Samsara's Q424 results

Investment Analysis Clubs Saul’s Investing Discussions
1

I liked Samsara’s results, all metrics tracking well even without the extra week this year.

  • Revenue $276.3M +48%, +16.3% seq
  • Minus their extra week ($19.7M) it was +37.5% adj, +8.0% seq.
  • FY24 revenue $937.4M +44%, +41% adj
  • ARR 1.102B +39%, net new ARR 99M +39%
  • Q1 Guide 271-273M +33-34%, -1.2% seq, adj +6.4%
  • FY25 Guide +27-28%, +29-30% adj

FY25 guide was right where FY24 was initially guided (+28-30%) after factoring out the extra week. Mgmt noted Q125 will be lowest Q of year, Q4 strongest, so linearity same as FY24.

  • GM 76% +3pp
  • Op Margin 5% vs -8%, +13pp
  • op margin guided in Q1 to -3%, FY25 to 2% – lower in 1H, incr in 2H like FY24
  • FCF -44.0M -15.9%

Gross margin improved by optimizing cloud, cellular, warranty, and support costs. CFO & FCF impacted by a one-time lease settlement from a building vacated in Oct-21 – they owed $130M, settled for $60M.

CFO in remarks: Also of note, in Q4, we settled previously disclosed lease-related litigation. After vacating the building in October 2021, our remaining unpaid lease obligation was more than $130 million, and the settlement included a cash payment of $60 million. Given the non-recurring nature of this legal settlement, it is excluded from adjusted free cash flow.

Excluding that, CFO would be 6.6%, TTM 5.1% (continuing its positive trend), but instead moved -13pp to -15.2%. Mgmt factored it out of aFCF, to come in 5.8% +9pp. aFCF was guided to mid single-digit in FY25.

Equity dilution was 2.7% in FY24, vs 4.4% in FY23, and guided under 3% again in FY25.

  • Custs>5K 24.4K +26.4% … old Core
  • custs>10K 16.5K +32% … new Core
  • custs>100K +185 to 1848 +49% … 4th Q of record net new
  • custs>1M +11 to 82 +61%

Mgmt changed their core customer KPI in a good way, increasing it from>5K ARR to >10K ARR as the overall bulk of smaller customers has grown in size. Large customers grew faster +51% than overall +44% (accelerating from +50% last Q), growing from 48% to 52% of the mix.

Hit NRR target of 115% and 120% (both 5K and 10K definitions), and guided same target for FY25.

FY24 (vs FY23):

  • 9T data points processed (vs 6T)
  • 75B+ API calls (vs 50B)
  • 230M+ workflows digitized
  • 60B+ miles driven (vs 40B)
  • prevented 200K crashes (Oct’22-Oct’23)

-muji

101 Likes
2

Out of 10 Analysts who asked questions on the CC, 8 had congratulatory and/or otherwise buoyant things to say.

So just for fun.

Here are some shamelessly cherry-picked quotes from the CC, “edited for brevity”:


Keith Weiss "...congratulations on a really outstanding quarter. ...So, can you help us explain what was the unlock within Samsara over the last couple of quarters that has enabled you guys to accelerate and get to these levels of growth, which we're frankly just not seeing anywhere else in the software landscape right now.... ...Outstanding. Congratulations guys."

Matt Hedberg
"I offer my congrats as well, really strong year here. "

Alex Zukin
“…congrats on a truly remarkable quarter. I guess you had a kind of a trifecta largest net new deal, largest amount of $100,000 adds, and also what seems to be accelerating sales cycles, meaning your newest products are getting more traction, faster than even your previous cohort of products.”

Derrick Wood
"…congrats on just an amazing quarter and an amazing year.
I wanted to ask about the construction vertical. It seems like that’s coming quite nicely for you guys, now two quarters in a row. "

Matt Pfau
“Congrats on the results…”

Junaid Siddiqui
“You had an exceptionally strong quarter on the gross margin line.”

Jim Fish
"…great quarter, guys…You guys are doing really well internationally. "

Kirk Materne
“I’ll echo the congrats on the quarter.
…it feels like we’re scratching the surface in terms of where you could go within an organization even outside of operations.”


