Samsara Inc. (IOT) Earnings Call Transcript & Summary

Towards the end of the day and -- towards the end of the day, almost the last presentation but we have still people coming in. Thank you so much. You've heard this spiel from me many times over, but I'll have to repeat it because you may not have heard it. Mike, you too. The first year that we brought together 2 conferences, Communacopia and Technology, and it's resulted in magic, 2.5 years after the last in-person conference. There was some trepidation how this was going to go, but I think it's went well. It's gone really, really well. Thank you for your support, and thanks to you guys. Unless we had the right content, we were not going to get this amazing set of clients here. So thank you for agreeing to participate. My name is Kash Rangan. I think it's the first time I'm introducing myself. So do you want to go through a quick introduction to you guys and then we can jump into Q&A.

Sure. Happy to be first. Mike Chang here. I help run Corporate Development and Investor Relations here at Samsara.

I'm Sanjit Biswas, the CEO and one of the founders of Samsara.

Very apt introduction. Sanjit, was great to work on your IPO coming up about 9, 10 months back or so. Exciting story. Remember, particularly because about 10 years back, I worked on another IOT IPO that was not that great, was okay. So I was able to appreciate what Samsara did and the big-time refinements, orders of magnitude improvements and how much the technology has come along.

But for folks in the audience that might not be 100% familiar with the name, how has the company changed since its founding? How has your mandate of digitizing the world of physical operations evolved? And then after that, I have a follow-up question.

Sure. So first, thanks for having us up here on the stage. We are, in terms of what we do as a company, we're digitizing the world of physical operations. So if you think about the supply chains, the energy utilities, the local governments, basically food and beverage companies, all the folks that run the world's infrastructure, they're going through this process of getting connected up to the cloud. Now their operations are a little bit different than most of our operations, the folks here in this room, where we operate in corporate office space environments. They're out in trucks, they're in the field. They're performing work out there. And so they're trying to find ways to get data into the cloud and then figure out ways to be safer because a lot of these industries have big, heavy assets moving around. They're trying to be more efficient so they're trying to find ways to engage their customers in a more efficient order or things like that, reduce things like fuel spend. And then they're also trying to figure how to be more sustainable. So that's kind of what we have learned over the last 7 years of building this company is that this massive portion of the world, there's about 40% of the world's GDP is in this customer base is going through this wave of digitization. But they needed something that worked really in a plug-and-play sort of way for them. They need a platform with multiple applications, but they need something that works out of the box. So I think, Kash, compared to 10 years ago when it was very much LEGO pieces, right, you had to build the solution yourself, we're able to offer something that just simply works for the customer and that's been a big unlock for us.

Got it. I recall asking or maybe you did talk about this at the time of the IPO preparation, what was that aha moment that led to the formation of Samsara? That's a question that I'd like to ask of, especially younger, companies. So what was your moment of awareness that led to this idea that this could be a business?

Yes. So this business is about 7 years old. Prior to Samsara, we founded a company called Meraki, which was in networking so basically making WiFi access points, routers, switches that all connect up to the cloud. Meraki became part of Cisco, and as part of the Cisco acquisition, we had an opportunity to really scale the business up. Got to spend a lot of time out in the field, meeting all different kinds of customers. And for me, the aha, actually the seed was planted back then, which is when I would go and visit customers in physical operations, people's warehouses or their factories, you would see still a lot of pen and paper, a lot of manual process. Basically, they hadn't gone through their wave of digitization and transformation. So that always kind of was with me that, hey, there's an opportunity here as the underserved market. And then I think after we left Cisco, we're taking a little bit of a break. My co-founder, John and I, we started tinkering again and we realized technology had just become incredible, right? There was cellular connectivity everywhere with 4G, you can stream HD video, you could get sensors. And that's when we felt like this could finally happen, this IoT promise of digitization was within reach but someone needed to make it happen. So we felt really catalyzed to go do something about it. And that's when we started building those first products.

