Smartsheet Inc. (SMAR) Q4 2022 Earnings Call Transcript

Smartsheet Inc.  (NYSE: SMAR) Q4 2022 earnings call dated Mar. 15, 2022

Corporate Participants:

Aaron Turner — Head of Investor Relations

Mark Mader — Chief Executive Officer

Pete Godbole — Chief Financial Officer

Analysts:

Michael Turrin — Wells Fargo — Analyst

Ben — Morgan Stanley — Analyst

George Iwanyc — Oppenheimer — Analyst

Terry Tillman — Truist Securities — Analyst

Steve Enders — KeyBanc — Analyst

Mark Murphy — JPMorgan — Analyst

Alex Zukin — Wolfe Research — Analyst

DJ Hynes — Canaccord — Analyst

Brent Thill — Jefferies — Analyst

Jake Roberge — William Blair — Analyst

Scott Berg — Needham — Analyst

Rishi Jaluria — RBC Capital Markets — Analyst

Keith Bachman — Bank of Montreal — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Smartsheet Fourth Quarter Fiscal 2022 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] Thank you. Aaron Turner, Head of Investor Relations, you may begin your conference.

Aaron Turner — Head of Investor Relations

Thank you, Josh. Good afternoon and welcome everyone to Smartsheet’s fourth quarter of fiscal year 2022 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, Pete Godbole. 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 Pete’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 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. 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 US GAAP financials, we will discuss certain non-GAAP financial measures. A reconciliation to the most directly comparable US 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 — Chief Executive Officer

Thank you, Aaron, and good afternoon, everyone. Welcome to our fourth quarter earnings call for FY ’22. Before speaking to our results, I’d like to start by sharing that our thoughts and support are with the people of Ukraine and all of those affected. Today, we’ll be sharing the results of an outstanding quarter that rolls up to an extraordinary year in Smartsheet. We’ll also discuss our proven strategy that reinforces my confidence in our growth trajectory and will keep us positioned at the top of the CWM category.

While Pete will provide details, I want to share some standout results first for the quarter and then for the year. Smartsheet revenue for Q4 grew 43% year-over-year to $157.4 million dollars and billings grew 48% year-over-year to $224 million. We closed out the year with more than 10 million Smartsheet users. Q4 saw both a new quarterly record of 286 deals of more than $50,000 and a new quarterly record of 98 deals of more than $100,000, up 107% and 128% respectively year-over-year.

Given the acceleration of billings in FY ’22, the momentum in the business is very strong and I’m confident with the setup as we start FY ’23. According to Okta’s 2022 Business at Work Study, Smartsheet is now the most popular work management platform that businesses use alongside Microsoft 365. In fact, Smartsheet is the only work management platform to appear on Okta’s list of the eight most popular apps used in conjunction with M365. We’ve also been included as a top performer on the 2022 Capterra shortlist of the highest-scoring project management software products based on feedback from thousands of users.

Additionally, we were in the most 5-star customer reviews in both the CWM and PPM categories of Gartner Peer Insights. By delivering no-code enterprise solution in which more people and more teams can move more quickly to take action and drive outcomes that matter, Smartsheet customers are realizing significant returns on their Smartsheet investments. Our unique land, expand and climb motion drives the category-leading dollar based net retention rate inclusive of all customers of over 134%.

We continue to make significant progress on improving the land motion. Between the introduction of the Pro Plan, simplification of our on-boarding processes and the success of our new business team has had selling to advance to new customers, new business volume is at record levels. In fact, Q4 was a record quarter for new business bookings and a record quarter for the number of licenses purchased by new customers.

As customers graduate from basic productivity use cases to transforming larger operational workflows, we see uptake and acceptance across more departments. We also continue to enable viral growth inside and outside of customer organizations by allowing free use of the product by anyone who is invited to collaborate, we pull our customers, extended teams, partners and suppliers into that Smartsheet environment, making them experience the benefits of Smartsheet first hand.

Today with a best-in-class net expansion rate, our expansion motion continues to fire on all cylinders. In Q4, we saw expansions from companies such as Target, Lucid Motors, Herman Miller, Zendesk, Beyond Meat, PACCAR, General Mills, Daimler and Goodwill. But our growth is fueled by more than expanding our user base. We continue to see success with Smartsheet climbing up the value chain as customers attaching the mission critical workflows across systems and people within their organizations.

In FY ’22, we saw global media conglomerate triple its ARR to over $2 million. This significant growth was driven by both paid licensed additions of which they added over 1,000 paid seats and advanced gold. This organization at $300,000 in ARR in Q4 alone. A global wireless communication provider doubled their ARR are in FY ’22 through 14 separate transactions of $50,000 or more. These represented sales to new departments, as well as expansion across existing departments, up leveling there Smartsheet usage by attaching capabilities that allowed groups to scale and integrate Smartsheet workflows. This land, expand and climb scenario repeats itself again and again, increasing active user base within the Smartsheet ecosystem, which in turn leads to growth of our user license space and deployment in high value workloads.

Now, I’d like to underscore some of the product developments that are fueling our growth. In Q2 of FY ’22, we introduced Smartsheet Advance and created a new tiered way for customers to unlock the full potential of Smartsheet to scale. Advance Silver enables businesses to orchestrate sophisticated programs, projects and processes using tools like Control Center. Customers can also create curated no-code applications to drive workflows across internal and external collaborators using work apps and Dynamic View.

In Q4, the total number of created work apps grew 28% quarter-over-quarter to over 69,000. With advanced gold customers get a comprehensive set of data integration capabilities that enable the import and export of millions of records to and from other systems using Data Shuttle and Data Table. They can also trigger data processing workflows based on events using bridge, as well as continuously synchronizing data between Smartsheet and other systems using our real-time connectors. Data Shuttle is now transferring over 3 billion records every month, up from 1.7 billion in Q2.

At the top tier, Advance Platinum has key capabilities for organizations that desire additional levels of compliance, governance and advanced policy measurement. The advisory practice of BDO, one of the world’s largest accounting networks, purchased Advance Gold in Q4. Advance will support many aspects of their business including practice, forecasting and planning, portfolio performance tracking and standardizing cross-functional projects across practice areas.

When we introduced Advance, our expectations with our new customers would you Smartsheet for a period of time for simpler use cases before moving up to Smartsheet Advance. Instead, we’re starting to see a meaningful number of new customers choosing Advance from the start. Just in Q4 over 20% of the Advance deals we closed were to new customers of Smartsheet.

