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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the Smartsheet Third Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded. [Operator Instructions].
I would now like to hand the conference over to your speaker today, Aaron Turner, Head of Investor Relations. Thank you. Please go ahead, sir.
Great. Thank you, Christine. Good afternoon and welcome everyone to Smartsheet’s third quarter of fiscal year 2021 earnings call. We will be discussing the results announced in our press release issued after the market close today. With me today are Smartsheet’s CEO, Mark Mader; CFO, Jennifer Ceran; and our incoming CFO, Pete Godbole; our Chief Product Officer, 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 the federal securities laws. We have based these forward-looking statements largely on our current expectations and projections about future events, financial trends and our expectations around the impact of COVID-19 on our business. 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 Investor Relations website 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 the U.S. GAAP financials, we will discuss certain non-GAAP financial measures. A reconciliation to the most directly comparable U.S. GAAP measures 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.
Thank you, Aaron, and thanks to everyone for joining us on our third quarter earnings call. We’re pleased with our Q3 results of $98.9 million in revenue and $112.4 million in billings. Highlights from the quarter include continued strength with large deals, a new high watermark for our government business, the completion of our acquisition of Brandfolder, a successful ENGAGE Conference, and a total Smartsheet community that now exceeds 7.6 million users.
I’d like to thank Smartsheet’s employees and partners for their continued hard work and commitment to our customers’ success. These Q3 results are a reflection of the resiliency and quality of the Smartsheet community and the increasing relevance of our core value proposition. As enterprises across the globe seek to digitally transform how work is delivered and innovation is achieved, the value of Smartsheet’s platform is becoming increasingly clear. In Q3, our domain average annualized contract value, or ACV, grew 42% year-over-year to $4,665, and expansion within the base included 294 companies increasing their ARR by more than $25,000, up from 235 in Q2, 106 increasing their ARR by more than $50,000, up from 79 in Q2, and 36 increasing their ARR by more than $100,000, up from 19 in Q2. Preliminary analysis of our Q4 pipeline suggests a continuation of customers choosing Smartsheet at scale.
At a time when Collaborative Work Management, or CWM, solutions are increasingly recognized as an effective means by which to rapidly deliver digital transformation in high value workflows, we are investing to expand product development and innovation, deepen our selling capacity across the globe, and firmly position Smartsheet as the market leader.
Up to now, most digital transformation efforts have been IT-led top-down initiatives. While valuable, their scope has been limited to a relatively small number of high-volume, high-cost workloads whose benefits are realized after long implementation time frames. We are seeing the appetite within enterprises extend beyond these mega projects to address a larger portfolio of opportunities best solved with easier to configure and faster to deploy platforms, like Smartsheet.
By empowering the people and business units at the edge of their organizations with a platform that brings together three foundational elements of work, collaboration, content and workflow, enterprises are able to improve the speed and agility with which they deliver digital-first workflows, things such as improving project approval flows, providing visibility into program status, and enhancing the development and distribution of digital content. This shift was reinforced by Forrester’s recent evaluation of the enterprise CWM market published on November 18, which underscore the increasing importance of CWM and named Smartsheet as a leader that excels in providing dynamic work management for the enterprise.
One example of how Smartsheet delivers value is Sage software. The Sage Group is a 12,000 employee British multinational software company with 2 million customers across 22 countries. With strong demand for their business payment solutions, Sage sought, in their words, to harmonize our ecosystem of connected data through seamless automation. To do so, they now leverage Smartsheet’s Control Center and Bridge offerings to create trigger-based workflows from various systems, including Microsoft SharePoint. Doing so provides Sage with real-time status updates and visibility into their most critical projects and processes. Sage, like many other enterprises, recognizes the foundational importance of Smartsheet as a collaborative work execution layer to maximize the effectiveness of their existing technology stack and to underpin their global project delivery and resource management initiatives.
We shared other customers’ success stories at our Annual ENGAGE Global Customer Conference held virtually on October 1st. With nearly 60,000 registrants from 57 countries and over 250,000 streams of content, we highlighted a range of new products and use cases, including: high fidelity dashboards with a more modern look that are easier to build and update; enhancements to our enterprise scale, manageability and performance, including policy management, plan management and admin insights; WorkApps, Smartsheet’s no-code platform that will enable users to build intuitive desktop and mobile applications; Bridge, designed to allow enterprises to automate business processes with workflows that trigger actions and share data across platforms from a user-friendly interface; and our reimagined design of Smartsheet in 2021 to help our customers achieve more with a more delightful, beautiful user experience.
These and other recent product enhancements drove some notable engagement metrics in the quarter. We saw roughly 40 million form submissions, 128% year-over-year increase; almost 650,000 dashboards were created and dashboard views were up 64% year-over-year; a 48% year-over-year increase in workflows build; and 4,600 customers utilized our digital proofing capabilities.