And IMO this exchange was particularly pleasant:
**Junaid Siddiqui**

Great. Thank you for taking my question. You had an exceptionally strong quarter on the gross margin line. I think you’ve talked about before that most of the leverage is going to be coming below the gross margin line. So, if you could just maybe expand on, going forward, should we still expect most of our leverage coming in, or should we see strong gross margin performance going forward as well?

Dominic Phillips

Yeah. I mean you even saw it in the results in Q4, gross margin improved 3 percentage points year-over-year, but operating margin improved 13 percentage points year-over-year. And so, I think that’s indicative of what to expect in the future that more of the operating leverage will continue to come from our OpEx leverage, sales and marketing, primarily again the cost of sale on a renewed dollar of ACV is much lower than it is when we land or expand ACV dollars. And then, obviously, we expect more and more leverage to come out of G&A as we continue to grow and scale. And so, I think that’s where I would point investors to looking for additional leverage.


--intjudo long $IOT, 3%-ish
47 Likes
3

One thing to note: Samsara changed its “core customers” from >5K ARR to now be >10K ARR. They made clear they hit NRR targets either way (115% overall, 120% large cust).

CFO in letter: “To reflect this trend, and to align with our investments for future growth, we are updating our definition of “Core Customer” to represent $10K+ ARR customers (previously $5K+ ARR customers). Less than $5K ARR customers (prior definition of non-core customers) represent just 3% of total ARR, down from 7% two years ago. Less than $10K ARR customers (updated definition of non-core customers) represent 8% of total ARR, down from 14% two years ago, and we expect this mix to continue declining over time.”

I don’t like when companies morph KPIs (move the goalposts), but this is a change I greatly encourage.

So now 8% of their business are customers below that revised “Core” threshold. (5% of them being that >5K but not 10K, 3% under). Core Customers are 39% of the mix. As I said up thread… Large customers grew faster than overall, to now 52% of the mix.

They also reiterated the same NRR targets (115%/120%) for FY25.

Land and expand metrics are humming.

IOT_IRQ424_customers
IOT_IRQ424_customers1954×1100 250 KB

-muji

75 Likes
4

Resurrecting this thread because of @wpr101’s comments on my old portfolio post:

Let’s be precise – if you’re talking about Q4 this is a comparison period where revenue was up 48% YoY. So 30% headcount increase (I can’t find where you saw this) is tolerable. But in general this isn’t even a metric I pay attention to – especially as we see operational leverage (aka profitability) improving each quarter. Are you seeing a trend or was this just one data point?

I’ll leave this one for more techy people to comment on…but it doesn’t seem to compete with Samsara’s core products…does it?

My take on the quarter

I was especially impressed with the large customer adds (which Muji also points out above), and the record ARR add, although we have to remember the quarter had an extra week in it. Growth won’t be 40%+ next year, but I think it will be solidly in the mid-30’s, despite the 28% guide. They’re quite the sandbaggers.

The only real issue for me is it’s a bit hard to know how durable the growth will be and how profitable they can ultimately be. Right now it’s around a billion of revenue which is similar to ELF. Samsara is not nearly as profitable as ELF…yet. But Samsara is the $20b company – twice the price tag of ELF. I think a lot is expected, and there probably isn’t huge upside in the next year or so. Unless we get to buy shares cheaper at some point, I’m keeping this one around 5% or lower.

Bear

21 Likes
5

Let’s be precise – if you’re talking about Q4 this is a comparison period where revenue was up 48% YoY. So 30% headcount increase (I can’t find where you saw this) is tolerable. But in general this isn’t even a metric I pay attention to – especially as we see operational leverage (aka profitability) improving each quarter. Are you seeing a trend or was this just one data point?

The headcount growth was mentioned in the last conference call, and it is comparing against 48% revenue growth with “just under 30%”, so it’s not as much as my initial post made it sound.

It’s also mentioned about half of these employees are sales. It could just be the cost of ramping up sales and R&D as they expand.

Looks like sales and marketing expense was recorded at 133M (48% of revenue) spend compared to 97M (51%) of revenue so it is coming down as a percentage of revenue year over year.