Got it. Are you going to ask me what my aha moment was [indiscernible]. I had not planned on asking that question of myself, but I tried programming on a mainframe back in college and I'm a mechanical engineer. I'm pretty good with logic, but I have not inserted the commas and syntaxes in the right place and the program never ran. So I swore that I will never be a software engineer, but I will be an analyst covering the software industry. Far easier. But -- so kudos, that's a great aha moment on your side. So this is -- this idea is not a mainstream concept. We don't see a lot of companies talking about generating a system of record for physical operations. I don't know what Goldman does. We do have physical operations and mobile operations, too. When you pitch Samsara to potential customers and they see the full breadth of the Samsara platform, what is their first initial reaction? And how does that journey progress to becoming a customer of Samsara? Because awareness of what the company does is the main issue for young tech companies, right?

That's right. So just again for context, a lot of our customers have been around 50, 100 years, right? If you think about the folks delivering food and beverage to this conference or the elevator repair technicians, the energy utility, these guys have been building up infrastructure for a long time. And they've been doing it in a certain way, a lot of manual process, pen-and-paper, as I mentioned, or they have technology that's probably not that different from the mainframes you were talking about earlier. They're a bit antiquated or legacy-based. So the biggest...

I'm legacy, but I love the cloud.

Yes. The biggest aha that customers get is it's really a wow factor because they'll see something like real-time GPS tracking. They'll see HD video cameras that can coach risky driving behaviors. They'll see workflows that work from an app instead of having to have people fill out a lot of paperwork. And those really resonate with our customers because they're in this labor-intensive physical operations business. They've been oftentimes doing these kinds of operations for decades and they haven't been able to change much, and they see that a step change is possible. Then the question is how. So that's what we start with is connecting with that problem. They might be that they're trying to reduce their risk when they're out in the field. It might be that they're trying to save on fuel because fuel prices are high. It might be that they know that 10% of their assets are underutilized. We actually had a customer, Artera, who shared with us they had a sense that they had underutilized assets. They didn't know where those assets were or how underutilized. They put our Connected Equipment solution across their portfolio and saw about 10% were actually assets that they could sell off. So they sold those assets, raised $10 million of capital, which they reinvested in the business. That was an aha or an unlock for them. Wasn't possible until they had real data. And so we see that happening over and over. We see it with safety outcomes. We see it with efficiency. We see it across the board.

Yes. Before I turn it over to Jacob, I had 1 question and I will come back after you ask a question. What are your most audacious goals for the company in the next 5 years? So if you're back at the Goldman conference, let's hope that you're back in 2027, what's your best shot at what Samsara looks like? And what are the problems you're going to be potentially solving for your customers that you don't solve today that you have the ability to work on?

We talked about this a little bit, but this company is only 7 years old. It took us about a year or 2 to really find our footing, find those initial products. And in terms of scale, we've moved very quickly. So our last earnings, we reported over $663 million in ARR. We're growing 52% year-over-year. So the market traction is really significant. But the size of the market is massive. We're talking about a $50-plus billion TAM because of all these industries we serve. So I think over the next 5 years, you'll see us work with more customers, scale up our base but also introduce more applications. So we have the first few apps. They work really well. Some of them are at scale, $250 million, $300 million-plus in ARR. I think there's an opportunity to do multiple applications on this platform for these customers.

Yes. Again, thanks for coming. Great to be in person. I think a unique aspect of Samsara compared to other software companies is the reliance on hardware, right, to collect the necessary data. And Samsara really serves 2 big markets, so you know telematics and then video-based solutions. And I think the cost around video-based solutions is more than telematics, if I'm not mistaken. And so I think this plays into a key investor concern as it relates to profitability, like working capital and things of that nature. So how would you respond to investors who say kind of the continued reliance on hardware for the short to medium term is a reason they might be on the sidelines?

And before you take a shot at it, maybe it's useful to take a step back and explain to us what these 2 solution families are and what the value proposition is since, we can then segue into Jacob's question.

