I think Mike and Dom would like to hear, you know, save the best for last, right? But, yeah, I mean, you guys are one of the most requested here at the conference, and appreciate you guys making the trip out. Dom, it's great to have you, of course, Mike, as well. You know, there's been a lot of hype around you guys, especially you're one of the few companies that are out there actually, like, showing gross sustainability, right? Gross sustainability and pretty impressive margin accretion. So kudos to you guys. But, you know, one of the questions we keep getting is around this kind of gross sustainability and, and sort of what's driving that.
You know, walk us through kind of the puts and takes around that, that's causing the difference that other software companies, you know, are struggling with.
Yeah, I think, I would call out a few different things. The first is the business model is a little bit different than some of the newer software companies. This is a traditional subscription-based model. We price the number of physical operations assets that customers have, but because it's a subscription model and we sell three-five-year licenses, we have a lot of visibility and predictability into what future revenue will be, and so we can set expectations with a lot of confidence. The second thing I'd call out is the buyer of Samsara is different than some of the other software businesses.
We sell into the operations budget, the line of business, and for our customers, that tends to be a very large budget and less discretionary than it is within the world of IT or selling into the CIO. In fact, we did a recent survey, and two out of three operations leaders that we surveyed said that they were actually going to keep their budgets flat or increase them for their technology spend. I think that looks a little bit different over in the CIO world. The third one, and maybe most important, is that customers deploy Samsara for real hard ROI savings.
So if you use Samsara, customers will save money on things like the amount of money they spend on fuel and maintenance, they'll get into fewer accidents, they'll lower their insurance premiums, they'll increasingly meet their sustainability goals. But there's real hard ROI, and the payback period of their Samsara investment tends to be very quick, within months. So I think all three of those have really allowed us to drive sustainable high growth.
So, you hit up on the ROI side here already, but how do we think about underpenetrated market or a greenfield opportunity versus just there's a ton of competitors out there, they're just not addressing this properly?
Yeah. So we sell multiple products all on one platform. In fact, we have three different product categories that are all more than $100 million of ARR, each of them growing more than 30%, year-over-year. And the dynamics of each of those different product categories are a little bit different. So our largest product category is Video-Based Safety, AI Dash Cameras to improve driver behavior and safety and reduce accidents. That's a market that's very much a greenfield market.
Less than 5% of commercial vehicles in the United States have a dash cam and are running a safety program, and so often we are replacing the cost of accidents and insurance with, you know, with the Samsara investment, and the customers are able to save even more money. Our second largest product is telematics. That market has, in some shape or form, been around for decades. Forty to 50% of commercial vehicles in the US have a telematics solution. That tends to be much more of a replacement cycle. Connected equipment tends to be more greenfield, and so overall, these customers have again been very underserved by technology, and they're really in the early innings of adopting technology to improve their businesses.
Some of the products are a little bit more of a replacement, but the majority of them are putting technology in where it didn't exist before.
And, you know, a big debate here we get with investors is competitive differentiation, especially when you want to start talking about the enterprise customers out there. And you guys actually have multiple use cases and, you know, obviously, you just had your user conference and released a couple of new products, right? So what differentiates Samsara and why is this resonating with the enterprise market, notably where incumbents have been in the space longer, potentially have more connected assets? How is this, you know, contributing to that sustainable growth here?
Yeah. So I think about, you know, our competitive landscape on four different vectors. We sell into many different customer segments, so we sell mid-market and enterprise. We have multiple products, as I said, all on one platform. We sell into many different geographies. We're in U.S., Canada, Mexico, Western Europe, and we sell across many different end markets. Customers in, like, field services and construction, utilities, transportation, that make up 40% of global GDP. Across each of those different vectors, we see a different set of competitors, point solutions, or greenfield opportunities. I think some of the biggest reasons that we're winning is because we are collecting a tremendous amount of data, more than 6 billion data points, every year.
And because of the breadth and the amount of the data that we're bringing in, we're able to provide unique insights across a customer's broad set of operations, and in a way that is just not able to be replicated by other competitors. We are really having a lot of traction in enterprise. 50% of our ARR now comes from large customers, and we've made a lot of investments in both go-to-market and R&D to address that customer base, and I think that really differentiates us. And the third and maybe simply is just it's really easy to use. Customers can get up and running with Samsara within minutes. You can deploy a device, turn it on, connect your asset to the cloud, start collecting data, and really make changes...
The way that you run your business, you don't need to hire a big system integrator to come in and redesign all your business processes to really drive value. You can get up and running and implement it very quickly.