At ENGAGE, we also introduced our integration with Brandfolder, the leading digital asset management platform we acquired in mid-September. This integration and those to follow will allow Smartsheet’s customers to more effectively organize, control, distribute and measure digital content. Early customer response to the synergies that will be made possible by the integration of Brandfolder’s content management and analytics capabilities, and Smartsheet’s workflow platform has been very positive. Along with the resource management capabilities we offer via 10,000ft, Brandfolder deepens Smartsheet’s ability to deliver solutions that benefit marketers and content creators. We look forward to continuing to enroll all Smartsheet and Brandfolder customers in the value that the respective solutions provide.
Content-centric work is becoming increasingly cross-functional, driving among other things, sales motions, marketing campaigns and many other day-to-day business interactions. To be most effective, this work should not be confined in silos, but in many cases technology itself is the cause of these silos. And as marketing and content become more central to overall organizational strategies, connecting them with other functions throughout the enterprise is paramount.
For example, McGraw-Hill, a global learning science company, is at heart an engine of content creation and distribution. They wanted to make their processes for creating and tracking educational media assets more efficient and accountable by leveraging technology to bring those assets into a single place. And Smartsheet enables them to automate and simplify the process of creating and sharing media assets for its educational products, cutting time and effort out of assigning and revising assets and processing vendor payments, improving efficiency by 50%. I love how McGraw-Hill’s design leader put it. She said, “Smartsheet frees up our designers to spend their time being creative, brainstorming and concepting big ideas instead of working on photo metadata and tracking it for hours of their day, Smartsheet let’s us focus on the fun stuff.”
Beyond our commercial business, we’re also making progress in the Government segment. With over $1 million in federal bookings in Q3, our largest quarter thus far, we remain bullish on the long-term opportunity in this market. I’m also pleased to report that we’ve achieved Department of Defense Impact Level 4, IL-4 provisional authorization, enabling the aerospace and DoD sectors to deploy the Smartsheet Gov platform. Achieving this authorization demonstrates our continued commitment to furthering the federal government’s use of cloud technology to mitigate risk, enable the federal workforce and drive digital transformation.
As an example of the early traction we’re seeing in the federal market, the GSA significantly expanded its use of Smartsheet Gov in Q3, making them our second largest federal customer. From supporting the procurement of billions of dollars of worth of supplies each month to managing the world’s largest collection of real estate assets, Smartsheet is core to how the GSA fulfills their broad and important mission, and helps other federal agencies achieve theirs.
As we look ahead, I believe now is the time for leaders to take steps to ensure their organizations are positioned to fully capitalize on a digital-first operating model, to empower their business teams, not solely their IT teams to serve as agents of change in quickly and durably applying technology to improve processes and deliver insights. As remote work becomes not just a short-term adaptation but a long-term strategy, businesses cannot continue to rely primarily on synchronous work, work undertaken and managed through communications and real-time messaging apps. There are limits to people’s ability to be productive and accountable when tools require them to be continuously present.
Leaders are recognizing the need to shift more workloads to asynchronous work, work that is documented, automated, tracked with dashboards and where priorities are clearly defined. They understand that by empowering their teams with no-code solutions that facilitate asynchronous work, cycle times will be improved, a deeper sense of ownership will be created, and prioritization and accountability will be ensured. Smartsheet is ideally suited to help enterprises work more asynchronously to derive the benefits from doing so.
With that, I’m about to hand this call over to Jenny Ceran for the last time. As we previously announced, Jenny is retiring from Smartsheet. She has played a valuable role at our company, helping us transition from a high-growth private company to a public one. Her leadership has served us well and continued as we worked together to identify and transition to her successor. I believe the transition plan she has helped us build will ensure productive handover to our incoming CFO, Pete Godbole.
I’m pleased to have Pete join the team and I look forward to working closely with him to drive our next phase of growth. Pete is an enterprise software industry veteran. He comes to Smartsheet having most recently served as CFO of Hearsay Systems and previously as CFO of VMware’s End User Computing global business unit. His experience helping companies scale into new products, geographies and business models makes him a terrific addition to our senior executive team.
I’d like to ask Pete to say a few words.
Thank you, Mark. I’m pleased to be here and I’m excited to dig in. This business has been in really good hands. I’m energized by the chance to help Smartsheet reach new heights of success. The year 2020 has seen a transition to remote working, leading to permanent changes in collaboration and automation. Past the pandemic, it is clear that the future of work is going to be a confluence of collaboration, workflow and content. Smartsheet’s value proposition is the essence of doing that effectively and efficiently. The TAM and sheer scale that this opportunity creates is incredible. I’m excited to play a role in accelerating the outreach of Smartsheet’s value proposition to this large and growing market.