Yes, yes. And I'll provide that context to start. So when we talk about the solutions on our platform, we have a few different products. They all exist in the same Samsara platform. In physical operations, vehicles are very common. So regardless of industry, you probably have work trucks out there. And our customers are interested in finding ways to become safer in the field, so how can they coach their drivers on reducing their risky driving behaviors. And then they're also looking to become more efficient, so how can they use things like real-time GPS tracking to better plan their routes or use less fuel by idling less and that sort of thing. The way that we collect the data from out in the field is through hardware. So we need to provide devices for these customers to go and enable across the board to collect that data from the field. That's included as part of our subscription. So we're a term-based subscription SaaS model, so 3- to 5-year subscriptions based on the number of assets that you have. And the hardware is included as part of that license. So 98% of our revenue is recurring. But if you need to collect the data from the field, you don't have a way to get it in the cloud, we provide that hardware to you and that's an enabler. This model has worked really well for us because it eases customer adoption, it's plug-and-play for them. It's something they can get up and running with very easily. And the costs are manageable. So if you look at our gross margin, in our last earnings, we reported gross margin of 73%. That has the cost of the hardware baked into it. Also the cost of the cellular bill, the cloud fees, all of that is built in there. So that's our model. And there is a hardware component to it. We find that the costs are manageable and they are part of that long-term investment in the customer relationship because once they're on our platform, they tend to expand over time. 100,000-plus customers have 125% net dollar retention rate. They integrate us in with a bunch of other systems because once the data is there, the system of record is clean, high-quality data. We see our larger customers integrate us with 4 systems on average. So that's been the strategy is make that investment in the hardware, provide it to the customer. And over time, we truly become technology partners and we grow together.

Got it. And then I think you had a question about the hardware dependence.

Yes. So kind of on to the hardware dependence. We see more OEMs' recent partnerships with GM and Stellantis, I believe. They're installing these telematic hardware devices already, which reduces the need for Samsara to provide them. But I think it was mentioned that there's not any OEMs installing these video-based cameras, right, and that's a growing aspect of the business. And so what do you say to investors who were like there is that reliance and that cost of those hardware devices, especially with supply chains being still pretty disrupted and costs can be kind of pretty volatile and investors are kind of seeking more of a safe haven.

Right. So on the cost side, you're right. On the OEM front, if you buy a brand-new work truck, if you buy a new Ford truck, for example, it has cell modem and a SIM card built into it. And we've done cloud-to-cloud integrations with all the major OEMs, especially in the North American market. But also some of the other equipment manufacturers, whether it's Caterpillar, John Deere, Thermo King carrier on the refrigeration side. And the idea is to flow data into the platform. Now you've highlighted safety cameras. Now driver-based safety coaching is just a newer technology. It requires AI at the edge and so we still provide hardware for that. That might change at some point in the future. We're agnostic in terms of how the data gets into the platform. We just simply want to get it there with high quality. So to answer your question around how do we explain this to investors and why do we do it, it really is about enabling that customer experience. And that's how we access this TAM. If you think about these -- the end markets that we serve, they were not buying technology prior to Samsara. We enabled it by providing this hardware and we're doing it in a sustainable model. So when we talk about gross margins, we try to be very clear that we're not going to be in the 80s when it comes to pure software, but we can be in the mid-70s because we've optimized our model and our overall target model takes that into account. So we see the potential to build a long-lived, sustainable business at scale with the model that we've got.

Yes. And then Jacob, your question around like supply chains and constrained costs, how that impacts our model, I'd point again to what Sanjit's talked about gross margins. We've got gross margins of 72% last quarter, 73% in the most recent quarter. We're still extracting great margins for our business profile, that would be [indiscernible].

I want to come back to some of the key customer wins in the last couple of quarters. I think you highlighted a few case studies. Maybe if you can just pinpoint to 1 or 2 massive deals, massive scope that these implementations could lead the way for other potential customers to look at this and say, we should be investigating Samsara. What would be those kind of lighthouse deployments that you're really proud of that you want to talk about?

So we work across a variety of industries, so maybe I'll pick 2 if that's okay. One that comes to mind is Liberty Energy. They're an oilfield services company. They operate in several different states. They started with a safety project so they wanted to make sure that their workers were getting home safe every night. They wanted to understand the risk profile, figure out how to coach drivers on safer driving. So that's where the kind of engagement started. And they deployed our safety solution everywhere. They started seeing opportunities to improve their efficiency as well. And then one interesting side effect was once they'd accomplished kind of phase 1 of the project, word spread inside their organization that this data was available in the cloud. And their tax and finance teams actually figured out if they knew exactly which state they were operating in, they could be more precise about their tax calculations. And in the process, they were able to save about $10 million in taxes by having a better understanding of where they were operating in which state. And so that's an interesting side effect, right? It wasn't even part of the original...

