority of the people who engage on the platform today are free collaborators. So those people have been invited to paid instances of Smartsheet and they are contributing. Many of them contribute actually changing data, not just viewers, but actually participating in workflows. We see that population as the most I guess the deepest vein we could probably tap in getting them to flip to paid. We don’t give a hard ratio. I think it is useful to see that it is the majority of people engaged in Smartsheet today. So we’ve run this play for, what, 18 years now, where we’ve had the paid creator who — or the paid licensee who can create and everyone else is basically free participants.
I think the reason we’re able to make this move now is because the portfolio has just gotten to the point where so much value is available. And we’ve made a decision on certain things that deliver a ton of value. It just doesn’t make sense to have that just freely distributed to everyone. So — but this is really the first time we are doing it. And I think there’s — we will remain, I’d say, leading in category in terms of what those participants can do. But we are also — we also very much believe that we should get [technical difficulty] value for the — paid for the value we delivered. And I would say in the next two quarters, we are going to learn a lot about the reaction. Your question around when shouldn’t you start benefiting from that?
I think we will benefit from that. But again, it comes down to timing, right? We give a guide for NDRR for end of the year. We also shared that we aren’t going to be flipping GA likely in the second half of the year. So it really is in FY ’25 on type opportunity. And we will articulate that as we head into next year.
Keith Bachman: Okay. Fair enough. Many thanks. Look forward to seeing you guys in a couple of weeks. Cheers.
Mark Mader: Thanks.
Operator: Your next question comes from the line of Michael Berg with Wells Fargo. Your line is open.
Michael Berg: Hi. Thanks for taking my question. Just one quick one — philosophically on guidance. You had a very strong quarter across the board, but didn’t raise billings guidance at all and only raised by the beat for the rest of the metrics. Maybe just help us understand are you incorporating incremental conservatism just given what you’re seeing in more stabilization on macro? Just would love to get your thoughts on if there’s any change in the guidance philosophy. Thank you.
Pete Godbole: So Michael, no change in the guidance philosophy. Obviously, given the macroeconomic forces we’ve seen, we’ve just embedded that conservatism into our thinking. Now you mentioned that we haven’t raised the guide. If you think of the two ends of that guide, we actually raised our guide on op income quite significantly, if you notice, we beat by about $11 million this quarter, and our raise at the midpoint is about $17 million. So we are taking that approach as we think — thought about [technical difficulty] raise as we sort of progress through each quarter.
