Smartsheet Inc. (SMAR) Q2 2019 Earnings Conference Call Transcript

Smartsheet Inc. (SMAR -0.73%)
Q2 2019 Earnings Conference Call
Sept. 4, 2018, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to Smartsheet Inc. second 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. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you. Aaron Turner, Head of Investor Relations, you may begin your conference.

Aaron Turner -- Senior Director, Investor Relations

Thank you, Chantal. Good afternoon and welcome everyone to Smartsheet's second quarter 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 the 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 and on the SEC website at www.sec.gov.

Although we believe that the expectations reflected in these 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 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.

Mark Mader -- President and Chief Executive Officer

Thanks, Aaron. Good afternoon, everyone, and thanks for joining us for today's call. The momentum with which we began the year continued in Q2, with revenue reaching $42.4 million, representing year-over-year growth of 59%. Our teams continue to execute with strong focus and commitment to customer success. Through customer expansion with a lower attrition rate, our dollar-based net retention rate reached 131%.

We increased our presence in Fortune 500 companies to 72% and the total number of all Smartsheet users across paid and collaborators is now more than 4.2 million. Expansion within our base within the quarter included 26 companies increasing their annual recurring revenue by more than $50,000. Notable expansions occurred at customers such as SAP, Dell, Hurley Medical Center, and HP. In numerous customer conversations this quarter, I repeatedly heard how Smartsheet is driving high-value automation and workflow consistency in areas such as project management, sales, marketing, and finance.

For example, a Fortune 100 retailer and Smartsheet customer for over 5 years expanded by more than $100,000 in the quarter. This customer upgraded to our enterprise plan and is using advanced features, such as alerts, automation, and dashboards to drive meaningful workflows across marketing, new store openings, supply chain management, and process management. Now a Top 20 Smartsheet customer, their broader usage of the platform across an increasing number of teams is delivering efficiencies throughout the organization.

As we previously discussed, we optimized our sales motion at the beginning of the year to focus efforts around our high-potential accounts, while enabling other prospects to our digital sales motion. While there is still work to be done in this regard, we are pleased by the results we've seen thus far. In June, we evolved on our plan offerings to better meet the needs of customers who want to access high-value capabilities such as dashboards and automation.

By introducing an enterprise premier plan and discontinuing the team plan for new customers, we responded to customers' needs and simplified our online and assisted sales motions in the process. We believe that access to these high-value features will drive stronger and more fruitful relationships over time.

The expansion of our international sales and support capacity remains on track. Since we believe direct time-zone appropriate engagement drives both better outcomes for customers and healthy expansion rates, starting in October, we will have our first EMEA sales team members on the ground in the U.K. with a plan to grow over time. We look forward delivering a deeper, more robust level of engagement for our international customers, which currently account for about 25% of our total account value.

Smartsheet's consistent performance over time is driven by a strong product portfolio that addresses a wide range of real-world challenges for business users. We remain focused on delivering and increasingly valuable platform that empowers everyone to improve the way they work, connect, innovate, and execute. That empowerment in turn creates better experiences for employees, organizations, and their customers, and drives better business outcomes.

In Q2, we continued to deliver on our initiative to integrate with popular messaging platforms, furthering Smartsheet's position as the neutral fabric between teams, regardless of their corporate messaging standard. In addition to our previously announced integrations with Slack and Workplace by Facebook, we launched an integration with Google Hangouts Chat in July. Integrating with the leading messaging applications remains an important aspect of our product roadmap and you can expect further developments on this front as we move through the year.

This quarter, we also launched a set of pre-packaged solutions called Accelerators, for three distinct use cases: ITPMO, professional services, and M&A. By leveraging our insights and best practices, our customers are able to deploy Accelerators rapidly, with confidence, and at scale. For example, a biomedical equipment manufacture, Beckman Coulter, deployed our professional services accelerator in less than 3 weeks to improve their customer onboarding and equipment deployment process.