You start with the state border and drive on this and Texas is better.

They don't reroute based on that, but for them, it's really about where they operate in.

It'd be a nice upsell.

It could be an upsell, a kind of fancy routing. But that's really kind of an unexpected upside in that deal. And again, for us, it's about ROI for the customer. We want to show them value. And they saw payback just in the safety coaching alone and this was an additional multiple or 2 on top of that, which is, hey, there's additional value in this data. So that's a great example on Liberty. And then another example that comes to mind is we've all experienced the fuel costs over the last year. We have a customer, Summit Materials, also a large-scale customer, enterprise customer operating in many states. And for them, they have about 4,000 vehicles. They're an aggregates company, by the way, so construction materials, think kind of cement and so on. They want to be the most efficient company in their industry and they also want to be the most sustainable. So they had an initiative to think about how can they deploy our technology across their entire footprint, 4,000-plus vehicles, understand where they're operating, perhaps replan how they operate day-to-day, and in the process, reduce the amount of idling or -- yes, engine idling and then also replan their routes on how they're serving their customers. And the net result is they saved about $1 million on fuel. And so these are the kinds of data problems that were not possible to tackle without high-quality data in a connected operations platform.

There's a company called Procore. I don't know if you know Procore. I wonder if this company uses, they're in construction management. Wonder if there's a Procore-Samsara integration to...

There might be. Yes.

New API. I wanted to ask you a little bit about telematics versus the video-based solutions. The penetration rates are historically different between the 2, but they have very healthy representations in your business. Can you talk to how you can get the Video-Based Safety solutions product to have much higher penetration? Could this be a surprise in the future, ends up being multiples of the telematics market?

Absolutely. So just again, for a little bit of context, telematics solutions have been in the market for 10, 20 years at this point. GPS tracking of trucks is not a new concept. So if you were to stop 100 commercial vehicles out on the road, see about half of them, 50% have some kind of telematics solutions. These tend to be legacy incumbent solutions or point solutions. And so one of the ways we differentiate is we have a broader platform. You mentioned Video-Based Safety. That was actually the second app that we brought into the market. Video-Based Safety are basically the dash cameras and the coaching software and the kind of workflows behind that. Only about 5 out of those 100, so 5% of those commercial vehicles have any kind of Video-Based Safety solutions. So that's much more of a greenfield market. What we've seen is in our platform selling approach, we're able to see customers about multiple applications and Video-Based Safety has now become #1 for us. So we broke it out as over $300 million in ARR at the top level.

What does it take to get to higher levels of market penetration? What is the next 5% looking to adopt? It seems quite obvious, having worked on your IPO, the insurance cost savings alone are being able to provide proof that my driver was not at fault, it was yours. And those claims alone can more than pay for the solution, right. What is stopping the other 5%, the other 15%, 20%?

Yes. It does seem like a matter of time. And a lot of it is, again, connecting back to the ROI story. In telematics, it's already very clear how you can deploy GPS tracking and get efficiencies back in your business. . With Safety, it's a question of, can you really reduce risk? And now we're starting to see that full feedback loop where we can reduce risk anywhere from 20% to 50%. We've done surveys of hundreds of customers. They see those kinds of real-world improvements. And as a result, fewer accidents because they operate at scale, which results in lower insurance costs and payouts. The awareness of that is now starting to build that you can use technology to reduce risk 20% to 50%. And our -- we have partnerships now with insurance providers, for example, who will then refer business to us. So I think that's how this happens is we need customers to be aware this technology exists, and we need to cultivate the ecosystem so we can basically smooth the adoption of this kind of technology.

Talking about driver safety of this guy. You have no idea how he drives in Texas so he definitely needs somebody...

[indiscernible] take advantage of it. One thing I did want to touch on is, I believe, in 2019, Samsara started implementing multiyear contracts like 3- to 5-year contracts. Does that mean this would be a big year for some of those contracts and -- or renewals at least? Can you provide color on what's going well with those renewals? Maybe where are you seeing some pain points? Are customers asking for discounts given macro volatility, stuff like that? And any color around that would be pretty awesome.