Advance features resonates with customers and organizations of all sizes from million dollar plus ARR customers in the Fortune 500 to organizations like the Olympia School District in Washington State. The Olympia school district is using advanced to scale, as they had more projects to develop a process for grant for management. They’re looking to pave the way for other school districts to embrace technology solutions that can help them better serve their communities.

Our innovation velocity continues to produce as well. Some highlights include work insights, allowing users to automatically analyze and visualize sheet data as a snapshot, time series or crosstab Enterprise plan managers ensuring all of an organization Smartsheet plans follow security, governance and compliance requirements. Unified resource management, making it seamless to build the best team for the job all from within one core Smartsheet experience. And just last week, we announced deep integration of Brandfolder’s top rated digital asset management capabilities into the Smartsheet platform after working with a diverse set of beta customers.

Enhancing the functionality between Smartsheet and Brandfolder helps customers better align their marketing and creative work by streamlining Asset Management. For example, a content development manager at IS Clinical can now manage the development of visual assets for the Company’s website in one unified solution. When creators bring assets into Brandfolder, the integration is used to surface those assets in Smartsheet, manage approvals and reflect the completion of deliverables.

Customers can now see Brandfolder insights like asset views, downloads and shares within Smartsheet, helping marketers make more informed creative decisions. Since acquiring Brandfolder we’ve extended the value of Smartsheet across a broad set of use cases with customers like Ethan Allen, Wynn Resorts and U-Haul. On the security front, the threat landscape is rapidly evolving and intensifying. More and more CIOs and CSOs are deeply inspecting critical data governance and controls.

Capabilities such as customer controlled encryption keys, integrations with corporate directories and data loss prevention and classification systems, granular sharing and egress controls are differentiating Smartsheet as the most enterprise ready CWM platform in the market. An example of the security first focus we’re seeing comes from a top 5 investment firm. Earning the trust of the VP of Information Security was a key step in getting IT to adopt and promote Smartsheet across the organization. With securities buy in, Smartsheet was deployed across a number of use cases, including investment management, capital analysis and Corporate Strategy, representing a six-figure expansion in Q3. This was quickly followed by an additional expansion in Q4 to support several additional work streams.

We are in the middle of a massive greenfield opportunity with over billion knowledge workers globally where only a very small fraction of them have to skip with the power of Smartsheet and while most of our deals involve replacing the status quo of highly manual processes and primitive tools like spreadsheets, emails and presentations, we are also displacing competitive CWM products as well. One such win was with the global production company that delivers thousands of events worldwide. The company initially engaged with Smartsheet by using a competitive CWM product, but their existing solution lack the adaptability, scale and integrations required to manage the full scope of their work.

We were able to demonstrate Smartsheet’s ability to meet their needs at scale. This includes delivering time savings and smoother customer hand-offs from their sales organization, using our Microsoft Dynamics connector, making informed resourcing decisions with Smartsheet resource management, supplying their creative teams with best-in-class creative collaboration capabilities via Brandfolder, delivering a better customer experience with dashboards and a mobile app that connects employees in the field.

Over the past few years, we’ve invested in high potential markets like Europe, Asia-Pac and the U.S. federal government. In October of last year, we launched Smartsheet Regions offering in the EU, enabling customers to establish plans with their content hosted in Germany. Already, we’re unlocking opportunities and quickly gaining momentum with EU customers. One of them, a European biotech company is using Smartsheet to manage the release of its cancer treatment therapeutics.

The company started with our U.S. based region, but was unable to fully deploy Smartsheet on the Smartsheet platform due EU data privacy requirements. But with our EU region, this company was able to invest in both Smartsheet enterprise and Advance Silver leveraging Control Center and Dynamic View to help scale out therapeutic development workflows. Building on our international investments, we established a sales office in Germany and will be expanding into Japan this fiscal year.

To close, we’re positioned in the right place at the right time as the market for modern work management grows rapidly. We’re hiring exceptional people and giving them the tools, resources and latitude they need to do great things. In a tight job market, we expanded our team by more than 600 people in FY ’22. I have never felt more certain about our success going forward. Customers are choosing Smartsheet in record numbers and the investments we’re making across sales, marketing and product will directly support our growth for the years to come.

Now, I’ll turn it over to Pete.

Pete Godbole — Chief Financial Officer

Thank you, Mark and good afternoon everyone. As Mark mentioned, we finished the year strong with Q4 results that exceeded our guidance across the board and culminated in accelerating billings growth on a full year basis. We continue to experience strong momentum in our business, fueled by increasing awareness of the Smartsheet platform continued success with our Advance offering and strong execution by our sales and product teams.

I will now go through our financial results for the full year and the fourth quarter. 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. For the full year FY ’22, we ended with total revenue of $550.8 million, up 43% year-over-year. Billings of $661.5 million, up 47% year-over-year. Operating loss of $34.2 million and free cash flow of negative $20.8 million.

We ended the year with annual recurring revenue of $638 million, a year-over-year increase of nearly $200 million. Next, I will provide additional details on our fourth quarter financial results. Fourth quarter revenue came in at $157.4 million, up 43% year-over-year. Subscription revenue was $145.7 million, representing year-over-year growth of 44%. Services revenue was $11.7 million, representing year-over-year growth of 34%.

Turning to billings. Fourth quarter billings came in strong at $224.3 million, representing year-over-year growth of 48%, approximately 93% of our subscription billings were annual with 4% monthly. Quarterly and semi-annual represented approximately 3% of the total. Multi-year billings represented less than 1% of total billings.

Moving on to our reported metrics. The number of customers with ARR over $50,000 grew 55% year-over-year to 2,354 and the number of customers with ARR over $100,000 grew 74% year-over-year to 1,026. These customer segments now represent 55% and 41% respectively of total ARR. The percentage of our ARR coming from customers with ARR over $5,000 is now 86%.

Next, our domain average ACV grew 37% year-over-year to $6,977. We ended the quarter with the dollar based net retention rate of 134%, a 3 percentage point improvement from Q3. The full first churn rate dropped further and remains below 5%. For FY ’23, we expect our dollar based net retention rate to be above 130%.

Now, turning back to the financials. Our total gross margin was 82%. Our Q4 subscription gross margin was 87%. We expect our gross margin for FY ’23 to remain above 80%. Overall, operating loss in the quarter was negative $14.5 million or 9% of revenue. Free cash flow was negative $2.7 million, which overachieved against our guidance due to strong collections.