With our Accelerator, Beckman Coulter quickly gained visibility and real-time status updates to workloads that were previously managed using a less efficient combination of email and spreadsheets. Although it's still early days for our Accelerator products, interest from both current and prospective customers is encouraging. Given this early signal, we plan to roll out additional Accelerators in the coming quarters.

We also added significant enhancements to our mobile capabilities in Q2, including a contextually aware editing experience. With this touch-optimized experience, knowledge workers can be more productive from wherever they are, executing work through their mobile device. We also introduced new mobile-only capabilities like barcode scanning, which our customers are deploying for a number of high-value use cases, including inventory tracking and supply chain management. We expect mobile workloads and engagement with Smartsheet's platform to continue to increase over time. From desktop to tablet to smartphone, we believe we are well-suited to add value for our customers regardless of their device choice or work location.

These are just a handful of the product initiatives we've been working on and we're excited to unveil additional offerings at our second annual ENGAGE global customer conference October 1st through 4th. Last year, we hosted our first ENGAGE conference with over 1,000 attendees. And this year, with registered attendants outpacing last year's conference, ENGAGE'18 is set to be even bigger and better. We look forward to seeing many of you there.

Before I turn it over to Jenny to provide more financial details on the quarter, I want to share my continued excitement for Smartsheet in the future. I'm very pleased with our performance thus far in fiscal year '19 and the progress we're marking against our strategic priorities. Thank you to our dedicated Smartsheet team for your continued passion and commitment to our customers and to one another. And thanks, also, to our customers and shareholders for your confidence in our service and in the future of our business. Jenny?

Jennifer Ceran -- Chief Financial Officer

Thanks, Mark, and welcome, everyone. Overall, we delivered $42.4 million in revenue for the quarter, up 59% a year ago, driven by strong demand for our platform. Billings came in at $52.2 million, up 55% versus the same quarter a year ago. Our net dollar retention rate was 131%, an increase of 1 percentage point versus last quarter, and our average annualized contract value or ACV per domain-based customer grew 49% year-over-year to $2,000.

Second quarter non-GAAP operating loss was $8.7 million, as we continue to make investments in our platform and go-to-market capability. And non-GAAP net loss per share was $0.08. free cash flow was -$4.2 million, driven by continued investments in the business, and we ended the quarter with a cash balance of $211 million.

Before I provide our outlook for the third quarter and the remainder of the year, let me provide you more details on the second quarter, starting with revenue. Of our $42.4 million in total revenue, subscription revenue was $37.5 million, a 57% increase versus the year-ago quarter. Services revenue came in at $4.9 million, up 71% versus a year ago. Services revenue represented 12% of our total revenue, and we now expect it to be between 10% and 12% of total revenue for the remainder of this fiscal year.

I'll now turn to our quarterly business metrics. Our total domain space customer count at the end of the second quarter was 76,693. These customers continue to represent approximately 96% of our total ACV and ISP customers, which represent individuals and very small teams using an ISP-based domain represented the other 4%.

We saw very positive growth in our largest customers this quarter, with 4,956 customers now paying us $5,000 or more per year, and 298 customers now paying us $50,000 or more per year. These customer segments grew year-over-year by 76% and 146%, respectively, and now represent approximately 60% and 22% of total ACV.

As of the end of the quarter, our average ACV per domain-based customer increased 49%, compared to the same period a year ago, as customers continue to deploy Smartsheet into more areas across their organization. As I mentioned earlier, our dollar-based net retention rate was 131%. We now expect dollar net retention rate to be above 126% 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 second quarter, overall gross margin was 82% versus 80% a year ago and 80% in the prior quarter. Subscription gross margin was 88%, 1 percentage point more than the prior quarter. The improvement was driven primarily by cost efficiencies and hosting related services. As we continue to migrate services to the public cloud, support international expansion, and serve the government sector industries, we expect our gross margin to more closely reflect our long-term margins of 78% to 80% over time. Professional services margin was 30%, up from 29% in Q1, driven by higher utilization of our consulting staff and continued strength in training. As we add headcount to support growth, we expect the professional services margin to be closer to our annual target of 20% in the second half of this fiscal year.