I'll start with an answer, I want to make sure I include Mike because he's up here on stage with me. Overall, this is our first big renewal cycle. As I mentioned, the company is 7 years old, been selling for about 5 years so we're starting to see those first 3- to 5-year contracts come up. We've been pleased with the renewals rate. It's been honestly a bit higher than we expected and had modeled in. And I think the key there is that we've demonstrated value for our customers. And you see that the kind of predecessor to this is you see the net dollar retention and it's been strong across the base, especially among our larger customers. So no big surprises there. I think we see, despite everything that's happened in the world with COVID and so on, these customers are healthy. They've got us deployed across their operations, they're expanding and they're renewing with us.

Okay, yes. I mean, our dollar retention is greater than 125% as -- 125% as Sanjit mentioned. And the other thing is, I think it did happen about 3 years ago, those are the contracts that are coming up. Our base of customers does look very different now than 3 years past, right? So little bit more SMB-oriented 3 years ago. Now it's much more enterprise-oriented. So we're getting a lot of great data, but I still think like for data around what our customer base looks like today, you're not going to see it for another 3 years probably.

So then what's caused that transition from a more like SMB-centric to a more enterprise-centric? Is that just like a natural transition? Or was there like a concerted effort on Samsara's part to focus more on the enterprise?

Yes, there was really kind of 2 factors. One was when we saw how customers were using our platform, you could see that it unlocked a lot more value for them the larger they got. So if you're a larger customer, you have more complex physical operations, you have a need for both video-based safety and telematics, but also things like equipment tracking, and we should talk about that because our nonfleet applications are now, in our last quarter, were about 17% of our net new ACV. So that's something that we're pretty excited about is large-scale, complex physical operations and what more can we do for these companies over time.

I want to talk more about that because that was hidden during the IPO prep. It was small, but I kept asking what -- these physical operations, nonmobile operations could be a really big deal and now you're saying it's 17% of net new ACV. Is that a change from the previous quarter?

It's changed. So it's been going up. And I think it's, again, the platform story is resonating and customers like Liberty who I mentioned are coming back to us and saying, what else can I put Samsara across, right? And they started with their field operations, their trucks and other vehicles. And it turns out in oilfield operations, there's a lot of other equipment, right? And there are containers of sand, for example. There's generators, there's compressors. And they're now putting us across all that equipment and orchestrating workflows off of that. So that's the kind of breakthrough that we're now starting to see in these larger customers. And I would say over time we want to do even more in that spirit. So can we do more apps, can we do more integrations, can we find more workflows and those sorts of things.

Yes. Kash, I think the difference this quarter has been -- they started to go -- a few customers have gotten deeper into these nonfleet applications. I think if you look across our customer base, though, about half our multiproduct customers are using nonfleet applications with their fleet applications. So there is already a penetration of nonfleet. They want to put it all together. It just [ hasn't gotten ] deep as some of the vehicle stuff.

Correct, correct, correct. Yes.

So will that depth of penetration just come with time? Or is there efforts that Samsara can take to really drive that in a more compressed time line?

This could be a really big market, I mean, these physical facilities.

Yes, absolutely. So we have multiple products that we're investing in. Connected Equipment is one that I just mentioned. We have Connected Sites, basically getting video-based insights into your loading dock, your factory, for your warehouse. These are also parts of physical operations. I think, for us, it is about following the customers' needs and where there's interest. So for example, over the last year, there's a lot more focus on fuel efficiency, right, because of this cost. So we wanted to make sure we were educating customers and prospects on what they can do with the platform there. We don't have anything specific in terms of breaking out the sales teams that are kind of generalist sales folks. But we do run campaigns to make sure people know what we offer on the platform.

Why don't we do a quick pulse check? Anybody, if you have a question, please just raise your hand. And every question asked, drinks on me at 6:00, courtesy of Goldman. Yes. So I think you were first, and Kevin, we'll get to you in a second.

Okay. So do you have any comments about the OT network and how Samsara penetrates the OT network?

OT, I'm sorry, what you said?

OT like, think of the refinery, think of secure factories. Do you have a concern with Samsara products through -- inside the OT network?

Yes. So we don't do a lot of work in refineries or kind of inside those facilities. Most of our work is out in the field. So we've talked about work trucks, kind of the field service force and so on. So today, there's not a significant amount of overlap with the kind of OT products you referred to earlier. So we don't sit on the network. We're on the cellular network, for example.