Now let me move on to guidance. Starting in FY ’23, we will be reverting to our pre-COVID approach by providing billings and free cash flow guidance on a full year basis only. Given the growing seasonality in our business, we expect our quarterly billings cadence to be more weighted towards the back half of the year with the lowest percentage of billings on an absolute and growth basis occurring in the first quarter and then building towards the back of the year.

The factors that contribute to this growing seasonality are the expansion of additional territories, internal promotions to quota carrying or management roles, the front-loaded hiring of new sales reps and an in-person sales kick off in March. For the first quarter of FY ’23, we expect revenue to be in the range of $162 million to $163 million, non-GAAP operating loss to be in the range of $25 million to $23 million and non-GAAP net loss per share to be between $0.20 and $0.18 based on weighted average shares outstanding of 128 million.

For the full year FY ’23, we expect revenue to be in the range of $750 million to $755 million, representing growth of 36% to 37%. Billings are expected to be in the range of $905 million to $925 million, representing growth of 37% to 40%. We expect non-GAAP operating loss to be in the range of $90 million to $80 million and non-GAAP net loss per share to be between $0.70 and $0.62 for the year based on approximately 128.5 million weighted average shares outstanding. We expect free cash flow to be between negative $15 million and negative $10 million.

Given the momentum in our business combined with incremental investment opportunities we see this year, global fuel capacity, international expansion and brand awareness, we expect continuing targeted investments with both short-term and multi-year impacts, while modestly improving free cash flow margins. To conclude, we finished FY ’22 with tremendous momentum, which we expect to continue into FY ’23 we have high conviction in our long-term growth opportunity and we’ll continue to invest appropriately.

Now let me turn it back to the operator for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Michael Turrin with Wells Fargo. Your line is open. Hey, there. Thanks, I appreciate you taking the questions. I guess, first you mentioned displacing other CWMs and some wins in the prepared remarks. Anything else you could share Mark around what’s driving that? Maybe you can also just spend a moment on what drives competitive differentiation for Smartsheet today. Thank you.

Mark Mader — Chief Executive Officer

I think, well, the bulk of the business is still displacing. I would say traditional tools and workflows. We are seeing opportunities as we land in more nodes within a business to really encroach on where other people may have presence. And as companies are looking at larger investments, they are looking to, in some cases rationalize. If they can move to one platform that meets their security compliance and their functional needs that’s really a win that drives efficiency for them. Again, it’s more on the occasional front, but it was notable in the sense that we had a few really nice size wins and growth opportunities that either happened displacing a competitor or we were growing very tremendously around the competitor, who is in an account.

And again, I think as we look at why we’re succeeding, it is really compelling to have a conversation with a customer when you have confidence in your portfolio when it’s highly differentiated. It’s not a discussion on faster, prettier qualitative things, it’s really things that are highly quantitative. I think the advance offering where people can get their heads around scaled process with Control Center and such, integration with Data Shuttle, those are things that others simply don’t provide. And then I think it is proving out really nicely in the advanced statistics, we’ve been able to post.

Michael Turrin — Wells Fargo — Analyst

It’s very helpful. Pete. One more if I may. The free cash flow margin guide getting close to breakeven in the coming year, looks on pace for that 10% target level. The operating margin guide in that backdrop looks maybe a bit lighter than what we’ve expected. So, could you remind us what might broaden the gap between those two margins in the coming year? And then maybe we can revisit — you ticked off a couple of things where those investments are heading.

Pete Godbole — Chief Financial Officer

So, Michael, you should think of billings and free cash flow as sort of going together and there’s sort of lag by revenue and op margin. So, when you think about sort of the gap, we are going to be hiring sort of a fairly large capacity in the field to go after this opportunity Mark talked about. That really represented itself in billings growth and cash flow, which is what’s reflected in our guide and improving guide we provided. There is a lag between the billings converting to revenue, and that’s what’s reflected in the op margin guide. So you see that sort of following as a lag behind the free cash flow numbers.

Michael Turrin — Wells Fargo — Analyst

Thanks. Nice job closing out the year. Appreciate it.

Operator

Your next question comes from the line of Stan Zlotsky with Morgan Stanley, your line is open.

Ben — Morgan Stanley — Analyst

Hi guys, this is Ben [Phonetic] for Stan, I think, first question from our end. Maybe can you just dig into the investments, especially in this market environment, which seems to be paying more attention to profitability given sort of the large market opportunity. How is your team thinking about the trade-off between flowing through the potential returns to top line, beats of bottom line versus reinvesting back into the business? Start there to let me begin.

Pete Godbole — Chief Financial Officer

So Ben, your question in terms of sort of where we’re investing, I’ll take that as the first part. At the end, I’ll cover sort of how we’re thinking about it more broadly. So, when you think of our investments, we’re making investments in sales and marketing to go after this opportunity. And in rank order, we’re making investments with first an increase in global fuel capacity. It’s across the board, but it’s focused on international with some greater emphasis on international and enterprise customers and that’s about ramping these people, getting them productive. That’s the first part of it. Orders of magnitude, that’s about three points year-on-year, if you will.

The second part of it is global awareness think about it as top of funnel and mid-funnel, getting our customers to know or people to know who we are. And lastly, we’ve got sort of a resumption in in-person customer engagement and field enablement spending. They’re starting to sort of get closer up to the pre-COVID level. So, those are three factors in sales and marketing that are driving it.

To your question of like how are we thinking about it, we’re driving this business with a solid eye to our unit economics and the customer signal we’ve been getting. Mark talked about the tremendous momentum we’ve seen. That’s really fueling sort of how we invest. And then we’re looking to specific numbers in terms of how we metric this thing, the LTV to CAC. Those are the ways we sort of think of that investment.

Ben — Morgan Stanley — Analyst

Got it. That’s helpful. And then maybe one more on fiscal ’23 billings guidance. Essentially with billing guidance implying, let’s say, roughly like 38% growth, if net revenue retention stays between low-to-mid 130% range, it almost feels like there’s limited implied new customer acquisitions. So, maybe just walk us through how you’re thinking about the pace of new logo acquisitions for fiscal ’23, and what that’s implied in the guidance there?

Pete Godbole — Chief Financial Officer

Yes. So you should think of — if you think of the total build for billings, it comes from like a few spots. It comes from new customers, expansion in new customers and it comes from the numbers we capture on a net dollar retention rate. So, we’ve guided you to the numbers in terms of what net dollar retention rate expectations are at 130%. If we sort of stated those levels, we expect healthy sort of contributions from new and expansion in new. And as Mark said, we’re focused on both ends of the spectrum. We’re thinking of enterprise growth and we’re looking at a number of logos we land at the lower end as well as licenses we land there.