Turning to operating expenses, general and administrative costs in the second quarter were $7.4 million, representing 17% of total revenue, up from 16% of revenue in the same quarter a year ago and in line with the prior quarter, as we continue to absorb the costs of operating as a public company. Research and development was $13 million, or 31% of total revenue. This compares to 27% of revenue a year ago and 34% of revenue in the prior quarter. We plan to continue to make substantial investments in our product to support the expanding appetite of our enterprise customers for more capabilities.

Finally, sales and marketing expense was $22.9 million, or 54% of revenue versus 62% of revenue a year ago, and 60% of revenue in the prior quarter. We expect sales and marketing as a percent of revenue to increase in the third quarter as we incur incremental costs for our ENGAGE customer conference, and our marketing initiatives. Over time, 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 in market adoption.

Turning to operating loss and free cash flow. Operating loss was $8.7 million, representing a negative operating margin of 21%. Approximately 68% of our total expense is headcount related and we added 74 employees across the organization during the quarter. Free cash flow was -$4.2 million, which includes capex spend, capitalized internal use software, and principal payments on leases totaling 7% of revenue. The increase in capex spend relative to the prior quarter is related primarily to the expansion of our Boston office.

Now, turning to billings. Our second quarter billings were $52.2 million, up 55% versus a year ago. Approximately 88% of our subscription billings were annual and the remainder were monthly, with quarterly and multi-year billings representing about 1% of the total. In the second quarter, we billed a larger number of enterprise renewals, including the renewal for our largest customer. In the third quarter, we have fewer large enterprise renewals. As such, we expect our third quarter billings to be lower in absolute dollars than the second quarter, which is consistent with our year-ago trend.

I will now provide our guidance for the third quarter and the full fiscal year 2019. This guidance reflects our plans to reinvest the majority of upside back into the business. Specifically in our product capabilities and our sales and marketing efforts, which includes the increased market costs mentioned early.

For the third quarter, we expense total revenue of $43.5 million to $44.5 million, representing year-over-year growth of 48% to 51%. We expect non-GAAP operating loss to come in between $17 million and $16 million, and non-GAAP net loss per share to be between $0.16 and $0.15 based on weighted average shares outstanding of 102.8 million. For the full fiscal year, we expect total revenue to be range of $167 million to $169 million, representing growth of 50% to 52%. Non-GAAP operating loss is expected to be between $57 million and $53 million. We expect non-GAAP net loss per share of between $0.56 and $0.52 for the year, based on approximately 99.2 million weighted average shares outstanding.

For fiscal year 2019, we expect billings to be in the range of $201 million to $204 million, representing growth of 48% to 50% versus last year. As I mentioned earlier, we expect billings in the third quarter to be lower in absolute dollars than the second quarter due to the timing of larger enterprise renewals. We are also updating our free cash flow guidance for the year to be up to -$24 million, as we continue to make investments in our business and need flexibility in the second half to do more based on strategic priorities. We expect cash burn to be equally distributed between the third and fourth quarters.

To recap, we were very pleased with our second quarter results, as demand for our work execution platform remains robust. We continued to develop new products and features, such as our Accelerators and enhancements to our mobile solutions. And as we look forward to the remainder of the year, we plan to continue making investments that help our customers reap even more benefits from our platform.

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

Questions and Answers:

Operator

At this time, I would like to remind everyone in order to ask a question, press * then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Stan Zlotsky with Morgan Stanley. Your line is open.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much, guys. Well done on the quarter. Maybe just to start out on the first one, which is you are seeing a great momentum within the larger customers, particularly the $5,000, especially the greater than $50K ACV customers, which I presume is a function of the strategic salesforce that you've been really building out. Maybe just some qualitative comment on how the broader, the strategic salesforce has performed into the first half of the year and how it's looking for the second half of the year, especially with enterprise, the heavy enterprise skew that we tend to see in the back half of the fiscal year. And then a quick follow-up.

