Smartsheet Inc

NYSE:SMAR

Earnings Call Transcript 2018-Q1

[Operator]

My name is Jessy and I’ll be your conference operator today. At this time, I would like to welcome everyone to Smartsheet Inc. First Quarter Fiscal 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Aaron Turner, Head of Investor Relations, you may begin your conference.

[Aaron Turner, Head of IR]

Thank you, Jessy, good afternoon and welcome, everyone to Smartsheet’s first quarter of fiscal year 2019 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 SVP of Product, 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 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 investors relations website at investors.smartsheet.com 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 US GAAP financials, we will discuss certain non-GAAP financial measures, a reconciliation of these measures to the most directly comparable US 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.

[Mark Mader, President and CEO]

Thank you, Aaron, and welcome everyone to Smartsheet’s first quarter fiscal year 2019 conference call, our first as a public company. We had a good quarter, we’ve transitioned into the public market and did so while maintaining a high rate of growth. Revenue grew 63% year-on-year to 36.3 million in Q1, our dollar based net retention rate was a 130% and we added more than 1,500 net new domain-based customers in the quarter.

At the end of Q1, we had over 3.9 million Smartsheet users across our paid users and free collaborators and Smartsheet is now present in 92 of the Fortune 100 and two thirds of the Fortune 500. Every day, thousands of knowledge workers from organizations around the world come to Smartsheet seeking solutions to a broad range of business challenges. For years, they have relied mostly on e-mails, docs and spreadsheets to manage their work resulting in slow airprone sub-optimal processes. With no end in sight to increasing volume and velocity of work, these knowledge workers feel the pressure both from internal and external stakeholders to deliver work at scale and faster and with greater impact.

Staying competitive and achieving both individual and organizational goals requires a platform that is flexible, easy to access, sharable across company lines, reportable and increasingly automated. At Smartsheet, our software empowers business users to deliver work at scale faster and with better visibility. Our no code work execution platform enables them to successfully configure, deploy and enroll others in their work without the need to always enlist the help of their IT teams. This focus continues to resonate with our prospects and customers and demand from modernizing thousands of use cases in this way remains robust. From managing large scale events to reporting on the progress of an organization's digital transformation, from facilitating customer onboarding to managing the commercial real estate portfolio, Smartsheet can enable any team in any industry to take better control of their work.

We saw healthy growth in domain base customers this quarter and are experiencing higher initial Annualized Contracts Values or ACV with those new customers. For example, in Q1, we landed an initial deal over $50,000 with a large hospitality company, prior to Smartsheet this customer was using a legacy process that was ill-equipped to handle the constant changes inherent in new hotel openings.

Smartsheet’s control center provides this customer with automated dashboards and reports, delivering real time project visibility to multiple levels in the organization, ranging from individual hotel GMs up to the senior leadership team. This enhanced level of visibility speeds decision making and significantly reduces the risk of each project.

We also continue to expand our presence within our customer base, this quarter we had 21 customers that increased their ACV by $50,000 or more, it was strong representation across industry including manufacturing, software, healthcare, education and financial services. Companies that expanded with us this quarter included Fortune Brands, Mercado, Pierson and Cisco.

Pierson, a leading provider of educational content turned to Smartsheet to streamline the digital content production process of their US higher education portfolio titles including EP2, Ravel and other digital products. A process they repeat thousands of times per year. By leveraging Smartsheet, Pierson is able to significantly shorten the timeline of this process. We also expanded with a global digital payments company this quarter, their operations have scaled significantly over the last few years necessitating a shift from static spreadsheets to a more collaborative platform. Smartsheet usage now stands multiple groups including security operations, remittance, global project management, product development and engineering.

Another notable expansion this quarter was with a large audio technology company that engaged our professional services team to configure control center for their marketing operations team. This company has been a Smartsheet customer for seven years and they’re deepening engagement with us highlights not only the value our customers find in our new solutions, but also our ability to expand with long-term customers.