Ben — Morgan Stanley — Analyst

Got it. Thank you so much.

Operator

Your next question comes from the line of George Iwanyc with Oppenheimer. Your line is open.

George Iwanyc — Oppenheimer — Analyst

Thank you for taking my questions. Pete, maybe just following up on the new business strength. Are you seeing any changes in the use cases that people start with Smartsheet? And can you also give us a sense of once they do start, how quickly they start to cross across department or start to expand across departments?

Mark Mader — Chief Executive Officer

We really haven’t seen — this is Mark. We haven’t really seen a deviation from what’s driven demand over the last couple of years. This notion of programs, projects and process, I mean, that is — those are the three big vectors. Those are very deep veins. It’s where most people start. Project-oriented use cases are still the tip of the spear. The diversification that we see isn’t really so much a difference in the process or the area. It’s more the function that it serves. So, it may come in, in marketing and branch into operation or into finance. But we really have not seen a deviation from what we’ve observed in the last few years. It remains a similar land and expand and then climb motion.

George Iwanyc — Oppenheimer — Analyst

All right. And Mark, given the environment that we’re seeing right now, are you seeing any changes with your European customers? Or are they taking a bit more cautious view of spending or making any other adjustments?

Mark Mader — Chief Executive Officer

We have not seen it yet. No. The motion we have around selling to existing customers, landing new, we have not seen a blip at all in any of our regions.

George Iwanyc — Oppenheimer — Analyst

All right. Have you been building any conservatism in your guidance for kind of the geopolitical outlook?

Mark Mader — Chief Executive Officer

So George, we’ve sort of assumed the environment we have today, stays largely similar. So, we have not assumed any big turns in the environment that turn negative, but we assume that current environment sort of persist is our assumption.

George Iwanyc — Oppenheimer — Analyst

Thank you very much.

Operator

Your next question comes from the line of Terry Tillman with Truist Securities. Your line is open.

Terry Tillman — Truist Securities — Analyst

Yes. Thanks. First, can you all hear me okay?

Mark Mader — Chief Executive Officer

Yes.

Pete Godbole — Chief Financial Officer

We can, Terry.

Terry Tillman — Truist Securities — Analyst

Okay. Thanks. Hey, Mark, Pete and Aaron. Thanks for taking my questions as well. The first question for you, Mark, is as it relates to the introduction of Pro Plan, what I’m curious about is what are you seeing so far in terms of the customer adoption? Is it smaller organizations? Or is this actually a lower friction way of actually getting midsize or bigger enterprises to get going? And then I had a follow-up for Pete?

Mark Mader — Chief Executive Officer

It’s all up and down the spectrum, Terry. And when we see people starting, it’s not an S or an M or a large enterprise-type state. When people start from all size of organizations and the effect that we’re seeing is improvement in conversion rates, right. People have a faster start and then it’s our job to understand who’s signing up and then to apply the field capacity that we have to make sure that if it is a large customer with high potential and interest to grow that we’re there and ready to support them. And if it’s a small customer, putting the self-directed mechanisms in place where they can thrive. But yes, it’s really need to see both the conversion rate improvement domestically and internationally across those different segment sizes. Pete? Was there a question, Terry, you have for Pete as well?

Terry Tillman — Truist Securities — Analyst

Got it. Yes, I did. Thanks for that, Mark. Yes, so Pete, just a follow-up question. And I don’t have my notes from the Analyst Day in front of me, so I apologize. So part of this is going to need some help regurgitating kind of the guidepost. But you are talking about a pretty significant ramp in investing here for growth. And I think you’ve called out some of those areas, including international sales capacity. Does this change kind of the path to $1 billion? Or just anything more about what this could mean in terms of that longer-term kind of revenue ramp and getting to that target? Thank you.

Pete Godbole — Chief Financial Officer

So Terry, we’re not changing sort of anything relative to what we’ve shared with you. Essentially, the only thing we’ve sort of given you is the guidance for fiscal year 2023. And the key salient points to take away from that are, first of all, we’ve guided you to a free cash flow margin that will imply improvement year-on-year, and that’s sort of a part of our trend driving to sort of what I call responsible growth.

Operator

Your next question comes from the line of Steve Enders with KeyBanc. Your line is open.

Steve Enders — KeyBanc — Analyst

Hey, great. Thanks for taking the question here. I guess, I just want to get a little bit better sense for how you’re thinking about the investments that you are making in sales capacity? It seems like even all of your closest competitors so far have raised the outlook and spend for this next year. So, I guess, what kind of gives you the confidence in the ROI of those investments that you’re putting to work? Are you kind of pulling forward any sales higher that maybe we’re thinking about from 2024 before? And how should we kind of think about the impact this could potentially have on the model going forward?

Mark Mader — Chief Executive Officer

Yes. I think the confidence is really driven by a convergence of a few factors. There is a massive uptick in awareness of the category that’s first. The second is based on some of the offerings we have, whether it’s new packaging or new products we’re bringing into the portfolio, the product market fit is proving out. And much like Advance was new in Q2 of last year, we’re almost three quarters into this now. So, the evidence is starting to really take root.

The other piece is from a go-to-market standpoint, we have figured out the mechanism for landing somebody, growing someone to modest contribution and then up through the tiers of $25,000, $50,000, $100,000, $0.5 million and beyond. So that is a model that we feel very confident in, and that’s a customer that’s reacting to customer signal as well, not just sort of the state of the market overall.

And when you look at being deeply entrenched at the world’s largest companies with a high ability to invest in this category, you have to feed that. So, on the past calls, I’ve often talked about when you see the green light, you must go. Like the green light is on right now. We have to follow this. And when you look at the LTV to CAC, which has been improving over the last year, it’s improved from the high single digits to like greater than 13. Now that’s not going to manifest itself in sort of the in-year measures. But when you look at LTV to CAC, which is north of 13, that gives you great confidence in longer horizon investment. So we are very much pushing the throttle forward.

Steve Enders — KeyBanc — Analyst

Okay. That’s very helpful. So I mean, I guess, to put a kind of finer point on it, it sounds like it’s becoming a more repeatable sales motion that the go-to-market teams are going after and Smartsheet Advance is kind of a part of that. Is that kind of the right way to kind of frame that?