Mark Mader -- President and Chief Executive Officer

This is Mark, Stan. I would say it's a combination of two things. One, the people and then the offerings that those people are able to bring to market. I think the company has really made progress from having a horizontal platform of tools that people can use to their advantage to now, strategic reps being able to go in with solutions. That is distinctly different than selling licenses that enable people. So, it's the combination of one and the other.

I would say that strategic sales team is growing and we're able to be in-market with people. When I visit some of our larger customers and I see how they respond to our team being in their buildings helping them and helping counsel on how they can best take advantage, please are responding really well. We exited last year with a pretty small strategic team, call it 5% of our total quarter carrying rep base. As that team has more than doubled in size now and we look to tripling that, we're looking to make sure that type of behavior and that type of response from customers stays in place. But I would say it's a balance. It's a balance between having people in markets and then changing the offering that we were able to show them.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. That actually I think segues well into my second question, which is the Accelerators, which I think is a very interesting portion of your product portfolio, especially considering the 2,000+ use cases that you already have in the system. So, just as to the Accelerators you already announced, what are some other use cases that you think would be a great opportunity for these Accelerators? And maybe just remind us, how are these Accelerators priced when you walk into a customer? Thank you. That's it for me.

Gene Farrell -- Senior Vice President of Product

Thanks, Stan. This is Gene Farrell. Let me start first with how we structure Accelerators and then I'll talk about use cases. Accelerators are a package solution. So, typically, they're sold with a combination of reoccurring software revenue for the actual solution itself and then a services package that's usually for some customization and then onboarding services. So, the idea is that this becomes something that customers can get started with really quickly and doesn't require a heavy consulting engagement to get going.

We are actually seeing demand across almost every kind of vertical and horizontal use case for higher-value solutions. We chose the first three really based on where we saw the most customer demand. Our plan is to announce additional Accelerators over the balance of the year. Our next wave of Accelerators is going to focus on a specific vertical around sales processes. And I can't get into the specifics of the expect Accelerators we'll be launching, but you'll see more announcements on that in the coming months.

The third thing you asked is around pricing. Today, our Accelerators pricing varies by the type of solution, but all of them are priced in the five figures.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. Thank you so much.

Operator

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

John DiFucci -- Jefferies -- Analyst

Thank you. I have one question but I think there's three questions in my question, so I'll just ask this one. First of all, the results look really strong and we calculate that new subscription annual contract value accelerated in the quarter. The year-over-year growth rate increased. First, I guess I know that's not a term, something you're going to talk about in detail, but is that directionally accurate?

And second, is that more, it sounds like that's more to do with your expand. The land and expand model has more to do with the expand and it sounds like it's working really well. And if that's the case, capturing new customers can result in meaningful traction over perhaps a longer period than we've seen from other software businesses. So, if you could talk a little bit about how that effort is going on where you're focusing on new customers.

Jennifer Ceran -- Chief Financial Officer

I'll take the first two. This is Jenny. Hi, John.

John DiFucci -- Jefferies -- Analyst

Hi, Jenny.

Jennifer Ceran -- Chief Financial Officer

On the subscription growth that you mentioned, the way we calculated the growth rates were about the same. Well, they were the same as Q1, so we're happy with the performance. With respect to, we are doing about three-quarters of our bookings. Our expansion, one-quarter, is new. That's where it's trending now. Expansion is definitely an important part of the play here, given that people land pretty small and then grow over time. Do you want to talk a little bit about the strategy for new?

Mark Mader -- President and Chief Executive Officer

On the new side, John, it's really across a couple of dimensions. The first is acquiring larger entities that have high potential to invest and to really generate value with our platform over time. So, that's indicative like the 26 Fortune 500 that we added this last quarter. And then other investments that are continuing on the digital motion, which really cater to a very deep stack of potential buyers. We think there's still considerable work that we can perform on that front, which is servicing solutions, making it very high velocity sales, low touch.