Here’s the passage from the last call about this,

Analyst
Got it. Then maybe as a follow-up on the back of that. How should we think about the expansion of sales capacity into the forward fiscal year?

Dominic Phillips
So I’d say we – our ending headcount, we grew at just under 30% in FY '24. I would say that our headcount in FY '25 will grow at least at a similar rate. Again, we’ve got big market opportunity. And so we’re still aggressively hiring into FY '25. Similar to previous years, about 1/2, maybe just under 1/2 of our overall net headcount additions will go into sales and marketing.

And a portion of that is quota capacity that will lead to investments for future growth.

On competition I am not sure yet how much Nvidia’s solutions here will go head to head with Samsara. What I can say is the focus of the GTC keynote was industrial operations and emphasizing how physical operations are benefitting from Nvidia. Gaming was not mentioned a single time during the two hour keynote, and this is coming from a company which product line used to be dominated by gaming.

I’d also be interested to hear if other board members know if this if Nvidia’s digital twin is a competing or overlapping product, or if it’s something entirely different. The digital twin seems more like simulation of factory conditions. Here’s the full two hour keynote speech,

UPDATE: I wanted to add more info on Nvidia’s potentially competing product, which is called Nvidia Metropolis. Metropolis | NVIDIA

It is a “intelligent video analytics platform” with the headline being, “Transform data from trillions of IoT devices into valuable insights using vision AI.”

NVIDIA Metropolis is an application framework, set of developer tools, and partner ecosystem that brings visual data and AI together to improve operational efficiency and safety across a range of industries. It helps make sense of data created by trillions of sensors for some of the world’s most valuable physical transactions. These include frictionless retail, streamlined inventory management, traffic engineering in smart cities, optical inspection on factory floors, patient care in healthcare facilities, and more. Enterprises can take advantage of Metropolis developer tools and ecosystem to create, deploy, and scale AI and IoT applications from the edge to the cloud.

Here’s a promotional article on how Electronics giants are using Metropolis, Electronics Giants Tap Into Industrial Automation With NVIDIA Metropolis for Factories

Leading Taiwanese manufacturers — including Foxconn Industrial Internet, Pegatron, Quanta and Wistron — are adopting Metropolis for Factories to handle automated optical inspections.

And one more video link about how they are competing in the 40B TAM for manufacturing, https://www.youtube.com/watch?v=xk1O2o6Fvbo

I was especially impressed with the large customer adds

The large customer adds was an impressive standout. To be clear I’m still bullish on the company and holding shares, the above two issues were questions that came up which lowered my conviction moderately. I’d trust the reported numbers over theoretical competition concerns.

18 Likes
6

My posture on the signals released by employment numbers is based on confidence in management. Great management accurately interprets market potential, so employment numbers are predictive of the of the future from management’s perspective. At this juncture, I feel IOT management action on employee numbers offers insight on their degree of confidence in revenue growth in the next couple of quarters.

Graydrake

9 Likes
7

I figured out why I had initially said that employee count is growing at the same rate as revenue, highlighting this part

Our ending headcount, we grew at just under 30% in FY '24. I would say that our headcount in FY '25 will grow at least at a similar rate. Again, we’ve got big market opportunity. And so we’re still aggressively hiring into FY '25

For FY’25, they are projecting 27-30% revenue growth and above they wrote that they will at least be growing headcount at the just under 30% metric which is exactly their revenue projection. I’m keeping in mind this company is a historic sandbagger, so if things go well revenue will probably come in close to 40%.

Why is this concerning to me?

When I look at my other SaaS companies the board follows, Samsara is a big outlier here. Some other SaaS companies the board is interested in have these year over year growth in employee headcount,

Cloudflare 14%+
Snowflake 14.2%+
Monday 5.9%+

Monday is projecting slightly less revenue growth as Samsara but adding 1/5th of the employees, and Monday is hiring primarily overseas where the cost per employee is lower.