Mark Mader — Chief Executive Officer

Absolutely. We have over 500 Advance transactions now at companies both new, midsize, all the way up to our largest customer. So, we’re pattern-matching off of that. And it’s something we’re doing domestically in all of the segments up and down. And again, just riding that momentum.

Pete Godbole — Chief Financial Officer

And one question you asked, Steve, is what’s the future model look like? So we’ve talked about these field investments in the areas that Mark just mentioned. They’re across all the major areas of opportunity. And as these resources become productive, we expect the resumption of scale across those opex line items. That’s the way you would model it.

Steve Enders — KeyBanc — Analyst

Okay, perfect. Thank you. Thanks for taking the questions.

Operator

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

Mark Murphy — JPMorgan — Analyst

Yes. Thank you very much. So I’m a little surprised, the sequential billings growth in Q4 is just very strong. It’s actually stronger than your seasonal norms. And we’ve kind of been seeing the opposite across the industry. So, I’m just wondering if there was anything unusual — were there any one or two unusual mega deals or discrete needle-movers that might have affected that? Or is this something that was more broad-based in Q4?

Pete Godbole — Chief Financial Officer

So Mark, the short answer is it was broad-based, just field momentum, customer interest. Nothing unusual, nothing out of the ordinary, it’s just solid demand, as Mark referenced in his earlier comments. Customers are seeing the value of this. We’re seeing progression across all elements of it, large deals, Advance, the dollar-based net retention rate is up. We’re just seeing it across the board.

Mark Mader — Chief Executive Officer

Yes. But this quarter did not hinge on a mega deal. This is tens and tens and tens of $50,000 to $100,000 and $100,000 plus deals. We welcome the mega deal, right, but this quarter did not hinge on that.

Mark Murphy — JPMorgan — Analyst

Yes. Okay. Interesting. Mark, my second question is just from the perspective of building pipeline. Is it currently more effective for you to emphasize work management positioning or actually low-code, no-code? Just given there’s so much buzz around low-code and there’s so much imperative to try to put the pool — those products into the hands of the people that are kind of the subject matter experts. So, I’m just curious if you’re kind of able to realize an extra tailwind due to your strength and your linkage on the low-code side?

Mark Mader — Chief Executive Officer

I would say that’s building, but I wouldn’t say that’s the key tailwind. I mean, the key tailwind is people now recognizing there’s an investment opportunity that helps them unlock value that sits within their business units. So, they’re saying, I have big opportunities to pursue, I’m stretched on my IT front, how do I unlock my business units to actually make progress.

So when they call, they don’t call up and saying, hey, I’m working — looking for work management platform, hey, I’m looking for a no-code solution and saying, I have a business problem, I think you can help. And then our job is to map to that use case and that business case that they articulate. But I would say the predominant call on the inbound isn’t centered around no-code or work management. But the nice thing is it starting to feel natural to people like, hey, this is the area of product and technology investment that can enable my business team. And that is — again, that’s not a philosophical sale anymore that’s starting to hit mainstream.

Mark Murphy — JPMorgan — Analyst

Okay. One final one, Pete. If we’re able to look within the sales and marketing budget, could you comment at all just on the spend on digital advertising or performance marketing? As a percentage of revenue, is that increasing or decreasing this fiscal year? I’m just — I guess I’m just trying to understand that vector of investment versus direct field sales, if you will?

Pete Godbole — Chief Financial Officer

So Mark, we’ve taken the approach that we think of demand gen, we think of this marketing spend as being a combination of various channels. The PPC is one of the channels. It’s not our biggest. Our biggest channel is how we organically have people find us through content, it’s through viral adoption, it’s through sharing. So, to answer your question, yes, our percentage of sort of spend is up, but it’s sort of consistent the way we’ve ramped it up for Q4. That’s the way we’re staying with sort of our marketing investment.

Mark Murphy — JPMorgan — Analyst

Thank you.

Operator

Your next question comes from the line of Alex Zukin with Wolfe Research. Your line is open.

Alex Zukin — Wolfe Research — Analyst

Hey guys. Congrats on the quarter. Most of my questions have been asked. But I guess the two that come to mind are, if we look at the gradients both around retention and expansion, how much more room is there to go before we kind of hit the [Indecipherable] of, I mean, sub 5%, churn is among best-in-class at this point. How much lower can that rate go? And also, the 134%, I think you’re almost back to your all-time highs of 135%, is there — as you unlock these new Advance motions, as you unlock some of these new enterprise sales cycles and the climb motion specifically, like is there — I know we’re talking about 130%, which is already, I think, an increase from what you had mentioned before was associated with next year. But like aspirational, are we at new peaks to some extent? And then I’ve got a quick follow-up?

Mark Mader — Chief Executive Officer

Yes, Alex, I would say we are still at the single-digit penetration within our customers as a whole. So the upside, what I think of achieving greatness, you don’t achieve greatness through expense savings or through reducing your loss from 5 to 4.2. You achieve greatness by expanding. And when it’s paired with lower losses, fantastic. But when I look at our — even our largest accounts, we have a number of accounts that you would consider wall-to-wall, but so many of our big accounts still have massive upside.

So we typically guide based on the signal we’re seeing. As Pete just said, we’re expected to be north of 130% this coming year. We’re not capping ourselves to say, here’s a max. We will continue to do things, either expansion, cross-selling advanced capabilities, serving up adjacent offerings like DAM. Like, yes, we’re not capping ourselves at all. And I think we have a really exciting portfolio to cross-sell in.

Alex Zukin — Wolfe Research — Analyst

Got it. And then, I guess, this is a two-parter, but it’s on everybody’s mind. To the point that people have, I think, asked you about the investment dynamic for next year and investing to grow. Again, all three companies, public companies in this category and probably some of the private ones as well, have been spent — are talking about spending more money investing to grow. Is this a race for share? Is this a coming out of COVID, the opportunity is even kind of higher? And to the point that you’ve made — I want to connect this to the point that you made around replacing one of the vendors. It’s the first time I think you’ve talked about that on an earnings call at least. And I guess, do you do that because do you see more opportunities like that in the pipeline and you’re now investing to take share to some extent? I know those are two separate questions, but I guess, the stream of consciousness.

Mark Mader — Chief Executive Officer

Yes. I guess the first thing I’ll say is our investment posture and thesis isn’t based on reacting to someone else’s move. So, when we think about investing in our field scale, investing in our non-PPC marketing, those are all run — those are all plays that we have identified based on what we’re observing within our base. Is there a race? I mean, we are clearly looking to continue to optimize and to add more and more logos, which we proved out starting in the second half of this year.