As much as the opportunity itself, from my earliest conversations, I’ve been incredibly impressed with this deal. I felt culturally aligned from the start. I find in them a passion for solving customer problems, and accountability and authenticity that drives performance, and a hunger to lead a disrupted and evolving market. Truly, I’m honored to be a part of this winning team. Much more to come, but for now I’m grateful for the opportunities ahead and look forward to working closely with all of you in the call.
Thank you, Pete. And with that, let me turn the call over to Jenny to provide additional details on our financial results. Jenny?
Thank you, Mark. Welcome, Pete, and welcome, everyone. Overall, we were pleased with the results for the quarter, which reflected strength from mid-market and enterprise customers, and stabilization in the SMB sector. Revenue came in at $98.9 million, up 38% year-over-year, and billings were $112.4 million, up 35% versus last year. Our dollar-based net retention rate was 125% and our domain average ACV increased 42% versus last year. Non-GAAP operating loss and free cash outflow came in at $15 million and $8.8 million, respectively. We completed the acquisition of Brandfolder in the quarter using approximately $124 million net of cash acquired and continue to remain well capitalized with $420 million on the balance sheet and no debt at the end of the quarter.
Next, I’ll provide more color on the third quarter financial results. 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 and presentation that was posted before the call.
As already mentioned, third quarter revenue came in at $98.9 million. Subscription revenue was $90.9 million, representing year-over-year growth of 41% and services revenue was $8 million, representing year-over-year growth of 12%. The Brandfolder contribution to total revenue in the third quarter was $1.7 million, exceeding our original expectations.
Turning to billings. Third quarter billings came in at $112.4 million, above our guidance range as we saw strength among our mid-market and enterprise customers, and a larger number of big deals. In billings, Brandfolder contributed $3.2 million from the normal course of business and $4.7 million from acquired deferred revenue. We were also pleased to see a number of customers who had contracted in the first half of the year expand again, as their businesses stabilized and improved.
Additionally, our remaining performance obligations, or RPO, which includes deferred revenue and backlog, increased 47% year-over-year, as our sales team closed a larger number of higher value, multi-year deals, and Brandfolder also contributed a higher number of multi-year deals. Approximately 89% of our subscription billings were annual this quarter, with 7% monthly. Quarterly, semi-annual and multi-year billings represented about 4% of the total.
Moving onto reported metrics. We now have 11,172 customers paying us $5,000 or more per year, 1,331 paying $50,000 or more per year, and 504 now paying us $100,000 or more per year. These customer segments now represent 80%, 44% and 29% of total ARR. The Brandfolder acquisition contributes 685 customers to the greater than $5,000 cohort, 63 customers to the greater than $50,000 cohort, and 16 customers to the greater than $100,000 cohort.
Our domain average ACV grew 42% year-over-year to $4,665. Excluding Brandfolder, our domain average ACV was $4,506. We ended the quarter with a dollar-based net retention rate of 125%. Please note, our dollar-based net retention rate will exclude the impact of Brandfolder until we lap the acquisition in the third quarter of fiscal year ‘22. The full churn rate improved and rounded down to 7%. We expect our dollar-based net retention rate in the fourth quarter to be in the low- to mid-120s as the rate represents a one-year look back, which continues to reflect the early headwinds of COVID.
Turning to gross margin. Our total gross margin was 79%, 3 percentage points lower than the second quarter. This quarter, we completed the migration of our platform to the public cloud. The decline in margin versus the prior quarter was driven primarily by the wind down costs we incurred for our legacy data centers. The impact of these costs reduced our overall gross margin by approximately 2 percentage points. We expect to recoup the 2 percentage points in the fourth quarter with the exit of our data centers now complete.
Moving to operating expenses. Sales and marketing expense as a percentage of revenue was 52%, approximately 14 percentage points lower than the year ago quarter and 1 percentage point higher than the prior quarter. The improvement compared to the year ago quarter was driven primarily by lower marketing investments, including our virtual ENGAGE Conference and to lower travel expenses, while the increase compared to last quarter was driven primarily by increased marketing investments and our virtual ENGAGE Conference. As we plan to hire more reps and invest in ongoing marketing, we expect our sales and marketing spend as a percentage of revenue to increase in the fourth quarter.
Research and development as a percentage of revenue was 26%, 4 percentage points lower than a year ago and 2 percentage points higher than the prior quarter. As Mark highlighted earlier, we continue to make investments in our products while driving long-term engineering efficiencies. General and administrative expense as a percentage of revenue was 15%, as we continue to invest in and make progress on our SOCs remediation efforts.
Overall, operating loss in the quarter was $15 million and free cash flow was negative $8.8 million. Our personnel expenses represented 71% of our total expenses. The significant improvement in operating loss relative to our guidance was driven by our revenue beat, and the timing of marketing investments and other spend.