I would say more of the emphasis this year in the dollars have been deployed against the higher potential and we think there's great opportunity for the rest of this year and next year in terms of optimizing the digital sales motion. It's kind of interesting because the digital sales motion is what the company really commenced on and was shaped around. Then we extended into a sales-assisted motion. And really for the rest of this year and the remainder of next year, it's going to be balanced across both.

John DiFucci -- Jefferies -- Analyst

Great. That's helpful. If I could, I just thought of a follow-up, Mark, when you were talking about that. Can you tell us about, I know it's really early, but can you talk a little bit about international traction? I know you just sort of just started to put sales people in international regions, but are you seeing uptick there yet or is it just too early for that?

Mark Mader -- President and Chief Executive Officer

Yeah, well we're starting to see -- what gives us confidence about getting team over there is in last quarter, we already had dedicated territories covering the region. So, those were sales individuals and customer success people reaching over to Europe from Boston. And the customer reaction we found from having dedicated coverage, even a couple thousand miles away was very positive.

So, what we're starting to see evidence of in international is really the belief that the remote territories should be able to produce expansion rates analogous to what we have here in the U.S. There's nothing -- people have needs globally. If you cater to those needs in a comprehensive way, they should respond. So, the evidence we saw last quarter on international direct territories out of Boston -- positive. Gave us a lot of confidence in continuing with that plan that we had set forth at the beginning of the year, which was to get people on the ground over there.

John DiFucci -- Jefferies -- Analyst

Great. Thanks a lot.

Operator

Your next question comes from Bhavan Suri with William Blair. Your line is open.

Bhavan Suri -- William Blair -- Analyst

Hey, guys. Thanks for taking my questions. I'll try to keep it to two specifically here. But first, just on the R&D spend, as you think of R&D, how do you think about spreading that? Obviously between Accelerators, which are driving great growth, and sort of just product enhancement, product expansion, and sort of new feature functionality outside of Accelerators, connectors, whatever it is. How should we think about how you guys think about that?

Gene Farrell -- Senior Vice President of Product

Bhavan, this is Gene Farrell. I would say that for us, let me start by saying this. About 95% of our roadmap really is driven by feedback and input we get from customers. And we've been spending a lot of time with customers. We actually just had our first product advisory committee a couple weeks ago and had 11 of our customers in and deeply engaging around our roadmap and the areas we're investing. And I would tell you that we're really trying to balance a combination of how do we address known pain points or improvements that we can make in our existing offerings to our customers who've said, hey, I love this feature but if you could just have it do this, or if it just had this capability. So, we'll continue to invest in the core.

Then really investing in how do we move to support higher value, more complex use cases for customers? That's what you're seeing with Accelerators. That's what you're seeing with the investment tool we're making in automation and workflow, and really being able to support where customers have said, hey, I really like what you're doing here but I want to be able to support these more complicated workflows or more complex workflows. So, you'll continue to see us investing there.

Then I'd say the third area is really around driving engagement overall with our platform, both between our existing customers and then the partners that want to try and engage and build solutions on top of our platform. And so, we're building features that enable that, both end users to be able to do more and partners to be able to build solutions on top of us.

Bhavan Suri -- William Blair -- Analyst

Thanks, Gene. And obviously the expansion piece has worked out well, so congrats there. I guess one for the team there. When you look at the sales priority, you've obviously had a ton of the free collaborators. I'd love to understand some of the strategies you're deploying. So, maybe a little more tactical a question. But what strategies have been deployed to increase the conversion rate for free to sort of paid?

How do we think about how you guys are attacking that market. I think about you saying we've got a ton in the pipeline, but if you think about the funnel, it's huge on the free side, but the sort of conversion piece and have you see that accelerate? Thank you.