I would say in terms of displacement, it’s our job to provide maximum value to our existing customers. If there happens to be another player who is present, we would gladly grow around them. We will try and displace them. But in terms of where we spend our time, it is — like we don’t think the best return on investment is to go hunting for displacement. If someone happens to be there, absolutely take them out, show greater value, consolidate. But I wouldn’t say that the market is at the stage where that is the focal point for our company.

Alex Zukin — Wolfe Research — Analyst

Perfect. Thank you, guys.

Mark Mader — Chief Executive Officer

Yeah.

Operator

Your next question comes from the line of DJ Hynes with Canaccord. Your line is open.

DJ Hynes — Canaccord — Analyst

Hey guys. Congrats on the strong finish to the year. Mark, with the customers that are landing with Advance, are you taking a more active direct sales approach there? Or is that land still largely a self-discovery motion?

Mark Mader — Chief Executive Officer

Those come, DJ, in an assisted motion. So, we think it’s our duty to land somebody in a really fulsome way. So, that’s helping them understand what the — what almost the guide book looks like to get started. So when you deploy an Advance platform with Control Center, Dynamic View, Data Shuttle, super useful for people to understand what those best practices are. And I would say sometimes those are more sophisticated processes where customers are really hungry to say, hey, how have others done it? How can I derisk and how can I maximize my investments? So whether that’s through a sales rep or a customer success or other functions we have. I would say there’s a very strong customer appetite for that. And again, one of the things that we’re looking to do even more of as we build out our field capacity.

DJ Hynes — Canaccord — Analyst

Yes. Got it. And then, Pete, the follow-up for you would just be around the numbers. So you grew headcount, I know it was like 32% to 33% in fiscal ’22. What are your targets for headcount growth this year kind of implicit in the operating loss targets that you gave us?

Pete Godbole — Chief Financial Officer

So, DJ, if you think about what Mark just mentioned, the growth that we would get would be in various roles that help sort of customers grow. We’re not sort of talking about reps anymore or how many we’re adding. We’re going to add a significant number of these field roles. And if you want to think of that in unit — in terms of dollar terms, I gave you a rough sense that field capacity will approximately be three points of operating margin change year-over-year as a part of the model.

DJ Hynes — Canaccord — Analyst

Okay. Got it. Thank you, guys.

Operator

Your next question comes from the line of Brent Thill with Jefferies. Your line is open.

Brent Thill — Jefferies — Analyst

Thanks. Mark, the new business record levels you commented on, are you seeing any new dynamic there where you’re starting larger, you’re seeing multinational wins? What color would you add to that could give us a little more granularity of what you’re seeing on the new business side? And Pete, no surprise, I’m going to ask on the operating loss. I mean a loss of $35 million to negative $90 million is — was almost 3 times what the Street was expecting. And I guess many are asking us like at what points are you willing to kind of pull back the throttle? Where do you start to see leverage in the model? Are we two years out, three years out? How do you think about the long-term commitment to shareholders on returning to a positive bottom line?

Mark Mader — Chief Executive Officer

Brent, I’ll start on the new side. So we’re seeing a modest improvement in contribution from new deals. So, of the thousands of new transactions that happen every quarter, we’re starting to see some evidence. I think we have 20 Advance deals, so our 20% of the new Advance deals were to new customers. So the really — the average is still, while it’s up 15%, 20% year-on-year, it’s still a sub $2,000 figure. So, it’s not a huge contribution. And we expect that to remain very speedboat like in terms of the lands. Pete, you want to add some color on the second half of that question?

Pete Godbole — Chief Financial Officer

Yes. So Brent, you asked the question about op margins. So let’s start with sort of how we think of profitability, that’s the broader question you’re asking. When I think of profitability, free cash flow and billings are sort of your leading indicator, correct. And then op margin and revenue are the ones that lag. So, we’ve guided on free cash flow to be sort of minus 1% to minus 2%, an improvement from where we exited this year at minus 4%. And if I go and I sort of — I’m not giving guidance for FY ’24, but if I take current scores and speed and assume macro stays the way it is, it wouldn’t be unreasonable to assume that we would be free cash flow positive in FY ’24. Now the flip end of your question is what about op margin. So because the revenue lags, you should think of op margin as following in periods after that is the way I would think of it. Did that answer your question?

Brent Thill — Jefferies — Analyst

Yes. And I guess, you’re not giving the quota carrying adds, but when you think about — if you bucket it the international business sales and brand awareness, is the bulk of this going into sales, so 60% sales, 20% international, brand awareness the other 20%, how would you put the incremental bucket? Is there an easy way to explain that to all of us?

Pete Godbole — Chief Financial Officer

Yes. I would say that the biggest in rank order, the biggest numbers in field capacity. And within the field capacity, you should think it’s across the board, but there is a slightly higher waiting towards international and as well as to enterprise quota carrying. So, think enterprise field capacity. So think of that as your first element. In smaller magnitude, then you’ve got awareness.

So you think of awareness as being mid funnel, top funnel, getting people to sort of know who Smartsheet is and be aware of who we are. And then the smallest number that is the T&E or the portion that’s come about as a result of in-person resumption or where the customer is then like Engage, which will hold this year or its field enablement activities like a sales kickoff we just launched.

Brent Thill — Jefferies — Analyst

Great, thanks for the color.

Mark Mader — Chief Executive Officer

Thanks, Brent.

Operator

Your next question comes from the line of Arjun Bhatia with William Blair. Your line is open.

Jake Roberge — William Blair — Analyst

Hi, everyone, thanks for taking my questions. This is Jake on for Arjun. So it sounds like top of funnel activity has never actually been stronger, but just kind of curious how much of this is driven by more category awareness versus the introduction of the Pro SKU, which could actually remove friction from initial customer adoption? And then just on that front, how are you approaching investments in customer onboarding and success teams as that size of the funnel continues to increase?

Mark Mader — Chief Executive Officer

I think with every card that comes out of the suite in terms of what we’re able to do in moving people up the curve and improving that LTV to CAC, it gives you more and more confidence in investing early for the right profile opportunity. I would say in terms of how we weight the top of funnel, mid-funnel and the Pro Plan, I think the Pro Plan had immediate response when we had multiple sort of releases in the last two quarters. I would say the investments we deployed in the second half and as we make these investments in Q1 and Q2, there will be, I think, a bit of a delay on that.