Let me move on to guidance. For the fourth fiscal quarter, we expect revenue to be in the range of $102 million to $103 million, billings to be in the range of $131 million to $134 million, operating loss to be in the range of $18 million to $16 million, and non-GAAP net loss per share to be between $0.15 and $0.13 based on weighted average shares outstanding of 121.5 million. Our free cash flow is expected to be positive and in the range of $6 million to $8 million. We expect Brandfolder to contribute about $2.5 million to Q4 revenue and $4 million to Q4 billings.
For the full fiscal year, we expect our revenue to be in the range of $378 million to $379 million, billings to be in the range of $431 million to $434 million, operating loss to be in the range of $54 million to $52 million, and non-GAAP net loss per share to be between $0.44 and $0.42 for the year based on approximately 120 million weighted average shares outstanding. We expect free cash flow to be between negative $36 million and negative $34 million for the full fiscal year.
Before I turn it over to the operator for questions, I would like to welcome again Pete Godbole as the next Smartsheet CFO, and to thank Mark and the entire Smartsheet team for a wonderful and exciting four years building this business together. I’ve had the opportunity to get to know Pete in the interview process and as we begin the transition. He shares my passion for this business and will be a fantastic addition to the team. Thanks also to all of you, our investors and sell-side analysts, for the time you’ve spent getting to know our business and our opportunity. I am truly grateful.
With that, I will now turn it over to the operator for questions. Operator?
[Operator Instructions] Your first question comes from a line of David Hynes from Canaccord.
Mark, I want to ask if you've seen any change, having the percent of use cases that lean more towards workflow automation versus maybe project management or collaboration. And I realize that most of us, most of your deployments have kind of flavors of both. But I'm wondering if COVID has in any way kind of accelerated interest in automation?
I think it is now more central and common to have it as part of the conversation. In terms of it being the tip of the spear for the conversation, I would still say that program and project theme is alive and well. I would say, though, it's less now us introducing the concept, is really people being more fluent in it and recognizing that the business units can actually participate in this. But I would say in terms of sort of tip of the spear, new opportunities originating on specifically that dimension, we haven't really seen a fundamental change yet.
Okay. And then, Jenny, just a quick follow up on the numbers. I wasn't sure if I caught the comment. But do you think we've seen the neater in net dollar retention in this quarter?
So we expect the net dollar retention rate, as I mentioned on the call to be in the low 120s to mid for Q4. So you have to understand that our dollar net retention rate is a four quarter look back. So we still have COVID headwinds, but we do see an opportunity for stabilization beyond that.
Your next question comes from line of Terry Tillman from Truist Securities.
Mark and Gene, hi. Jenny, congratulations and I'm going to miss you. And Pete, welcome. I guess the first question, though, Jenny, is just I want to make sure I got this right. Were you saying that for the sub period of Brandfolder is 8.7 million in billings contribution with the quarter and then the guidance or it was I off on that?
You're off on that. So 1.7 million was revenue. So that's what we showed on top-line revenue. $7.9 million when you include both the core business billings of $3.2 million and I think $4.7 million on the deferred revenue, that's what we contributed to the billings number. So $7.9 million on billings, $1.7 million on revenue.
And I guess, Mark, maybe just a big quick picture question here in terms of, you're helping really kind of craft this market and really be a category leader. And what you've been working-on on the branding side and discoverability of features, you have the new UI, and just overall C-level exposure. Where I'm going with this, as I heard about large deals, you guys becoming like the system of record for Collaborative Work Management, maybe an update on that, how many billion dollar deals do you have now? And how much attention are you all now garnering from C-level executives? Why don't we just use Smartsheet for that? Thank you.
Thanks, Terry. I would say the just to answer the question on the $1 million customers, we did see an increase of two in the quarter. I think the thing that I'm more encouraged by in terms of accounts though, is the growing stable of accounts north of half 0.5 million. And while we don't report out on that is a metric we report on 100,000 and 50,000 threshold, that stable of north of 500 is growing is nicely. And I do think the conversations as we talk with more enterprise relevant themes around automation, integration with systems, deriving yield from their existing stack, people are wanting to have the conversation. The WorkApps conversation, Jean and I were just talking yesterday around how CIOs are talking now around what their strategies are for no-code app building. Well, that conversation wasn't happening two years ago. So I think the things we're doing are inviting that conversation were much more I think well suited to have those conversations now.
Your next question comes from the line of Stan Zlotsky from Morgan Stanley.
This is Melissa Dunn on for Stan. Thank you so much for taking my questions. The first one I have is around the commentary on your federal business. So it sounds like you have a high watermark there. And that you've been doing a lot of work around your presence there. How does this segment track versus your expectations in the quarter? And any color you can give on your expectations for how big of a percentage federal can be going forward? Or how meaningful this can be going forward to be super helpful?