Just some rough math to illustrate the point, Samsara currently has about 3,000 employees and they say they going to add roughly 1,000 employees in the coming year. If we assume the cost of employee for the year to Samara is 200k, this is adding an additional 200M of expenses. This in turn means the path to profitability is much farther away, than it is to a Monday. Samsara is going to have a worse operating margin hiring at this pace.

I’d prefer Samsara to be saying to something similar to Cloudflare which is aggressively cutting underperforming salespersons and replacing them with more efficient ones and optimizing their go to market. Is Samsara optimizing their go to market? I haven’t heard them mention it.

Better yet is a company which can grow revenue without needing to expand hiring massively. One company I’m researching currently is growing revenue at 50% and said no need to expand SG&A, they already have the sales capacity in place.

I’m also looking at two of my companies which have the best GAAP bottom lines, and they have surprisingly low employee counts,

Elf - 340 employees
Nvidia - 27k employees

20 Likes
8

Samsara delivers a complete solution; Nvidia is providing a set of tools and frame worker. The question is whether other companies “partners” will use what Nvidia’s providoing to compete with Samsara. I think the answer is effectively no.

I didn’t initially invest in Samara because I saw what they were doing as nothing unique. Lots of companies offered (and still offer) geo-tracking services. What I eventually realized was that Samsara wasn’t just geo-tracking things, but was offering a complete solution for tracking anything. Samsara doesn’t offer point products, but a fully integrated system that works with anything else you already have in place. Reading the Nvidia description makes it seem at first glance that they’re targeting larger companies doing their own integrations. I could be wrong on that, though.

As for the headcount increase for Samsara, given their model of completely integrating, they need engineers to do those integrations. And they probably need sales people to sell companies on adopting the product.Samsara isn’t the kind of product that sells itself, people have to be convinced it’ll work for their particular use case/application. So, I’m OK with the headcount increases, but that’s just at a high level without knowing any details.

20 Likes
9

Interesting. Samsara disclosed their total headcount in their 10K:

We have increased our headcount from 2,266 employees as of the last business day of the fiscal year ended January 28, 2023 to 2,895 employees as of the last business day of the fiscal year ended February 3, 2024.

So that’s 27.7%, or 629 employees.

However this is the full question and answer, from this transcript

Question: Keith Weiss

Got it. And then maybe as a follow up on the back of that, how should we think about the expansion of sales capacity into the forward fiscal year?

Answer Sanjit Biswas:

[…]We grew it just under 30% in FY 2024. I would say that our head count in FY 2025 will grow at least at a similar rate. Again, we’ve got a big market opportunity. And so, we’re still aggressively hiring into FY 2025. Similar to previous years about half, maybe just under half of our overall net head count additions, will go into sales and marketing.

So half of the 600-odd employees added in the year were S&M employees, and half of the 870 or so that they plan to add next year will also be S&M employees. Not sure if that gets me worried tbh. I believe that DDOG, SNOW, CRWD also grew headcount at a similar pace or even higher when they were at a similar revenue scale as Samsara and they only recently pulled the brake, because they had to. So for me this is a sign of strength, not weakness, but happy to hear other opinions.

-wsm (Long IOT 5%).

23 Likes
10

IMHO NVIDIA is not directly competing with Samsara … but its fuzzy. Better to focus more on competitors in telematics and video safety platforms, and possible disruptions to the industry from here.

NVIDIA provides software tools over GPUs in Omniverse for IOT and camera analytics, and some of these have relevance to Samsara. Omniverse is for industrial digitization of factories, mostly around robotics and traffic flows, as well as auto mfr and AV. (If anything, Omniverse is a direction Samsara QUIT as it dropped its industrial line.)

NVIDIA provides some raw software tools (over GPUs) that are adjacent.

Samsara does CV analytics in its Video Based Safety and Site Visibility products. It provides a turnkey platform for these via hardware and software. Samsara may even be using NVIDIA tools in any centralized AI (over GPUs). But not in in-cab cameras.

Most of relevance is NVIDIA’s Metropolis, a camera-based analytics platform (CV) over video feeds. This could be used to build a competitor or allow a customer to DIY parts of Samsara’s stack… mostly centralized CV analytics such as in Site Visibility. But that is one part of a holistic platform for Samsara. (And a very small part of their biz vs veh & equip tracking.)