Yeah. I mean, we had our customer conference in June, and we spoke to a lot of different customers. I would say one of the key points of feedback for them, which is what they're looking for, is actually a single pane of glass. Like, they're, "Hey, we have six different or eight different screens trying to monitor our business. We want a single pane of glass." I think to your question, like, what's—that's why I think our largest customers, what's very important that we do, is like we have the system of record that for operations, no one else is doing. So like, as Dominic mentioned earlier, a lot of different competitors, all in different, like, silos. No one's taking this universal system of record approach that we're taking.
Yeah. So maybe getting into one of those silos, I think, a lot of excitement around this. I want to say, like, not a fleet, but equipment monitoring kind of use case, right? Where you're starting to see, I think that's a fact part of your business today, if I remember right. You know, can you speak to that cross-sell opportunity and, how that's acting as either a spear, potentially, with, with some newer customers or newer verticals, and, how you're- how that might change, you know, your go-to-market strategy?
Yeah, so, our beachhead into these physical operations customers continues to be the vehicle-based applications, both safety and telematics. We now have this third product category that is tied to non-vehicle assets, field assets, things like a trailer, a dumpster, a compressor, a generator, you know, heavy-duty construction equipment, like a crane. And across all of those different types of assets, customers they want visibility into where these things are, and they want to understand how they're being utilized. And what's interesting is that because of the diversity of these non-vehicle assets is so great, it tends to be a pull from customers.
So we will land with our standard kind of telematics and safety-related products, and then customers will identify other assets that they would like to connect and get visibility into the Samsara cloud, and they'll come up with use cases and pull us in. So that product category, as you said, is, it's now over $100 million of ARR, growing north of 30%. It's our fastest-growing product category, and it tends to be much more of an expansion motion.
And I think that's part of the thesis. When I think about the software landscape, I can't think of many software companies can provide, like, real hard tangible ROI like we can, that they can actually measure. And so when customers deploy our product, Telematics, for example, across their fleet, and they're like: "Wow, I'm getting all this valuable benefit from deploying across vehicles," they're like: "Wait, I have all these other non-vehicle things. I could just deploy Connected Equipment also." So that's how we get the natural pull, is because they actually recognize that hard ROI, and they just want more of it.
Yeah, and so maybe to your point, Mike-
Yeah.
You're bringing up ROI here, and I think whenever we have an investor conversation, they're like, "You know, what's going on here?" And it's just like, these guys provide such a big ROI across these use cases. To your point, I think a couple of months' payback periods in some of your customers. Is there a big ROI difference that you can provide between telematics versus video safety versus this kind of equipment monitoring category? And it does tend to be, in occasion, different buyers, so how do you have that, you know, initial buyer kind of champion for you for that other person in the organization?
So for these three main product categories, it does tend to be the same buyer. It tends to be an operations leader that is responsible for all the physical operations assets, all the frontline workers, and all of the supplies required to run these assets. So, you know, fuel and, you know, and insurance and maintenance and all of these things. So it's very natural for us to sell them to the same buyer. And that's frankly, what often drives our product roadmap. It's us going out and talking to customers, getting feedback on what else they want to see us build, and then executing on that, versus us showing them what they should ultimately deploy. It often comes from customers.
I think on the ROI point, like we've been talking a lot about this core ROI concept, like common ROI that any company gets across any industry. I think what's been the most exciting for me is when I go to the customer conference, like hearing how other people are using it, getting extension, kind of expansion ROI. And by that, I mean, like expanding it, attaching it to different systems. So like we talked about, like, talked to a customer, and they attached it to their tax system, for example. Now, instead of getting taxed at the corporate rate, they get taxed by where work gets done, and they're able to optimize taxes, and I think that customer is saving, like, $10 million per year. We have other customers doing different things, but I think that expansion, that integration to other systems is pretty powerful.
Yeah, I think in this kind of age of optimization across environments like that, that's huge, right?
Yeah.
And for these customers, I know it sounds kind of crazy, but one of the biggest ROI benefits is just knowing where these assets are. I mean, they, they spend so much money on these assets, and they have such broad operations, that often they, they have to buy new assets, or they have to rent equipment to get the work done because they don't actually know where these things are. And so visibility and understanding the utilization of these assets is a, is a, is a huge ROI driver.
Yeah, I think I'm going to have to attach it to my-
Right.
Maybe just keeping on the kind of... We talked about some of these newer products out of the user conference and Connected Forms, Mobile Experience, and can you talk to that opportunity that that can provide to you in terms of that value creation that you can have with the customer?