In terms of what we're looking for is we're looking for quarter-on-quarter improvement. And when I look at the productivity of our reps in that area and I look at what our customers really experimenting with Smartsheet are doing, we're seeing nice adoption there. I would say, still as a low-single-digits million part of our business, we're not making huge remarks yet in terms of its contribution influence on overall performance next year. But over the three to four year frame that we've set in terms of our $1 billion in business, we think it's going to be a material contributor. So we look at this on a three year horizon as being a really nice component. When we talk about guidance in Q4, we’re going to have some more remarks on it. But at this time, none.
And then just a quick follow up. So operating margins are coming in really well. Doesn't -- I don't necessarily see the same improvement on the free cash flow guidance. Is there anything to keep in mind there on why those things might be trending a little bit differently?
Yes, it really has to do with how revenue gets recognized relative to your collections, and then on payments and how you accrue those over time. We did mention our Q4 free cash flow will be positive and so catching up from what we saw in Q3.
Your next question comes from the line of Ittai Kidron from Oppenheimer.
Thanks and also Jenny, thank you so much for your service, it’s been great working with you. And good luck in your new role. You've got some big shoes to fill. But I'm sure you'll do just great. A couple of questions for me. First on the -- on Brandfolder, clearly very good start, Jenny if I'm correct, you talked about originally $2 million revenue contribution for the year. Looks like you did that almost in one quarter. So help me think about how much of the contribution there was Brandfolder by sales momentum kind of carried forward versus you've already started to see Smartsheet itself being able to monetize that very effectively?
Well, I'll take this one, it’s Gene. That contribution is 100% Brandfolder on its own. We have really just started to put in place some of the lead sharing and kind of co-selling, where it makes sense, motions, but we really believe Brandfolder can be a significant standalone element of our business.
And then I know you haven't talked about next year's outlook. Is there a general framework you'd like us to keep in mind as far as growth for expansion rates? And Mark maybe you could talk about, clearly productivity heading in the right way. And I've been following your job listings, and they've increased quite substantially over the last two, three months. How do I think about the linearity of hiring for the year?
I think we -- as we looked at the COVID headwind that happened in the first half, we were committed to keeping our investments on point. So, that was both on a people dimension, and a program dimension. And I think we're actually well suited to enter next year with a group of quota carry reps and other team members who can produce more, and we expect to produce more next year than they did this year. So, we don't have this huge need to do the massive hiring right now to support our current plans for next year. So I think we’re well positioned on that front. I think as we look at what our objective is in growing the business, and this notion of being a Rule of 40 aware company with a bias towards growth, right, we look at both aspects, we look at investment, we like a top-line growth. And I would say our posture is very much to still be growth minded.
Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.
Maybe first one for Mark, it seems that you're on pace to add in excess of 2 million total users to your platform this year. When we look at that free collaborator base, can you just maybe just tell us, how that impacts your long-term growth prospects? And if we dig in maybe a level deeper, how should we think about the time that it typically takes those for users to convert to pay, whether it's a matter of quarters or years, how should we think -- we be thinking about that?
I think next year is going to be really the commencement of something that's quite new for us. And that is providing our customers with additional mechanisms for engaging these users. In the past, we've had a very simple model, which is pay traders and free collaborators. And with the announcement of WorkApps at our engaged conference, we're allowing people to build these much more tailored experiences, which are no longer free, but they come at a very low cost. So, you really allow enterprises to create these elite solution experiences, but we get the benefit of actually getting paid for some of the value we deliver. So, we're just starting off on it. We have over 1,000 companies previewing WorkApps today. So, I would say the impact from ENGAGE was successful in that dimension, which was great to see. And as we head into next year, we look at formally releasing that product.
Got it. And then maybe one thing if I can touch on the -- you’ve created some great solutions for the marketing department and now you're layering in Brandfolder. How should we be thinking about the go-to-market motion, is that still very much that same self-serve, land and expand or does Brandfolder and some of the organic work that you've done there allow you to do direct outreach to CMOs and maybe try to sell that -- sell those marketing solutions a little bit more top-down?
I think it's going to be much more balanced going forward. We've actually seen a really nice uptick in some leads coming into the business that are not grounded in a self-directed trial. So, we've done a bunch of testing over the last year. And we've actually seen some interesting results of what is delivered when you allow somebody -- when you invite someone into a conversation as opposed to a trial. And it gives you a chance to articulate the value some of the mechanisms which maybe are hard to learn on a self-directed basis. So, I do think the solution set does lend itself well to that top-down solution orientation and that doesn't mean we're abandoning the self-directed, right? We're making investments there too. But I think by having both, you really get to address two types of preferences, and I think we've learned in the past year that both exist.
Your next question comes from the line of Ryan MacWilliams from Stephens Inc. Your line is open.
Hey guys. Thanks for taking the question. So, strong additions from customers contributing over 50,000 in ARR in the quarter. As larger enterprises start going through their budgeting process, have you noticed any differences to how these larger customers are approaching their expansion plans for Smartsheet compared to last year?