I think the Pro Plan packaging had, again, almost an instant overnight response. So, I do expect those both to contribute significantly this year. And in terms of the — in terms of how we’re applying the resource, the more we see people expanding beyond seats expansion and into these other higher-value areas, the more we say we think we can maximize it with an assisted motion. So, again, we’re only 500 to 600 Advance deals into it. We have well over 100,000 customers, and there’s a lot of opportunity to put really capable people out there. And again, with every quarter that passes, I think we refine how we deploy that capital.

Jake Roberge — William Blair — Analyst

That’s great. And then just as a follow-up. So net retention, obviously, continues to be best-in-class. Kind of thinking about the expectation for next year. How should we bifurcate that between, obviously, you’re still growing into a massive market with seat expansions, but also, you’re starting to see a lot of robust adoption for Advance, so thinking about people actually climbing on the platform. How should we think about the delta between those and how you’re approaching your fiscal ’23 guidance?

Pete Godbole — Chief Financial Officer

Our guidance, as we gave you for billings was 37% to 40%. It contemplates sort of an extension of the things we’ve been successful at. If you start thinking about Advance, we’ve done about 550 deals this year. We’re expecting that to sort of continue into the next fiscal year. Think of it broader in terms of not just Advance, but capabilities as a part for product suite. That’s what is built in.

The second part of what you were asking was around sort of how do we visualize the net dollar retention rate. If you think of this market we’re going after, we think the number is going to be bigger than 130% for next year. And it sort of contemplates the fact that we’re going to get customers of different sizes. They’re going to have different models of how they expand, but we’re really bullish on the expansion potential that we have. And being an industry leader today with expansions, we think that trend continues.

Jake Roberge — William Blair — Analyst

Great. Thanks for taking my questions and congrats again on the great quarter.

Operator

Your next question comes from the line of Scott Berg with Needham. Your line is open.

Scott Berg — Needham — Analyst

Hi everyone. Congrats on the great quarter. And thanks for taking my questions. I guess I have two, hopefully, they’re generally pretty quick. The first one is on the replacement that you called out, Mark. I think it was Alex that mentioned it earlier, first time on a public call. How much of that is replacing a vendor just because their platform doesn’t handle the scale moving from, I don’t know, 10 to 100 seats or to 1,000 versus some of the capabilities, premium capabilities that you all have added over the last couple of years?

Mark Mader — Chief Executive Officer

I think displacement is easiest when there’s tremendous pain felt within a customer situation. So when there’s breakage and they can’t move past go, that’s a problem. And that they are forced to change. You have other opportunities where you may see another player in there within a node, a small node. And they may see some synergies and benefits, administration, what have you, security benefit. But when there’s breakage or they’re unable to proceed, that’s the most pronounced. In this case, it was more of a breakage situation.

The account that I mentioned on the call, which talked about those $14,000, $15,000 plus expansions, we expanded around another CWM player. And it’s just a fascinating case of that other vendor being within one team and we are sprouting all over that company right now. And in that case, we may not displace that one node, but we’re going to be in like 14 other nodes. And so it’s never quite as — there’s not one pattern that we follow and you basically redirected the situation. But again, when people tap out and they cannot scale or they cannot proceed, those are, I would say, the most straightforward replacements.

Scott Berg — Needham — Analyst

Got it. Helpful. And then, Pete, from a follow-up perspective, your share-based compensation expense increased greatly in fiscal ’22 over ’21, much faster than the rate of revenue growth. Your guidance for ’23 implies that it’s kind of growth rate in share-based comp accelerates even further to about — that’s going to be up about 75% year-over-year according to my math. And why such an expansion around share-based comp, it seems to be kind of an outsized outlier, but also kind of — I think there’s some concern that there is some commonality between that and maybe some of the excess sales marketing spend that you all are going to spend this year. Thank you.

Pete Godbole — Chief Financial Officer

So Scott, let’s break your question into two parts. First, ’22 over ’21 and then we can sort of talk a little bit in direction about ’23. So, the reason the stock-based compensation expense goes up is because, first of all, you’re replacing people whose grants four years ago were at a fairly low strike price and you’re replacing that personnel where the strike price is much higher, adding significant number of people to the equation. Like as we’ve grown, we’ve added 600 people net this year, all of that becomes a part of the narrative on wide stock-based compensation in FY ’22 is significantly sort of higher as you stated in FY ’21.

Now in FY ’23, the same trend, we talked about adding sort of what I call field capacity. This is going to be, in large part, personnel. When we’re adding people into the equation, we’re adding field roles and field sort of capabilities to take our customers to the next level. This is going to come with basically a stock-based comp that goes with it.

Scott Berg — Needham — Analyst

Excellent. Thanks for taking my questions and congrats.

Pete Godbole — Chief Financial Officer

Thanks, Scott.

Operator

Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is open.

Rishi Jaluria — RBC Capital Markets — Analyst

Wonderful. Hey, Mark, Pete, Aaron. Thanks so much for taking my questions. Nice to see continued momentum in the business. I guess starting out, I wanted to double-click on the investments incrementally that you’re making in driving more market awareness. Can you be a little bit more specific about kind of the areas that you intend to invest? What you’re hoping to drive in terms of market awareness? And is that specific parts within organization, specific types of customers? Or is this more broad-based that you’re trying to go after? And then I’ve got a follow-up?

Mark Mader — Chief Executive Officer

Yes, we really split it across three phases of the game. We have our top funnel, we have our mid-funnel, we have our bottom part of the funnel. And when I look at the opportunity, as I spoke earlier too, call it, single-digit percentage penetration within our largest accounts, the opportunity is not just to put a lure in the water on an expensive auction model, PPC to get the next fish. Its how do you present yourself to the companies where you already have significant presence, where you have a really good set of use cases. So ABM is a big part of that. And again, that’s like tailored ABM. So when we look at — looking at the 90% penetration we have with the Fortune 1, so many in the Fortune 5, it’s very, very specific marketing into those areas.

I think there’s opportunity also outside of the PPC realm, which is in content that is really helping customers understand how they can apply CWM and digital asset management to their businesses and those have yielded really well for us over the years. I think the other areas around the events that Pete spoke to, we’ve been two years now in the COVID world, we’re very much looking forward to our in-person event kicking off again this fall. We plan to have engaged in-person. We expect that to be a very large event. Customers have been asking about it. We just had our sales kick off, which was amazing. We are really looking forward to that in the second half of the year as well.