[indiscernible]

No, we rely on like the 4G cellular network today.

Kevin, go ahead. Let me paraphrase. Talk about renewal contracts, the size of the contract, duration of the contract, expansion rates, et cetera. Right, okay.

Maybe I'll start, and Mike, if you want to build. So renewal rates, the way that our contracts are structured, they typically have a 3- to 5-year term. So when someone comes up for renewal, they renew in that spirit. They can renew for a year at a time if they want. But typically speaking, most of our customers enjoy the technology. They're getting a lot of value from it and they'll sign up for another 3- to 5-year term. So that's how the deals are structured. As far as the rates, I think Mike, you touched on a little bit of NDR, you want to...

Yes. I mean, I think the -- in term of retention rates, I mean, I think it's 115% for entire company and then north of 125% for our larger customers. So we are seeing very healthy expansion with the existing customers once they land our platform.

Please go ahead.

Yes. Can you walk us through the sales partnerships that you have and the partnership strategy into the future with sort of consultants, OEMs, integrators? And to what extent that accelerates your path to profitability?

Sure. So in terms of sales partnerships, what we have in place really is designed to help reduce friction in sales. For some of our customers, they're looking for an easier way to adopt the technology, but they don't have the IT staff in-house to do some of the technology integrations. And so in that case, a service -- an SI partner might get involved. It's relatively rare though. Most of our customers are able to plug and play with the technology, so there's not a huge impediment to sale. So the flip side of that is, could you accelerate sales through some of these channels? The unfortunate reality is we haven't seen an existing ecosystem that we can resell through that would dramatically increase or accelerate our sales momentum. We're always on the lookout. And we're building some other kinds of partnerships like insurance partnerships, the referral partnerships. But in terms of implementation, it's not like the world of IT where they're rich value-added reseller ecosystem. Our customers tend to like to interact direct and that's how we structured our sales force.

Go ahead, please.

Do you think increased prices like inflation and fuel costs pull forward some revenue that as fuel costs go down, you may see some slowing adoption?

Do they come down? I really hope they do.

Yes. So however, I think the question was we're seeing some of these kind of ebbs and flows in the market. If fuel costs come down, would we see a difference in adoption. Fuel spend is one of the many areas of ROI for our customers. Again, efficiency is a big driver. So simply, could they service their customers in a different order or be more efficient in their operations? Safety is another big driver. So I would say we don't think that, that's fundamentally going to change if fuel prices come down. It's a helpful trend in terms of bringing the technology to be front of mind. So customers are saying, I have these increased fuel costs. What can I do about it? But I think in general, they'll be able to go save 10% on fuel by reducing idling regardless of what the fuel cost is. So they'll find that savings even as fuel prices eventually come back down the hill.

Yes. I don't think it changed in terms of driving more customer pipeline, but it is making the clarity around ROI much more clear because it's definitive when they look analysis around fuel, it makes -- the ROI around our solution really makes sense.

I want to hit upon a couple of -- go ahead, yes.

So want to understand what you're saying about acquisition and some of those lands color. So when we think about new customer lands, what percentage is, say, video safety? What percentage is, say, telematics? And then given that telematics isn't really -- like it's a mature market, especially around enterprises, what percentage of your lands are like replacement deals? And what percent are actually new -- greenfield?

Yes. So two by two. Two by two by two, Rubik's cube.

Yes. I mean, I'll start first and then Sanjit can jump in. So I think it's a pretty healthy blend between the 2, between telematics and safety. They are -- if you look on a total ARR basis, they are very close. We've said that telematics is north of $250 million, $250 million of revenue. And then safety is north of $300 million, but they are pretty close, right? And those are both above rather than actual numbers, but just above those marks. So I would say pretty even landing. And then I think your second part of the question was if it represents like brown -- rip and replace or new greenfield for telematics, I say most of them are kind of rip and replace versus greenfield. I mean, it is -- telematics has been around for 10 or 20 years.

And that's different between telematics and safety. So in terms of how we land though, we can land with any of our main product lines. So it could be safety, it could be telematics, it could be equipment depending on what the project the customer has. And then they'll often expand with us, and that's part of that long-term relationship. So we will come to the table with whatever their current project is and then talk to them about their broader operations.