We continue to invest in improving the capabilities of our platform, over the past quarter we made enhancements to the user interface that improve the discoverability of high value capabilities and we also increase dashboards with charting and data visualization. Smartsheet’s dashboards provides managers and executives with improved insights and visibility into the work being managed in Smartsheet. Dashboards helped us land a sizable initial deal this quarter with a large real estate management company, this company is using Smartsheet to provide their execs with real time views into the status of real estate acquisitions.

We also launched the Smartsheet Solutions Center, an [inept] gallery that prominently displays use case, templates, add-ons and service offerings to anyone on the platform, licensed users and free collaborators alike. Providing visibility of the new use cases, both promote the expansion of Smartsheet at our existing customers and services and mechanism for improving the onboarding experience for new customers. A core element of Smartsheet’s market differentiation is our ability to beneficially work with other leading productivity applications suites and business systems. We believe that in today’s diverse cloud-based world no applications succeeds in isolation. To that end, we extended our chat integration capabilities this quarter by launching our integrations with Slack in April and Workplace by Facebook in May. The Workplace integration also showcases the natural language capabilities developed via our acquisition last year of Converse.ai, a UK-based pioneer in the field of intelligent bots and business automation. By leveraging Converse.ai's development capabilities and platform we were able to improve the time to market for this offering by over 50%.

Enabling popular messaging platforms such as these to dovetail were Smartsheet's work execution platform is in an area of emphasis for Smartsheet. We believe we are uniquely positioned to be the neutral fabric that enables our customers, their clients, suppliers, partners and other stakeholders to productively work and communicate with one another regardless of their corporate messaging platforms.

In the first quarter, we also enabled a new integration with Service Cloud from Salesforce. Service Cloud joins a growing list of premium connectors that provide our customers two-way data synching between Smartsheet and Sales Cloud, Jira and ServiceNow. It's just another example of our ability to work alongside cloud providers like Microsoft, Google, Facebook and others.

Before I turn it over to Jenny, I want to tell you that we are committed to growing the business and fully capturing the significant opportunity before us. We will do that by continuing to build great products for our expanding customer base, by enhancing the capabilities of our sales and services organization and by continuing to hire and develop great talent. I am grateful for the position Smartsheet is in and for the continued support of our more than 93,000 customers. We have an industry leading solution, growing awareness of our value proposition in the marketplace and an energized team with a strong sense of focus. Thank you to our more than 800 team members whose passion and commitment to serving those customers makes me proud to work with them every day.

With that, Jenny?

[Jennifer Ceran, CFO]

Thanks Mark, and welcome everyone. Overall, we delivered $36.3 million in revenue for the quarter, up 63% versus a year ago driven by strong demand for our platform, from our existing customers, continued adoption by new customers and growth in professional services.

Billings came in at $45.4 million, up 50% versus the same quarter a year ago. First quarter non-GAAP operating loss was $11 million as we continue to make [Technical Difficulty] and go to market capabilities. And non-GAAP net loss per share was $0.12. Free cash flow was negative $9.7 million, driven by these investments as well as the February payout of our fiscal year 2018 bonuses.

We ended April with a cash balance of $49.7 million, and on the May 1, we strengthened our balance sheet with an additional $163.8 million from proceeds from our initial public offering.

Before I provide our outlook for the second quarter and the remainder of the year, let me provide you more details on the first quarter starting with revenue. Of our $36.3 million in total revenue, subscription revenue was $32.1 million, a 57% increase versus the year ago quarter. Service revenue came in at $4.3 million, up 129% versus the year ago period, driven by demand for consulting and training. Services revenue represented 12% of our total revenue and we expect it to be between 9% and 11% of total revenue for the remainder of the fiscal year.

I'll now turn to our quarterly business metrics. When viewed collectively, these measures provide insight as to the progress we are making against our demand and expand growth strategies. Our total domain-based customer count at the end of the first quarter was 75,642, a net gain of just over 1,500 versus the end of the prior quarter. These customers now represent approximately 96% of our total ACV. ISP customers which represent individuals and very small team using an ISP based domain represented the other 4%. 4,349 customers now pay us $5,000 or more per year and 239 customers now pay us $50,000 or more per year. These customer segments grew year-over-year by 78% and a 139% respectively and now represent approximately 57% and 20% of total ACV. As of the end of the quarter, our average ACV per domain base customer was $1,808 an increase of 47% compared to the same period a year ago. And finally, our dollar base net retention rate was a 130% as of the end of the quarter consistent with the prior quarter and up from 124% in the same quarter a year ago. For modeling purposes, we expect dollar net retention rate to remain above 125% on average for the trailing four quarters for the remainder of this fiscal year.