NVIDIA Holoscan is their IOT sensor platform (mostly for medical devices but also edge AI). I suppose this could be used to replicate Samsara’s core veh telematics. But its built on GPU workstations and is NOT relevant for vehicle analytics. Fleet mgmt dash cams are doing in-cab AI over video feeds and sensor data, but these don’t leverage a GPU— these typically use an Amberella CV chip for onboard CV analysis. So anything on-device (in-cab) isn’t using these GPU products. NVIDIA’s own automotive-focused GPU chips are used for AV and in-dash assistants, but these are still pretty nascent.

So these are tools that Samsara or competition might be using centrally, but are unlikely for any in-cab cameras. Bigger question for Samsara is what EV/AV platforms (like NVIDIA DRIVE) does to fleet telematics as those fleets electrify. This may show you why Samsara is focused on broader fleet mgmt platform over veh, equip and sites. They work with OEM sites as part of this, and I think will do so for EV OEMs as well.

-muji

43 Likes
11

IOT is certainly good enough to be on my radar due to what they do in their business and the revenue growth, but for me it remains uninvestable due to it’s miniscule profits and the slow growth of same.

“But look to the future! They could be big and profitable!”

Probably they WILL grow a lot. Big profits? Unclear to me in the medium term (2-5 years). I prefer companies that are growing those profits quickly now and those profits are not yet adequately recognized by the market. Do those companies exist? Yep…

“But look at how fast the stock is rising!”

Impressive. But I buy based on how a company is doing… and letting the share price be a byproduct. IOT made $0.07 per share last year… and Yahoo has them down for maybe $0.12 this year. Huge growth! But how long does that huge profit growth have to keep growing to justify even the current share price? Note: Forward PE is around 260+… takes a lot of compounding to bring that into breathable air.

“But Rob! You don’t understand!”

No doubt I have things to learn. But I try to understand where “opportunity”, “hope” and “reason” converge.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

31 Likes
12

Probably they WILL grow a lot. Big profits? Unclear to me in the medium term (2-5 years). I prefer companies that are growing those profits quickly now and those profits are not yet adequately recognized by the market. Do those companies exist? Yep…

Same here, I’m looking for companies which are able to grow bottom line EPS along with top line revenue. Super Micro and Nvidia have been two of the biggest gainers this past year exhibiting these characteristics.

Curious if there’s any more names you like right now that are growing earnings well?

With the interest rate at ~5% I don’t see the market rewarding revenue growth only. I’m also seeing the current market reward companies which are able to reach profitability.

IOT made $0.07 per share last year… and Yahoo has them down for maybe $0.12 this year. Huge growth!

I believe these are the Adjusted EPS numbers too meaning stock based comp and other expenses are factored out.

On Koyfin it’s showing the Diluted EPS which factors in things like stock options going from: -0.13 → -0.11 → -0.08 → -0.21, so the most recent quarter has a bump down in Diluted EPS, or it’s going in the wrong direction.

Will Samsara reach profitability at some point? Most likely yes, but if the timeline is years out and the stock is priced highly within the SaaS category, I’m not sure it will provide market beating returns.

11 Likes
13

Just names familiar to folks here, I think. Nice write-ups available on Seeking Alpha.

I have positions in these:

  • APP
  • CELH

I also have large allocations with NVDA and SMCI, rounding out most of what I call my portfolio… even though I’ve been told on this board that I don’t have a portfolio because of my large allocations. I also have very tiny amounts in ARBE and PGY… PGY is worth watching, IMO, but I’m not convinced to put real money behind it. I’m also closely watching TSLA… a very complex set of situations with that company with a lot of optionality. I did very well with it last year but moved the money into NVDA this year.

Good returns so far… somewhere around 300% YTD.

Rob
He is no fool who gives what he cannot keep to gain what he cannot lose.

19 Likes
14

From Clouded Judgement today. CJ assesses fundmentals of all the fastest growing cloud based companies. IOT has remained among the top of this list in most categories.

image
image1430×745 216 KB

Graydrake

22 Likes