I think one of the topics that we continue to be welcoming is the notion of how can we derive more yield from our investments? So as they look at the offerings we have, whether it be on the content dimension, the automation dimension, the collaboration dimension, they're also looking at where they can maybe reduce some of their spend in other application areas. And they're really two areas of investment. One is, what are my subscription dollar outflows? And the second is, what is my cost to deploy a solution? Both of them are budget impacting. So, I think our continued focus on velocity and dexterity of the solutions, I think lends really well to savings on that front versus the competing solutions.
Great. And then just on the composition of these new customers who were added to these cohorts. How should we think about how customers who were previously dip below these guideposts added to growth there? Just trying to see how maybe they came back and see growth or their expansion? Thanks.
I didn't quite understand your question. Can you repeat it?
Sure. Just the customers that may be previously contributed greater than 50,000 ARR, and then dip below that in the previous quarters, how did they contribute to the new growth that you saw within those customer segments for this quarter?
Yes. It was immaterial. These were -- I think what we were pleased to see, there was some anecdotal evidence of customers who were heavily impacted, who again have gotten their sea legs under them. But in terms of meaningful impact in the numbers, it’s -- they are not.
Your next question comes from the line of Scott Berg from Needham & Company. Your line is open.
Hi, everyone. Congrats on a good quarter. And Jenny, I would certainly echo the word, good luck, and Peter look forward to working with you as well. I guess within the quarter, Mark, you had a large competitor of yours actually get acquired, which was the first real acquisition in the space at least of a sizable vendor. What do you think that means to the collaborative work management space in terms of helping validate what you all are trying to accomplish today?
Yes, I think it does. I think when you see a large cap really take note, and look to expand their diverse portfolio. I think it's notable. I think it's also worth highlighting that, they're fairly different solutions and we just have them talking a little bit about a self-directed versus a consultative sale. The acquisition of that asset, it is purely a consultative sale and there simply there is no land and expand motion. It is truly a sort of services-driven deployment. But I do think, it is obviously in a related category. So, I think it shows that there is demand within enterprises for these types of solutions. As we've articulated, we think that the marketing organizations are fundamental to being your cohesive provider to any enterprise. And, yes, we look forward to continuing to work with Adobe and serving our tens of thousands of customers.
Got it. Helpful. And then from a follow-up perspective, Gene, can’t leave you out of the call, at least. When you look back in a year or two, out of all the pieces of innovation that just came out at ENGAGE, which I thought was a great pace, what's the one item do you think that'll be most impactful on the Smartsheet business here in the near-term?
Well, that's a tough one. I've actually had this one before, it is a little bit like picking your kids, but I would tell you, Scott, the one that I think really has the most opportunity to transform is WorkApps. I think they -- and we're already seeing this, because it just gives us that frame to bring together all of the capabilities of Smartsheet. And the other assets we acquired, whether it be Brandfolder or 10,000ft and bring that together in a really cohesive experience. That it just creates a completely different way to deliver our capabilities and users. And the customer feedback has been exceptionally positive. Now saying that it's still very early days, right, we're still in a preview and we still got a lot of work to do, getting into GA and seeding it in the market, but I think it really has probably the most potential to really be transformative for our business.
Your next question comes from the line of Keith Bachman from Bank of Montreal.
I was going to ask two questions concurrently since they are related. The first is, Jenny I know you mentioned, your expectations for net retention rate in Q4. But I was just hoping to get a little broader context to that question and extend it out through FY '22. Where do you think that shakes out on the net retention rate? In other words, you're [Audio Gap].
Keith you still there?
Yes, can you hear me?
You dropped for a minute. You said, where does it shake out in FY '22.
Yes. Is that the low in Q4? Does it say steady at that rate? And assuming you can still hear me I want to ask the second part of my question. And that is, is there still an economic climate that's a headwind for Smartsheet? And what I mean by that is, as you think about FY '22 and assuming that COVID recedes and whatnot, do you feel like there's still a current economic impact on your revenues? And I'm just -- I'm asking the question, and the context is any kind of guideposts that you could give us around how we should be thinking about top-line growth in '22? In other words, could there be a little bit of COVID relief on your top-line that's exhibited during the course of '22? And hopefully, you heard both those questions.
Yes, I did. So we're currently in our planning process for next year. And I won't be here. Pete will be here. And I want to make sure that Pete delivers the guidance for next year, because he is going to be held accountable for it. But with respect to the net retention rate, we do see -- just based on the metrics, the larger deals that we're doing, the fact that customers who did contract, some customers in Q1 and Q2 come back in Q3, I do see a scenario where on it does stabilize and potentially could go up next year. But we're not guiding to next year right now. We're just guiding to Q4.
Our next question comes from the line of Brent Thill from Jefferies.
This Joe on for Brent. Thanks for the question. And congrats on the strong and improving results. I just wanted to ask a follow up to Ryan's earlier question. Are you starting to see enterprise license agreements or a formalized contractual agreement process making it easier for customers to scale up quickly? Or is it still too early for that?
