Smartsheet Inc. (NYSE:SMAR) Q4 2023 Earnings Call Transcript

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Operator: Your next question comes from the line of Michael Turrin with Wells Fargo Securities. Your line is open.

Michael Turrin: Hi, great, thanks. I appreciate you taking the question and nice job with the close of the year. I think given the prepared remarks, the focus on enterprise is clear. Could you just speak to how margin complements that? We think that could prove more people heavy, but clearly not the case, given you’re giving 10 percentage points of implied free-cash flow margin expansion into next year. So can you just add more on what enables that from the Smartsheet side and how you’re able to balance both in enterprise focus, and the margin expansion in the current environment?

Pete Godbole: Sure, so Michael, two-parts of it. The first one is, when you think of the enterprise customers and you think of their growth rate they have, that’s a really high number, sort of, is better than our average by a fair bit. And what they’ve done for us is, it creates a space where, if you’re looking at our growth and you’re looking at how much we invest in retailing the dollars we’ve already got, that’s a fairly low number. So that provides the basis for the margin accretion. We are investing in getting the new dollar, but the base is growing, but such a large number that it provides natural scale impact benefit to sales and marketing. So that’s one part of the equation. And the second part of the equation is just a simple part of, we hired a lot of people last year given the size at which we are, we don’t need to hire the same number of people and that lower hiring that we’re going to go through this year is margin accretive.

Those are — think of them as two simple facts that really drive the margin story.

Michael Turrin: That’s helpful. And then, I guess just the other point that you mentioned in the prepared remarks, Pete, was just also making sure you’re able to capture the improvement whenever that were to surface in the world. So it sounds like you have some natural capacity to grow into? But just how you continue to thoughtfully add capacity to make sure you’re striking the right balance?

Pete Godbole: Yes, for us, we are sales assisted motion and now we shared it with obviously the self-discovery that makes that motion goes faster. But if you think of our — the way we’ve modeled it, we’ve modeled our sales productivity in line with the way we think the macro is going to play. If the macro changes and it turns on us, you will see a ramp in sales productivity, because we’ve already got a ramped sales force we brought in this year, that’s now enabled with the best techniques. So we’re ready to get there. That’s the upside we see as the environment changes or as Mark mentioned, as we see the benefit of some of these things which we can measure, we can put more energy behind those initiatives and drive upside to the current plan we have.

Michael Turrin: Thank you.

Operator: Your next question is from the line of Pinjalim Bora with JPMorgan. Your line is open.

Pinjalim Bora: Great. Hi, guys, thank you for taking the questions and congrats on the quarter. Mark, good to hear that you’re kind of leaning in on generative AI. Maybe help us understand some of the use cases, but more fundamentally, how do you differentiate with generative AI when everyone is kind of rushing to implement those large language models? Do you think it becomes kind of table stakes at some point versus kind of increasing comparative advantage?

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