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 that was posted before the call. In the first quarter, overall gross margin was 80% versus 80% a year ago and 82% in the prior quarter. Subscription growth margins was 87% down two percentage points from the prior quarter as we added planned headcount to scale our tech support function.

Professional services margin was 29% higher than our annual target of 20%, driven by increased customer demand and the timing of hiring. We expect our professional services margin to vary quarter-to-quarter depending on the timing of consulting and training hires and customer utilization of these resources.

Turning to our operating expenses, general and administrative cost in the first quarter were $6.2 million representing 17% of total revenue up from 16% of revenue both in the same quarter a year ago and the prior quarter. The increase was driven primarily by higher cost associated with operating as a public company.

Research and development was $12.2 million or 34% of total revenue, this compares to 29% of revenue a year ago and 28% of revenue in the prior quarter. The increase in R&D expenses reflects the hiring of additional developers and incremental professional services expenses to support investments in our platform.

And finally, sales and marketing expense was $21.9 million or 60% of revenue versus 65% of revenue a year ago and 60% of revenue in the prior quarter. This scale in sales and marketing versus the same quarter a year ago was driven primarily by lower professional services cost and a modest increase in marketing spend partially offset by higher personnel cost. Overtime, we expect to realize leverage across all of our operating spend categories as we scale the business but our near-term focus continues to be enhancing our product and driving growth and market adoption.

Turning to operating loss and free cash flow, operating loss was $11 million representing a negative operating margin of 30%. Approximately 67% of our total expense is headcount related and we added 83 employees across the organization during the quarter. Free cash flow was negative $9.7 million which includes CapEx spend and principal payments on leases totaling 4% of revenue.

Now turning to billings, our first quarter billings were $45.4 million, up 50% versus a year ago. Approximately 87% of our subscription billings are annual and the remainder are monthly with quarterly and multiyear billing representing less than 1% of the total. Our quarterly billing trends are impacted by the timing of large customer renewals and the size of new and expansion deals. We will provide additional color or billing trends as they arrive.

I will now provide guidance for the second quarter and the full year fiscal year 2019. This guidance reflects our plan to reinvest the majority of upside back into the business specifically in our product capabilities and in our sales and marketing efforts.

For the second quarter of fiscal year 2019, we expect total revenue of $38.5 million to $39.5 million representing year-over-year growth of 44% to 48%. We expect non-GAAP operating loss to come in between $14 million and $13 million and non-GAAP net loss per share to be between $0.14 and $0.13 based on weighted average shares outstanding of a $102 million. For our full fiscal year 2019, we expect total revenue to be in the range of $159 million to $162 million representing growth of 43% to 46%. Non-GAAP operating loss is expected to be between $58 million and $54 million. We expect non-GAAP net loss per share of between $0.59 and $0.56 for the year based on approximately $99 million weighted average shares outstanding.

And while we do have plans to guide to quarterly billings and free cash flow given the uncertain timing impacts of closing and renewing larger deals and the timing of cash collections and payments, we will be providing annual guidance for these numbers.

For fiscal year 2019, we expect billings to be in the range of $193 million to $196 million representing growth of 42% to 44% versus last year. For modeling purposes, we expect billings in the second quarter and third quarters to follow a similar sequential cadence as fiscal year 2018. We also expect full year free cash flow to be up to negative $25 million with our highest cash burn in the first quarter followed by sequential step downs in the subsequent quarter. However, it is important to note that about $25 million is our targeted cash burns for the fiscal year, we will continue to re-demand signals overtime and lean in with investments where we think it's appropriate to capture our considerable growth opportunities.

To recap, we were pleased with our first quarter results as demand for our work execution platform remains robust. We continue to make Smartsheet even more valuable with new features such as dashboard visualization, solutions center and integration. And as we look to the future, we see significant opportunities to help organizations works faster, better and smarter.