Yes, I think we've put mechanisms in place as early as three or four years ago which allowed us to really simplify the way in which Smartsheet can expand with an organization. Very often that's predicated on being approved and enabled by core IT. So the business unit identifies it, presents it to IT, we go through security review, and then we get enabled within their really provisioning environment.
I would say the degree to which those are becoming more frequent, we do believe that will be a trend for us as we go higher into these ARR contribution layers. The other piece is on the on the multiyear side, where people are making not just the decision to approve and enable but also lock in for a multiyear commitment. And while it's early there, we are seeing signs of that type of commitment from the largest customers.
Great to hear. And then I guess, just to keep a Gene in the flow of the conversation, given your product portfolio typically follows customer requests, anything surprised you out of ENGAGE or any common requests or vertical stick out?
Well, I don't know if would say that I was really surprised. I said -- I would actually say I was really more satisfied with the positive response we got from the announcements that we made. Some of the core elements of product and portfolio management that we announced, like baselines, was really well received. Really big uptake on things like column formulas of all things. And then I would tell you that the early response we're getting to the marketing offerings has been really encouraging. And we've seen a number of large deals and a fair number of competitive displacements, because customers are looking for solutions that can break marketing out of what in some cases has been a silo within the organization to have something that can be a part from that can support marketing, and all of the other parts of the business. So I would say that's been really gratifying. On some of the other big announcements, like WorkApps, it’s still super early. So we're going to kind of hold on those until we get more signal.
The next question comes from line of Walter Pritchard from Citi.
Probably question on my end, just around no-code, low code. How fast you see an incremental demand evolve around that driver? And sort of when you're in those conversations, what other sort of platforms do you see customers looking at beyond yours? My understanding is it pretty sort of intersects in this area in a tangential way?
Yes, Walter I would say that, like, as I mentioned before, it's still early days, we're still in preview. But I would tell you that we've had an increasing number of conversations with -- in those types of platforms, it’s really IT that is driving the discussion. And we've had an increasing number of conversations with IT, where there's deep recognition that they're not going to be able to continue to do business, where they have the last 10 years. They really are hungry to empower their users to be able to build and deploy and manage solutions with some appropriate guardrails on their own. And so I would say, still relatively small numbers, but we're seeing increasing signal and greater clarity on what they're looking for. And that's part of what gives me a lot of optimism around the solution we built in Work Apps. Because one of the things that they're very clear about is the solution they deploy needs to empower their average knowledge worker, not just a business analyst or a more technically savvy member of their staff. And when I look at the competitive landscape, I believe that what we've built is really well positioned to serve that broad base of knowledge workers. And I don't know that I could say the same about many of the other platforms in that space.
Great. And then just quick one for Jenny on the -- people have asked on the net retention rate bottoming. Just on churn and so forth. I mean, you turned the corner of it this quarter. Do you expect it in Q4 with some of the larger customers there and so forth, contracting with you that you'll continue to see that trend here better? Or do you think there's risk of that, that could get away in Q4?
I don't see any reason why the trend wouldn’t continue. It may not go below 7%, though, in terms of rounding down, but there's no reason why the trend wouldn’t continue.
Your next question comes from line of Rishi Jaluria from D.A. Davidson. Your line is open.
Hi, everyone, thanks so much for taking my questions. And Jenny it's been a pleasure working with you and all the best. Two questions. First, I wanted to ask a little bit more about the billings number this quarter. And more importantly, the guidance for next quarter. If we do the math at the midpoint of guidance, you're talking about an acceleration in billings, again, next quarter on an organic basis. So in both cases, excluding Brandfolder. Just want to get a sense what's giving you the confidence to -- given the current environment we're seeing in the pipeline to guide to an acceleration in organic billings next quarter? Then I've got a follow-up.
Sure. So, this quarter, we saw really nice strength in enterprise. And Mark and I both talked about the number of larger deals that we're seeing. When we look at the pipeline, we have a big pipeline of larger deals. And so all of those things, I think, gave us decent confidence and the guide that we had for fourth quarter.
And then just on Brandfolder. And by the way, really appreciate all the disclosures and transparency. It's very, very helpful for us. But as we think about the ACV for Brandfolder, a little surprised to see it’s actually higher than the core Smartsheet ACV. I'm wondering if you can give us a sense for why is that, is it a function of -- more in terms of pricing wise, you have larger deployments at their customers, what’s leading to that?
Yes, I would say, I'll take that one, I would say that the way to think about Brandfolder is it's a different proposition, because it's not really a user base solution. It is -- think of it more like a capability based solution that we deploy. And you have tiers of capability within Brandfolder. And there are additional add-ons and premium offerings on top of that core platform capability. So, we do believe there's opportunity to expand within existing base. But fundamentally, it's just a different type of sale. Also that being said it does land at a higher price point than typical Smartsheet.