Yeah. So I think it, the majority of our products today address physical operations assets, whether that's a vehicle or, again, something on the field or in an equipment yard or factory. And now we are extending into improving the worker experience. So all of the frontline workers that are operating these assets are actually getting the work done. How can we extend Samsara into improving their work life, into digitizing documents, creating forms and inspections and work orders, routing that work within the organization, and being able to do all of that from the Samsara application? And we've done components of this around vehicles, like vehicle inspections and capturing documents, and now we're extending it into other industries and opportunities as well. And so now you'll see us.
... move beyond assets into workers. You want to talk about MEM?
Yeah. I mean, MEM is a great product, too. Mobile Experience Management essentially allows us to really get more control of the device that these workers are using. When they're out in the field, they typically have some type of mobile device. What happens is, you know, these workers sometimes may not understand how to use the app, and so MEM allows someone from the back office to basically remote in and teach them how to use the app and basically get workflows done. They also put limits around how they use the device. So for example, if someone's driving, it may limit the number of applications they can use, so they're not, like, watching Netflix while they're driving, or YouTube. They really focus on the compliance apps that are required to do their job.
Got it. Look, I know you said, you know, you use those kind of telematics, fleet video safety as kind of that spear into that organization, and these are add-ons that we're talking about to create for their value for the customer. But is there ever a point where you could see that the non-fleet stuff could actually become that spear into the organization? Is there a line of sight to that?
It happens today. It's just rarer, and I think that as these products grow and scale over time, maybe those opportunities open up more and more. But the kind of the commonality across all of these industries and customers is that they tend to have vehicles as, like, the backbone of their operations, transporting goods, transporting people out in the field, getting, you know, field services related work done. And so that is likely gonna continue to be our entry into an organization. And then again, because of the diversity of all of these other types of work and assets, that likely continues to be a pull.
But there are many examples of customers landing with like, for example, equipment monitoring first and then, expanding into the vehicle-based applications after. It's just, it's just likely to be more rare.
Got it. And, you know, AI's always been a thing for you guys. It wasn't, you know, all of a sudden November of last year, it's AIs for you. It's always been part of that story, right? And not just the story, the reality here. So my question really is about how are you first using AI internally? Just remind us how you're using it internally. Are there gonna be new use cases for you internally with some of the developments that you're seeing, helping, you know, especially as you as the CFO on sort of cost optimizing the business or, you know, doing stuff better internally? And then how should we think about that external use case as any new products that could be, you know, a use case down the road?
So for us, we view AI as a tool to allow us to provide more business value to customers. Customers come to us because they want ROI, they want real business value, and if we can use AI to provide that to them, that's a great outcome for us and for them. We've been investing in AI technologies for the last four-five years. We've got a large data science team internally, and we've deployed it into many of our products, including our largest Video-Based Safety. If you think about Forward Collision Warning, and Lane Departure, and distracted driving, all of that is us taking the video data that we're capturing and training models and deploying them at the edge, and alerting drivers and the safety managers.
So we've been doing this now at scale for many years. We'll continue to make that a big priority of investment, and I think some of the newer generative AI-type technologies are a component of our overall AI strategy. I think down the road, it could be more beneficial product opportunities for customers. I think more near term, it can help us be more productive within R&D and even in areas like IT and business systems, to develop code and be more productive and get to market faster. But again, to your point, it has been a big part of our DNA, and we'll continue to be.
Got it. Makes sense. And now you, as the CFO, we, we gotta start asking you some financial questions, right? And, look, you're one of the few companies that we cover, let alone, you know, some of my software peers cover, that maintains net retention rates in this environment. When you see most falling, you, you're actually able to actually see sales and marketing spend go down a little bit here-
Uh-huh
... and overall spending, and yet your net new ARR was a new record, right? So, you know, kudos to you on that. But big thing that you and I always talk about is productivity, and productivity per rep. So how do you think about it? How do you think about, you know, how much more leverage you can get from that sales and marketing line?
Yeah, I mean, capacity, sales rep capacity is a key input into our future growth. Sales reps, you know, new hires take roughly four quarters to ramp. They can take longer in some of the emerging products and geographies. You know, but I am constantly looking at things like net new ACV or productivity per ramped sales rep, and we're using that as a meter to determine if we should be hiring faster or we should be hiring slower. The balance is not having productivity go up so high that we should be hiring faster to capture more growth quickly, and not having it drop too much such that we are cutting accounts, and territories, and opportunities too fast, such that it could create risk within the sales organization.
And so really finding that balance is something that we strive to do, and we use that to, again, gate our, you know, investment profile going forward. But we feel like we're at the right balance now. We are seeing good productivity. We are seeing a lot of good customer demand for all of the reasons that we talked about in the first question around the operations budget. But it's something that we continue to monitor and we'll use to kind of guide our investment profile.