But again, I think the takeaway on the marketing side is when you look at the investments we’ve made domestically, we are now looking to pair that with really smart international investments. So, when we talk about setting up the team in Germany and getting into Japan, it’s not just put people there, it’s have the same type of support mechanisms, top, mid and low funnel to make sure those people are successful. So, I would say the balanced attack we have next year, domestic and international, that’s really sort of a signature point on the investment strategy.

Rishi Jaluria — RBC Capital Markets — Analyst

All right. Wonderful. That’s really helpful. And then just going back to the topic that everyone was talking about on the call, which is the competitive displacement. Mark, you gave an example of a customer — or yes, a customer where there was another competitor and you kind of grew up around them. Is that indicative of what you’ve seen? And again, I know it’s a narrow part of the business, which is something new that we’re hearing about, is that more indicative of it? Or are there actually existing customers where they maybe one department was dealing with competitor, other departments were using Smartsheet and it was more of a consolidation and let’s do everything on Smartsheet type way? Thanks.

Mark Mader — Chief Executive Officer

Yes. Those situations do happen occasionally. But when you look at where you get the return on your time, the return on your time and trying to knock someone out of one node versus landing in 14 nodes around that one, the return is fantastic on the 14. And we’re confident that over time, when you do become the dominant brand within a large company and you can point to all of these business units, eventually it will tip your way entirely. But again, I don’t think the best return on capital is to try and replace that one if there, again, isn’t breakage occurring. If they’re moving along happily in that one area, let it be and just land everywhere else and you grow like mad.

Rishi Jaluria — RBC Capital Markets — Analyst

That’s really helpful. Thank you so much.

Operator

Your next question comes from the line of Keith Bachman with Bank of Montreal. Your line is open.

Keith Bachman — Bank of Montreal — Analyst

Many thanks. And I’m going to ask my questions concurrently since they are related. Pete, to start with you, can you help us bridge the 10% in FY ’25 op free cash flow margins which you provided at your Analyst Day. In other words, you’re guiding to a negative 1% to 2% margins this year. Should we just be thinking of gradual steps to that? And I know you answered this previously on the bridge to operating income, I’m still not clear what that means. You said it follows revenue and billings. Does that mean if we thought about — it’s a pretty significant loss, 3 times what everybody was expecting? Does that mean in FY ’24, given the billings guide you made, that comes back a little bit more quickly than free cash flow?

And my broader — the reason I want to ask these concurrently, Mark, I want to bring it back to you. You’ve mentioned a couple of times that you have single-digit penetration, which you can see by the average dollar per customer. And your competitors are spending a lot of money during the course of what is calendar year 2022. Previously, you had established, I think, to Pete’s predecessor, that you’re going to do 20% free cash flow margins in 2025. At the Analyst Day, you cut it to 10%.

The question is, how do we — what do you tell investors if there’s concerns a year from now that the free cash flow targets because you have low penetration, there’s great opportunities, the free cash and operating margins targets don’t get pushed out again. You’ve been — you haven’t generated free cash flow, we go back to 2016, so your company has been around for a while. What comfort can you give to investors that ultimately you will generate meaningful free cash flow if we look out into FY ’25 and beyond?

Mark Mader — Chief Executive Officer

Yes. Let me start and I’ll let Pete to follow. I think it’s really important here not to fall into the average trap. And what I mean by that is when I say single-digit penetration, I’m not thinking about that account that’s approaching eight figures of revenue contribution, right? So we have some accounts where we are huge, like 100,000 people connected to our platform. When you see that evidence and you see the ability into the go-to-market motion that can get you there, and you see an LTV to CAC, which is north of 13, you invest in that.

If everyone was at 6%, yes, that would be a problem. If you had no evidence of being able to climb effectively and efficiently, that would be more of a bold investment posture. But because we are seeing it, because we are seeing a record $100,000 deals, record million-dollar customers being established, that is what’s giving us on the inside, great confidence in leaning forward. Pete?

Pete Godbole — Chief Financial Officer

So Keith, taking the sort of your question in two parts and sort of building on what Mark said, there’s a clear signal we have the metrics that support sort of what we’re doing very specifically. They’re improving year-over-year and so we’re seeing that. But to your question on free cash flows, first, free cash flows, we’ve shown — we see it as a leading indicator because it ties to billings. And the first explanation that you would need is why does it — why is free cash flow ahead of op margin? And the reason for that is when you hire a sales team, you get the opex, it hits you, you deliver the billings at the end of the year, you’re able to collect the cash, but the revenue moves into the next fiscal year. So, that’s why I’m talking about it as a leading indicator.

Now we’ve shown that as a leading indicator, we’ve gone from minus 8% in 2021 to minus 4% in 2022. We’re guiding to 1% to 2% in ’23, negative. All these are negative numbers, so they’re improving. Now when you look at it and you say, what is that outlook? As I said, I feel comfortable in saying we’re not giving a guide, but in FY ’24, there’s — with current speed and course, we should be cash flow positive. Now the gradient from that point on, we’re talking about something in FY ’25. That’s two years out. We’re standing by the model we shared with you at the Analyst Day, nothing is changing there. We’re just showing you some of the other building blocks along the way that gets you there.

Keith Bachman — Bank of Montreal — Analyst

Yes. I guess just, Mark, to come back, sorry to interject. But if I take your comments, if you still see good growth opportunities, it sounds like you’ll sacrifice margins and free cash flow if you still see good growth opportunities. So, what I take from your answer on your current penetration rate and growth potential is as long as that potential is there, then you’ll optimize for billings growth even over margins or perhaps I’m reading too much into your answer?

Mark Mader — Chief Executive Officer

Yes. I think that’s precisely what we’re doing in this coming year. And I think — so when you think about the opportunity that’s ahead of us in this category, this is not the time to be a 20% grower with 20% op margins. This is not the time. And our investment thesis and our desire — our confidence in taking on the field capacity is grounded in the demand we’re seeing with new, the demand we’re seeing within existing, domestically, internationally. I mean this is, I would say, a diversified pretty derisked situation for us. And again, that’s being in my 17th year at the firm now, seen a lot of demand environment, seen pullbacks. And I have not seen a demand environment like we’ve seen right now.

Keith Bachman — Bank of Montreal — Analyst

Okay. I will see the floor. Thank you.

Operator

That is all the time we have for questions. I’d like to turn the call back to Aaron Turner for closing remarks.

Aaron Turner — Head of Investor Relations

Great. Thank you, Josh, and thank you, everyone, for joining us today, and we’ll speak to you again next quarter.

Operator

[Operator Closing Remarks]