Your next question comes from line of Mark Murphy from JPMorgan. Your line is open.
This is [Ping Lim] on behalf of Mark. Mark, just one question on WorkApps. You have talked about Bridge last time, and WorkApps seems something new. Help us understand, maybe with an example what can customers build on WorkApps today? And what is the vision, maybe three to four years from now? And do you expect WorkApps and Bridge maybe to help alleviate the churn on an aggregate basis even more?
Yes. I think, let me start with WorkApps. One of the things that is essential in Collaborative Work Management solutions is the ability for the participant to understand what they are supposed to do. So, in our current approach, if you share someone a dashboard or sheet, a report in a forum, and you say, just follow these instructions and here's your little -- here is your guidebook on how to do it, you're actually placing burden on the person you're asking to participate. And let's not forget, these are collaborative situations either within your company or across company. What WorkApps allow you to do is to create a very intentional presentation of these capabilities. So, you log into an application and to you it presents a dashboard and a form for intake and a report, all in one place. So it's a unified, it's a collection of things you want that person to see. There's no distraction from other things within that environment.
One of the real benefits though is, when you invite someone to an application like that, not everyone should have the same level of access, it’s a very important enterprise capability. You might want the program director to see all the assets, you might want to see have their contributor to see 30% of the assets, you may want to have the CFO see 90% of the assets. So, the ability to simply create that bundle, that composite solution and share that in a secure manner, it is a very, very important thing. So think about it as being able to unify the artifacts that we've spent the last decade building in a really cohesive, secure manner. And again, this is not slinging code to pull it off. This is allowing someone in a very straightforward interface to identify what they want to present and enroll people. So, it is a very big impact to that reach out to that user base.
I think Bridge is a very different value proposition. Bridge is one which is enabling people to orchestrate different interactions between Smartsheet and external systems. It is not principally tailored at being consumed by users or collaborators. It's about enabling people who understand systems orchestration to do more with their Smartsheet platform.
The new thing about Bridge is it allows us to participate in workflows that are not simply core to our application. And over the past, we've done things like integrating to Atlassian, Jira and to Salesforce for sales and service cloud and the ServiceNow, this opens up portfolio of touchpoints. The other real benefit with Bridge and WorkApps is you allow third parties to do more on our platform. So, when we think about partner enablement and being at roughly 450 plus partners worldwide now, we think the opportunity to allow a partner to advise customers on solutions is a huge win for our company over the next three year frame. So, as Gene and I and engineer talk about this, it's not just empowering our customers, it's empowering the partner community.
Super helpful to understand that. Thank you. And Jenny, just one housekeeping. Did you give the mix of the capability based offering as a percentage of subscription revenue?
I can give it to you. So, it's 83% is seat licenses and then 17% is capabilities.
The next question comes from the line of Michael Turrin from Wells Fargo. Your line is open.
Good afternoon. This is Alan on from Michael Turrin. Thanks for taking my question. Just one high level one for me. I want to follow-up on ENGAGE, but from an international standpoint, hosting that in EMEA and APAC, I was wondering if you could talk about the opportunities there going forward? Along with any other regions you'd want to call out for, that you are most excited about?
I think we saw a good engagement from those conferences from those regions. We remain very focused on the UK and Continental Europe next year, and in the Asia-Pac region, headquartered out of Sydney, starting to identify other regional markets that we want to pursue. But I think this next year we will be really reinforcing our go-to-market in those two geos. And that partly comes in the form of marketing and sales capacity, partly in the form of how we deliver our solution. Now that we have moved to AWS for our delivery model, it really gives us optionality for going in-market from a solution deployment standpoint. So I would say that'll probably be one of the bigger moves for us next year as it relates to international.
Your next question comes from the line of Brett Knoblauch from Berenberg Capital Markets.
First, I’d just say, good luck, and best wishes to you, Jenny, and congrats Pete look forward working with you. I was just wondering if you could try to update the total user count. And maybe how many users came from Brandfolder? I know you said it's maybe not like a user base model. And then just as a follow up, 47% RPO's growth is very strong. Can you break that out organically?
So you want to answer the Brandfolder question?
The user count that we gave out is not inclusive of Brandfolder users. So that would be organic Smartsheet.
And then just on RPO growth?
So -- well, so on RPO growth, I don't have to break out between short-term and long-term. What I can tell you is of the RPO, which is 207 million, 92% of that will be recognized within the next 12 months. And that is down from 96% in the prior quarter.
I was asking organic growth from an RPO standpoint, how much came from last quarter?
Yes. So you would take out roughly 7.5 million for Brandfolder.
There are no further questions at this time. I'll turn the call back over to Mr. Aaron Turner.
Great. Well, thanks for joining us this quarter. Happy holidays and we'll speak with you again next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.