Gene Farrell -- Senior Vice President of Product

Yeah, I think that the way that we think about collaborators is it's really one of the best ways to introduce individuals to the power of our platform. Because we allow free collaboration and sharing, they can onboard and see the power of Smartsheet. We think it's really our responsibility to make sure that collaboration experience is engaging, intuitive, and that those collaborators then see the power of Smartsheet. Then importantly, we're running more plays to suggest to collaborators how they can do more by having a license. And so, there are a number of different plays that we run, both with the in-app experience and through the collaborator process, where we suggest to them that they can do more and get more power from Smartsheet by being a licensed user. We'll continue to refine that over time.

Mark Mader -- President and Chief Executive Officer

I think one thing to add there, Gene, is as you were saying, as the offering gets bigger and our capabilities increase in number, the opportunity to also not have to give all capabilities to everybody exists, right? So compare what we offer today versus what we had a year ago, two years ago. Collaborators historically have had access to everything. And in some cases, they're extraneous. In other cases, there's a lot of value assigned to those. So, we get to exercise that choice long-term on what we provide to that huge population. I think there will be opportunities for us to be able to, as Gene said, get people to shift from one to the other based on what we introduce.

Bhavan Suri -- William Blair -- Analyst

Yeah, that's helpful. Thank you, guys, and congrats. Just a really nice job. Thanks.

Operator

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

Terrell Tillman -- SunTrust Robinson Humphrey -- Analyst

Yeah, good afternoon. I'll add my congratulations. Hi, Mark, Gene, and Jenny. First question, Jenny for you, just relates to, I don't know if you had said it earlier on the call and I missed it, but the actual quantification for the user conference expense in the third quarter? I know that's one of the reasons for the seasonal increase. And then secondly, for you, Jenny, is there some sort of potential sales lift that we could see coming out of the conference? In other words, it's an opportunity to sell and so we could see some benefit to billings either late in the third quarter or in the fourth quarter. And then I have a follow-up.

Jennifer Ceran -- Chief Financial Officer

Hi, Terry. Okay. First one on the user conference, I didn't give out the expense, but it's a couple million dollars. You can put that into your model. And in terms of sales lift, we factor that in, a potential sales lift, into our guidance for the year. What's your third question?

Terrell Tillman -- SunTrust Robinson Humphrey -- Analyst

Well, yeah, thanks for that. The other question just relates to the connectors. Maybe an update on the -- and I'm not sure who this is for, but I'll just throw it out for the team. But just quantification on what kind of revenue uplift you're getting from connectors? And have you all been able to look at some sort of correlation on customers that use more connectors going bigger with the platform or being bigger ACV customers? Thank you. And again, nice job.

Jennifer Ceran -- Chief Financial Officer

Hey, Terry, can you just repeat that question? Terry?

Terrell Tillman -- SunTrust Robinson Humphrey -- Analyst

Jenny, can you hear me?

Jennifer Ceran -- Chief Financial Officer

Yeah, can you repeat that real quick?

Terrell Tillman -- SunTrust Robinson Humphrey -- Analyst

Yeah, sorry about that. Just the question relates to the connectors. It's a revenue monetization opportunity. So, what kind of uplift are you getting from connectors and have you all been able to look at data that talks about the more connectors being leveraged in terms of integrated workflows? Do those correlate with bigger customers on average? Thank you.

Jennifer Ceran -- Chief Financial Officer

Yeah, so the connectors are a small percentage of our total revenue right now. It's about 2%. But to your point, I think it adds a ton of value and we are seeing in terms of bookings a larger number than the 2%.

Mark Mader -- President and Chief Executive Officer

Yeah, I think the other thing I would add to that is in general, customers that use connectors are typically deploying higher-value solutions on Smartsheet and also typically tend to have more use cases across the organization. And so, I think that, I personally don't think of connectors as much as a primary revenue driver as much as they are a way to be a more strategic app for our customers and create a faster spinning flywheel over time as we support broader use cases across an enterprise.

Operator

Your next question comes from Mark Murphy with J.P. Morgan. Your line is open.

Mark Murphy -- J.P. Morgan Securities -- Analyst

Thank you. This is [inaudible] sitting in for Mark. Congratulations on the quarter from me as well. It seems like most of the questions have been asked, but on a high level, Mark, as you look forward to say the next 3 years, what are some of the areas that you say you are betting at this point in time and maybe at this point in time you characterize real wildcards that could positively impact growth in the future?