And with that we’ll now turn it back to the operator to take your questions. Operator?

[Operator]

[Operator Instructions]. Your first question comes from [Dan Wosky] with Morgan Stanley. Your line iso pen.

[Unidentified Analyst]

Perfect. Thank you so much and congratulations on a really strong way to start the year. So, first one I wanted to begin to is, the type of growth of the larger customers is really, really impressive. What's been the driver of that? And then I have a quick follow-up.

[Mark Mader, President and CEO]

We are seeing a couple of things. One is the continued expansion of use cases across companies. And when you look at what the company was built on initially it was to serve a diverse set of needs. And as the company is able to reach more divisions and teams within companies, that is propagating this growth. That however is combined with also delivering capabilities. So as opposed to simply selling licenses to an organization, how do we provide them higher value offerings to things like control center, which are typically taking on more substantive workloads that we're investing behind. And those capabilities come with licensing opportunities for us as well.

[Unidentified Analyst]

Got it, perfect. And then a quick follow up on sales productivity. You guys had really big hiring ramp last year. How is sales productivity trending thus far? And how are you thinking about hiring for the rest of the year? And that's it for me. Thank you.

[Jennifer Ceran, CFO]

Yeah. So, if you look at [indiscernible] if you look at payback, the numbers were in line with where we've been in the past. Payback was up about half a month to 15 months around it, but it's still doing well. We're making investments and over time those investments are going to be paying off and we feel good where we came out.

[Unidentified Analyst]

And how you're thinking about the rest of the year?

[Jennifer Ceran, CFO]

So, for the rest of the year, by expectation as they'll stay right where they're at. They may degrade a little bit but it's all dependent on where we come out on subscription revenue so TBJ.

[Unidentified Analyst]

Okay got it. Thank you.

[Operator]

Your next question comes from Mark Murphy with JPMorgan. Your line is open.

[Mark Murphy, JPMorgan]

Yeah thank you very much. And I'll add my congrats on the strength in the quarter. And following on the same thread, Mark, I wanted to ask you where you are in executing some of your changes in the sales or in the go-to-market? I believe you're going to be working on the application itself or the in-app experience, but also the realignment of the sales team. Just wondering what inning are you in with those changes? And the results are quite strong overall. So, I guess I'm just wondering within the strength, is any element of that sales reorg constraining, anything like new customer growth. Or do you feel like it's kind of smooth sailing through these changes?

[Mark Mader, President and CEO]

Well, Mark thanks. We're in the bottom of the [curve]. And what I would say is that what we were able to achieve in Q1 was our territory mapping. We spoke in to really aligning our resources both sales and service and success against highest potential accounts. And while the remapping was achieved in Q1, reps are still getting to know some of their new book. So that process will extend throughout the year. I would say in terms of the enterprise team that we're investing in, we're going to be adding -- really looking to double that team this year form 9 reps to in the high-teens. That is underway. We were successful in making a number of hires in Q1. And we expect those ramps to be achieved over the next in the coming quarter, quarter and a half. I would say in terms of smooth sailing, you earn it every quarter. So, in terms of, it's not sort of a fire and forget type model. You have to continue working it, continue engaging with customers. And what we do believe is given that we have $1808 ASP of our ACV average across the domains we have an extraordinary opportunity to engage with our customers. And we're still learning a lot. Out of our 75,000 plus brands we have 239 [to pay us] over 50,000. So, we have a long way to go to continue to serve our customers.

[Mark Murphy, JPMorgan]

Okay. And thank you. That's the most specific definition of what inning a company is in. I appreciate that. You didn't hesitate at all. Jenny, I wanted to ask you, are you able to comment at all on net dollar retention rates by ARR bands, how those trended during Q1 and for instance could you talk to us about how the retention trended for that band that’s over 25,000 or any of the other bands?

[Jennifer Ceran, CFO]

Yes, I mean we had obviously a retention rate of 130% which we’re happy about and it was the same rate as we had in Q4. And so, when you look at the expansion in our customer segments, they were really kind of overall steady, puts and takes but overall very, very steady and the churn rates also were really stable. So, there wasn’t anything that was extreme to point out to be honest with you.