Sanjit, I wanted to ask you about Europe. I think the TAM in Europe, pretty significant, at least as equally large as the U.S., maybe potentially even double. What is the company doing to set up maybe new go-to-market organization, distributorships, partnerships, feet on the street to take advantage of Europe? And do you have any competition there that is worthwhile, noteworthy?

So in terms of how we think about the market, again, we're serving the world of physical operations. These businesses operate in a very similar way in North America and Europe and specifically in Western Europe. So it's a bit of a mirror image. So there's a very large TAM. It's the same set of industries, so whether it's supply chain or energy, utilities and field services companies. There are some nuances that are unique to each geography. So from a compliance and regulatory perspective, there's different rules sets in France versus in the U.S. versus in the U.K. versus in Canada. So we're careful to make sure we have great product market fit, and we're competitive and we can deliver a lot more value to our customers than the legacy incumbent. We're seeing that pattern. So that's the good news. The challenge is we have to build out that direct sales force in the same way we had to build it out here in the U.S. And so we're being cautious about that to make sure we don't overbuild and we kind of are looking at overall productivity. So we have these direct teams now in place in these geographies I mentioned, in Canada and Mexico, throughout Western Europe and most of those geographies. And now we're making sure they kind of hit their ramps and we get the reference customer base going. So it's a long-term build for us.

Got it. So one for you, Mike, profitability, levers of profitability, the favorite question in the last -- since the market started to...

Yes. I mean, we are very focused on profitability. You've seen our improvements kind of year-over-year, right? And so where we see additional leverage, certainly, on gross margins, there may be a little bit of leverage there. But there is a hardware component I just talked about earlier that's kind of restricted for it. So I would say kind of for our long-term model, we said 74% to 76%, mid-70s, that's where we see gross margin. Most of the leverage you're going to see is going to come down from the operating expenses. As we gain scale, you'll see we'll get additional in terms of marketing leverage, R&D leverage and G&A leverage.

And our non-GAAP operating margin a year ago in Q2 was negative 30%. Last quarter, we reported negative 13%. So we're very much focused on it as a company.

Yes, yes. Solid improvement. Do you pay attention to unit economics, lifetime value of the customer? I mean how are those metrics changing and how do you see that playing out in the future?

Yes, we're very focused on that as we think about, to Sanjit's point, even expansion and investing in our sales force, whether it's domestic or international. And so our LTV to CAC has been growing, 8x. We monitor that very closely.

Got it, got it. Any final question? We've got 2 minutes.

I think one last question to wrap it up. Samsara is pretty vocal on listening to customer feedback, implementing customer feedback. Actually have a family friend and they used a competitor. And one of their biggest -- they actually heard me talking about Samsara on the phone to a client, I believe, at some point. But a big pain point for them with this competitor was centered around like they couldn't get ahold of their like customer success representative and like they called multiple times and they couldn't get ahold of them. And so -- and it seems like that's an area that you all excel in. And so how do you all -- what's been the attitude and how do you take that customer feedback and really integrate it into the products that you're making and everything?

Well, first, have to ask you for that friend's name.

Music to your ears.

Yes. Absolutely.

For your CRM system.

But it is very much a cultural thing that we've put a lot of value on, which is focusing on our customer success. Part of that is answering the phone when they call with a support question. A lot of it, though, is understanding their business and understanding how this technology can directly tie to the areas of value they're going for. And many of the vendors in the space were truly point solutions. They just did GPS tracking. That's all they did and they focused on that technology. We are more focused on those outcomes for the customers. So we have a presales engagement where we try to scope the problems and understand how we can help. We have a customer success team to make sure that your folks in the field know how to use the technology, know how to use the apps. We help with the integration. And then we check in every quarter, and I love doing this personally. Two days a week, I'm trying to get on Zoom or out in the field, just hearing from customers how are they using all of this? And what else could we do for them? So I think it's the cultural value of ours to make sure we've really stayed focused on our customer success.

Well, thank you so much. That wraps it up. Thank you for the wonderful reintroduction to the story and the detailed answers to all of our questions. And to you guys, thank you so much for coming. Drinks on me at 6:00 reception at -- in the foyer.

Great. Thanks.