Got it. Before opening up with, roughly six or so minutes to go, one question I had for you was around gross margin. 'Cause let's face it, you have this nice long-term model and, and have laid that out, and you're already there at 75% or so. Walk us through the puts and takes of, of that and, if there is a much of a difference on gross margin between the, the sort of fleet-focused offerings, the telematics offerings, versus, essentially the non-telematics?
I think that we are not likely to see a lot of additional leverage out of gross margin, especially while we're growing very quickly. Our long-term model was 74%-76%. We did 75% in Q2. There were some timing benefits there. We expect to be in the kind of low 70s for the year, as we laid out in our last guidance. I think there's some additional cost optimizations. I think there's some pricing strategy that we can implement to potentially push that a little bit higher. But the majority of the leverage in this business, going from kind of free cash flow positive today, to where we expect to be in the long-term model, will come below the gross margin line item.
The largest expenses we just discussed for us is sales and marketing, and there's a lot of additional leverage opportunities as we scale this business to make improvements there and show the, you know, more bottom line leverage.
Got it. Any questions from the audience? Otherwise, I'd do a few more. Let's run them back.
Yeah. It's managing assets at scale. You know, so if you have thousands or tens of thousands of assets, you know, all kinds of different types of assets, some of them are powered, and so understanding the kind of the utilization of some of these assets, a crane, a forklift, there's a reefer on a trailer. And so there's much more than just an unpowered asset, understanding the location. There's some Telematics and utilization components to this. But really, it's being able to deploy this across thousands or tens of thousands of assets at scale, and having real-time visibility into where these things are is the value that we're providing to customers. Yeah, we haven't seen any legislative tailwinds in Video-Based Safety, and it's our largest product.
It wasn't even the first product of the company, and it's growing quite quickly. The legislative push within telematics was really just focused on the trucking industry, around like long-haul trucking, which is at kind of a fraction of our overall customer base. So the biggest driver of growth for the business will be the ROI that we're providing the customers, the cost savings, the safety benefits, the sustainability tracking. Those are much larger drivers of growth than you know being pushed by compliance and legislation.
Yeah. I think on the safety side, it is really, it's getting increasingly important, though, because the payouts are getting larger. These lawsuits are getting so big. These insurance providers are all increasing their rates. So I think either way, if you know, for insurance, you're going to get... Whether you self-insure or whether you pay insurance, you're getting pressured. The ROI is increasing. And then I also think from, you know, just the pure, like, there's, I think, investors and employees demand more visibility into the safety scores, like deaths or near-deaths type of thing, for businesses. And so there's more, they require more transparency around that. So because they require transparency, they want to improve that metric.
Absolutely. So I would say for the mid-market customers that are using external insurance providers, we have a number of integrations with them. They often serve as referral partners for us. And we have a number of arrangements where if a customer uses Samsara and we provide the data to the insurance provider, they can better price that risk and will provide a subsidy to their customers. A lot of the larger customers are self-insuring, and so are finding value just in the reduction in accident payouts.
So about a minute or two left here. Look, you're not going to guide here for next year. I mean, I'd welcome it and, you know, we'd have... But especially with seven minutes to the market close, too. But you know, walk us through the puts and takes as you're starting to think about calendar 2024, whether internal or actually from, you know, a top-line perspective. If there's anything to think about, obviously, you've mentioned proactively the extra week in Q4 and how to think about that for calendar 2024. As well as the impact of what was a former colleague and is now a colleague in Lara as president of Worldwide Field Ops.
Yeah. So, we're still... We just finished the, kind of the midpoint of FY 2024, calendar year 2023, and so we've got a lot of execution to do for the back half of this year that is really going to drive, you know, what our plan will be for next year. We're in the middle of that process right now. And then there's a lot of external factors that I think we're closely monitoring. You know, a lot of potential macro headwinds and understanding of what happens to the economy and therefore, the customer demand.
So we're really going to watch our internal performance and execution over the back half of the year and some of these external factors, to really figure out what we're going to do and how we're going to plan for next year.
Good. Maybe sneak in one last one, actually. You guys are about to be free cash flow positive, essentially from here forward, right? $800 million cash on hand. How should we be thinking about capital usage from here?
Yeah, so we did get to free cash flow positive in the quarter and are in a position now to be able to deliver that, you know, going forward. I think no real near-term things to call it, reinvesting back into the business, driving sustainable high levels of growth, and making sure that we're in a position to never need to raise external capital again to run the business. But no near-term significant uses of capital in terms of, you know, buybacks or dividends or large-scale M&A on the horizon.
Well, guys, thank you for your time and for making the trip. Thanks to everybody for joining us, and enjoy the little bit remaining of the conference.
Thank you.