[Operator]

The next question is from John DiFucci with Jefferies. Your line is open.

[John DiFucci, Jefferies]

I guess my question is for Mark. Mark, along the lines of -- what's going to ask, for international sales, I know you’ve had some pretty decent exposure for the size of the company and for not having any international sales people. But now that you have some, have you -- and I know it’s really early, but have you seen any inflection in international exposure in the sales because of that international exposure at this point?

[Mark Mader, President and CEO]

So, I will say that the reaction from customers has been -- again I wouldn’t call it a huge pattern that we’re identifying yet but so the ad hoc remarks from customers who are engaging with reps who assign to them now is that they’re really happy that we are engaging with them. I mean this is sort of basic blocking and tackling. Customers who have -- who are trying to achieve improvement in their business, there is a great opportunity to self-manage that with Smartsheet but the benefit of engaging with people who have expertise and opinions on how to accelerate them that is really well received. But again, we’re less than a quarter in, in terms of having our UK and continent European territories established, so in our quarters I expect us to have a more informed opinion on that.

[John DiFucci, Jefferies]

Okay, great. That’s great. You’re in the game now, so actually you’re in the game without being there, so that’s interesting. So, I guess my second question and final question has to do with the unassisted sales motion. I know you are making some changes to the website. And one of the things that’s interesting about your company is, is the amount of sales you get where sales people don’t even touch it -- touch the customer, I am just curious if any of these changes to the website -- have you seen any impact on those unassisted sales?

[Jennifer Ceran, CFO]

So, I can take that. So, we are actually still in the very early innings of making our changes to unassisted and the online app area. For Q1 basically a little over a quarter of our bookings were in unassisted which is consistent with where it was last year. So, I think there’s still room to grow in that area.

[Operator]

Your next question comes from Ross MacMillan with RBC Capital Markets. Your line is open.

[Ross MacMillan, RBC Capital Markets]

Just a question on product may be either for Mark or Gene. You delivered on the integrations with Slack and Facebook in the quarter, I am just curious as you think about the balance of this year, what are the key milestones you’re looking to deliver on from a product perspective?

[Mark Mader, President and CEO]

Ross, thanks for the question. I think there’s a couple of areas we are looking out for the balance of the year. I think, I would probably break them down into how do we improve user engagement and user experience, how do we complete the play on messaging and the neutral fabric for work execution across enterprise and then how do we continue to build on helping our customers scale and specific to the integrations that you saw with Slack and Facebook, you’ll see further integrations with the other most popular platforms and we anticipate having those that first round of integrations which will really include our covert AI Technology being completed by the calendar of Q4 of this year. And then you’ll continue to see improvements and enhancements to the user experience to make it easier to discover almost [half our] capabilities and really make the in-app experience more powerful and easier for users to learn how to do more with the platform. And then you’ll see a number of enhancements we will be launching to support our largest customers whether it’s deployment of scale or compliance and visibility in to how users are actually engaging with the platform. And then you’ll see us start to introduce some more packaged solutions, things that we’ve talked about as part of the roadshow.

[Ross MacMillan, RBC Capital Markets]

Great. And then maybe just the shortfall, probably for Jenny. I noticed the strength in professional services in Q1 and normally wouldn’t really focus on that. But I’m just curious as to what’s driving that, it sounds like a consultant and training, is that just a function of some of the success you’re having with these bigger ACV deals or other, some other things that are pulling through that much higher professional services content.

[Jennifer Ceran, CFO]

So, I think as more people use our product they have interest and expanding in use cases and so we think professional services across all areas and particularly the larger customers would be interested in purchasing professional services. I think the other thing that happened in the first quarter that we introduce some new training packages and they really tailor to all different cycles of customers and those have been really well received, so that was part of the reason why we thought strength in professional services quarter.

[Ross MacMillan, RBC Capital Markets]

Great, thanks again. And congratulations.

[Jennifer Ceran, CFO]

Thank you.

[Operator]

Your next question come from Terry Tillman with SunTrust Robinson. Your line is open.