Mark Mader -- President and Chief Executive Officer

I think that one of the things that we highlighted during the roadshow was this very significant untapped population of business users who have not really been empowered fully to deploy tools to their advantage. So, when we think about what we build in terms of horizontals, what we build in solutions, it is really catering to enable that population. So, in terms of upside, it's pretty consistent with what we've said for the last year. And how we position ourselves to enable those people in an IT-conforming manner which is secure and scaling, that combination is the big thing.

Now, as Gene spoke of, it's not just us building discrete features, it's us building discrete capabilities combined with solutions, combined with enabling third parties to do that on our platform. So, when we think about our vision, it is not putting us in the way of sales philosophy. So, how do you get other people who have IT, who have ideas, be productive on your platform? So, you ask about the 3-year horizon? It is absolutely a part of the 3-year horizon. The third-party enablement is not a big portion of our financial plan this year, but we do see that composite of Smartsheet driven and third-party driven offerings to be very significant over time.

Mark Murphy -- J.P. Morgan Securities -- Analyst

Interesting. Thank you. And if I can quickly, Jenny, the dollar-based metric engine obviously pretty solid. I think I heard that the gross retention improved? Did I hear that correctly? And what is driving that?

Jennifer Ceran -- Chief Financial Officer

Yeah, I would say that the loss rate was 11% the last time we talked to you guys and it still rounds to 11%, but it's coming down. It's closer to the 10.5% now. So, if you take that, then our gross retention has improved.

Mark Murphy -- J.P. Morgan Securities -- Analyst

Got it. Thank you.

Operator

Your next question comes from Robert Simmons with RBC. Your line is open.

Robert Simmons -- RBC Capital Markets -- Analyst

Could you give us a little color on what drove the reacceleration in your billings growth this quarter?

Jennifer Ceran -- Chief Financial Officer

In the what growth?

Robert Simmons -- RBC Capital Markets -- Analyst

Billings. There's a nice pickup in the year-over-year growth in your billings.

Jennifer Ceran -- Chief Financial Officer

Oh, yeah. Yeah, so we had some very strong, some very large transactions there were above the $25K mark this quarter, and so that was very helpful. Just generally from seasonality, Q2 tends to be a strong quarter for enterprise up-sales and renewals and so that was what drove the improvement from Q1.

Robert Simmons -- RBC Capital Markets -- Analyst

Okay, great. And then beyond the integrations that you were talking about, are there any other notable recent product updates that you can give us? Things like in-app purchasing?

Gene Farrell -- Senior Vice President of Product

Well, I can tell you that we have a customer conference coming up in about 4 weeks and you should stay tuned for that because we have a lot of new product capabilities that we're going to be announcing at that time.

Robert Simmons -- RBC Capital Markets -- Analyst

Got it, OK. That makes sense. Thank you for those two questions.

Mark Mader -- President and Chief Executive Officer

Thanks.

Operator

Again, if you would like to ask a question, press * then the number 1 on your telephone keypad. There are no further questions at this time. I will now turn the call back over to the presenters.

Mark Mader -- President and Chief Executive Officer

Great. Well, thank you for joining us today for our second quarter conference call. We look forward to speaking with you again next quarter.

Operator

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

Duration: 55 minutes

Call participants:

Mark Mader -- President and Chief Executive Officer

Jennifer Ceran -- Chief Financial Officer

Gene Farrell -- Senior Vice President of Product

Aaron Turner -- Senior Director, Investor Relations

Stan Zlotsky -- Morgan Stanley -- Analyst

John DiFucci -- Jefferies -- Analyst

Bhavan Suri -- William Blair -- Analyst

Terrell Tillman -- SunTrust Robinson Humphrey -- Analyst

Mark Murphy -- J.P. Morgan Securities -- Analyst

Robert Simmons -- RBC Capital Markets -- Analyst

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