[Terry Tillman, SunTrust Robinson]

Hi, Mark and Jenny and [also] congrats on this opening act here. I’m tempted to ask if there are nine innings in this game or if you have extra innings, Mark but maybe we can discuss that later. But yeah, just two questions for me. I guess the first question is and Mark this is for you, as we’ve talked to investors they categorically have been impressed which is the growth in your monetization. sometimes I feel like there is a bit of a -- to them it feels ill-defined in terms of work execution space and I’m not saying that’s my view. But just I want to pass that along, but what I’m curious since you have gone public have you seen any kind of benefits or surprising benefits from now being a public company as it relates to either the business, potential partnerships or just other things that can help around branding of this work execution market?

[Mark Mader, President and CEO]

Yeah. I think the category continues to be increasingly well define. I wouldn’t say that the going public event was the catalyst for that. I think it’s a matter of time where people have taken other parts of the business to the cloud and they recognize that especially on the front office side that authoring and messaging and telephony all those [in the cloud] actually haven’t answered developed completely. And that’s one of the opportunities that we now find ourselves in. So, we work with all of those things, but the fact that businesses are still struggling to report out, to automate, to better track all these things, that is what's creating the opportunity for us. And yeah, I think it's one of the challenges, but also the great opportunities we face. But if you go to a business usually you say hey, what are you used to, you use excel for your track. Be prepared to have a multi-hour conversation. And in each of those use cases, there is opportunity for us to deliver something in an ad hoc manner. And when people assign more value to it to [Jen's] point we can build solutions behind it.

So, I think the category there of work execution and how businesses proceeded, that is becoming formalized now. You're starting to see the software companies talk about it, you're starting to see analyst reports come out of it. And that I would say will help us in the years to come.

[Terry Tillman, SunTrust Robinson]

Got it. And Jenny, maybe I don't know how much you can provide here. But in terms of like value-added solutions. It sounds like they can provide a nice uplift in these larger accounts. But anything you could talk about in terms of quantifying the impact from either the solution center or these package integrations that you have to pay for. Thank you.

[Jennifer Ceran, CFO]

Yeah, I would say that in terms of revenue it's still a single digit percentage of revenue but it is growing. But in terms of our bookings for Q1 slightly over 10% was related to those particular new products that we've been selling. So, we expect that to continue.

[Terry Tillman, SunTrust Robinson]

Thanks. Nice job.

[Jennifer Ceran, CFO]

Thanks.

[Operator]

The next question comes from Rich Davis of Canaccord. Your line is open.

[Unidentified Analyst]

Hey thanks guys, it's actually [DJ] on the line for Richard. Good first quarter out. Mark, as much as the initial touch point is generally self-serve. I'm curious [you entirely kind of got out this] but is the IPO, does that help from a brand-new perspective? I mean the metrics that you track in terms of site traffic or whatever they may be. Any color post-IPO what you're seeing in terms of kind of branding Smartsheet?

[Mark Mader, President and CEO]

With the majority of our bookings coming from our existing customer base, I would say our customers were very pleased to see that Smartsheet is a very healthy company with good metrics, a strong balance sheet. These are all things that get them much more confidence to lean in. So, I think as they to go to their VPs, their IT leadership, and they say, hey, we want to really get behind Smartsheet at scale, these are all things that help. But I would say in terms of site traffic and such, we've already been flipping along at north of 100,000 trials per month. While I would say the quality of traffic has improved, I would say the raw count of people showing up at doorstep hasn't changed that much really.

[Unidentified Analyst]

Yeah. And then you talked about some of the packaged integration that you bring to market. I'm curious just as the go-to-market evolves and you look at your customer base and you see kind of the use cases that are most common and most viable. I mean do you see a day where Smartsheet goes to market with more predefined use cases that I guess either makes it easier to onboard, or that you guys can better monetize. Just what's the strategy there longer term?

[Gene Farrell, Senior VP of Product]

DJ, this is Gene Farrell, I'll take that one. I think that what we're seeing is a really strong demand simply for customers for a number of different specific use cases where we can pull together packaged solutions and speed the onboarding process but also speed the timed implementation considerably for the customer. And so, we've actually started to engage with customers on the first 3 solutions that we plan to introduce later this year. And the first 3 of those packaged solutions we're kind of doing with beta customers at this point. And the response has been really favorable. So, we would expect to see us to continue to build on that portfolio. And then continue to focus on enabling both our existing customers and third parties to configure solutions on top of Smartsheet as a platform and we’ll have more to talk about there their later in the year.

[Unidentified Analyst]

Great. okay, very good, thanks guys.

[Operator]

Your last question comes from [indiscernible] with William Blair. Your line is open.

[Unidentified Analyst]

Congrats, like everybody, it’s just a great, great start for the company. I guess my question is, [indiscernible] a DJs a little bit which is you got a pretty open platforms and you go build anything and when we look at the use cases and other one you listed the ones that have dug into customers you know, [indiscernible] management and things like. Is the ability to sort of build more custom complex applications, so the idea of zero code development not just to address stuff that’s fall through a crack or stuff that's email and excel is used for but really to, develop some really sophisticated custom applications, are you seeing that happen at all today or is that still sort of a way to way as you build out the AI and other components. Or do you have customers that [indiscernible] very sophisticated in a simplistic fashion but sophisticated for what is [indiscernible]. I would love just some color sort of use case where you’re seeing that case?

[Mark Mader, President and CEO]

This is Mark, I think one of the things to notice, when we say no code platform, that means no code is a possibility like you can actually get stuff done in no code manner, it doesn’t mean that we don’t support coding, so we have an API that’ heavily exercised some of our largest clients are doing bespoke projects with bespoke UIs that sit on top of that API and work in concert with our standard offering.

Now again what we’re doing in terms of investing in the platform attributes as you will report out in future quarters is we’re going to continue to invest in those areas. Again, when we talk about who can be supported by the platform again, we want to empower business users we also need to be able to support people who have an appetite for customization.

So, it's very much within our sights, but we don’t want to do that at the expense and ever box out that business user from being effective.

[Unidentified Analyst]

Yeah, that’s really very helpful. And then one quick follow up from me here, you know obviously as it really is go to market motion here but especially when we think about the sort of more complex use stages and you look at shifting maybe pressure on services to third parties, and things, [things] like that I have two questions. One, have you thought about sort of someone building I mean really cool with Smartsheet and then sort of acquiring on some products. Is that sort of come into play or do you think about that? And then to what the professional services guide is sort of in your go to market? Thank you.

[Mark Mader, President and CEO]

Yeah, I just want to just make sure I heard the first part of that question. You said if somebody built something on top of this, did you say acquire?

[Unidentified Analyst]

Yes. So, say it’s a small tech company and I embedded Smartsheet in something and I build in and I sold it into a vertical marketplace or something, would that be something you guys would look at, is that something is part of sort of your inorganic strategy sort of if you think about you know like Salesforce has bought [indiscernible] platform allowing you to [indiscernible] on their platform and I think the sort of the flexibility of what you guys have built, that really the third party embedded build the charge on it sort of is that something that would appeal to you?

[Mark Mader, President and CEO]

Yeah, absolutely. I think well take probably a balanced view there right. We believe that it's important to build an ecosystem that partners around the platform that can bring expertise and their own IP to create enhanced value for customers and will benefit in that process but when we see capabilities that third parties have that are really accretive to what we’re doing, we think can be applied across a big portion of our customer base we will absolutely will look at how can we partner better with them or potentially acquire them to accelerate, how we deliver that value. So, I think it’s a balanced approach.

[Gene Farrell, Senior VP of Product]

And the services team this quarter already we have been working with third-party consultancies and I think to degree to which these more robust capability-based licenses are delivered, we are going to be finding more and more opportunities to work with outside services firms. And this is a pattern we’ve seen for decades, right? Work with external services firm, that offer competency, get those enabled services firms to introduce the Smartsheet platform into their client base. That’s something that we are well aware of and looking to work towards.

[Operator]

Those are all the questions I have for today’s call. With that, I will turn the call back over to Aaron Turner.

[Aaron Turner, Head of IR]

Great. Well thank you all for joining us on our first quarter conference call. We look forward to speaking with you again next quarter.

[Operator]

This concludes today’s conference call. You may now disconnect.