Samsara Inc. (IOT) Earnings

Management highlights

### Overall Quarterly Performance - Samsara delivered a strong start to FY27 with durable, efficient growth, marking its third consecutive quarter of GAAP EPS profitability. - Large customer growth is accelerating sequentially: 37% YoY ARR growth for $100k+ customers (third straight acceleration) and 62% YoY growth for $1M+ customers (fourth straight acceleration). - 96% of $100k+ ARR customers subscribe to 2 or more products, and 70% subscribe to 3 or more products. Dollar-based net retention rate for core customers hit the targeted ~115%. - The company achieved 19% non-GAAP operating margin (up 5pp YoY) and 15% free cash flow margin (up 3pp YoY), marking the 15th consecutive quarter surpassing the Rule of 40. ### Secular Growth Tailwinds - Management highlighted a major industry transition: applying AI and intelligent systems from digital operations (bits) to physical operations (atoms) including vehicles, equipment, job sites, and frontline workers. - Key long-term tailwinds include massive global infrastructure investment (McKinsey estimates ~$106 trillion in required infrastructure investment by 2040), AI/data center build-out driving demand for physical infrastructure, government public infrastructure modernization, and structural frontline labor shortages. ### Product Innovation and Adoption - **Connected Asset Maintenance**: A high-potential emerging product that shifts customers from outdated time/mileage-based maintenance to data-driven scheduling, reducing both unnecessary over-maintenance costs and costly unplanned downtime from under-maintenance. Samsara signed its largest ever connected asset maintenance deal in Q1 with Hertz for a software-only deployment across its North American fleet. - **Operational AI for Frontline Work**: Samsara is investing heavily in operational AI and agent capabilities to automate routine frontline tasks and address structural labor shortages. New products launched include waste intelligence (automates service verification, overfill detection, and contamination detection to capture additional revenue and reduce disputes) and ground/road intelligence (uses existing platform sensor data to proactively identify potholes and road defects, turning reactive complaint-driven processes into proactive data-driven work). - Multi-product platform expansion is a core strategic driver: customers typically start with core telematics or AI video safety, then expand to additional emerging products to unlock further cost savings and digitization. ### Competitive Advantages - Samsara has built a unique, defensible proprietary data asset from IoT sensors instrumented on millions of physical assets that cannot be easily replicated. - The company leverages its unique data set with AI to deliver actionable operational insights and automated workflows, with a differentiated value proposition of fast, tangible ROI with short payback periods for customers. - The company targets large, less discretionary operational budgets, where customers spend ~80% of revenue on operating costs and prioritize cost optimization solutions.

Guidance

- Management's Q2 FY27 guidance: Revenue between $482 million and $484 million, representing 23% to 24% YoY growth (22% to 23% in constant currency). Non-GAAP operating margin is expected to be 18%, non-GAAP EPS between $0.15 and $0.16, and the company expects to be GAAP profitable in Q2. - Full year FY27 guidance was raised to revenue between $2.005 billion and $2.013 billion, representing 24% YoY growth (23% to 24% in constant currency). The full year non-GAAP operating margin guidance was raised 1pp to 20%, non-GAAP EPS is expected between $0.70 and $0.72, and management expects full year GAAP profitability. The guidance increase reflects confidence in broad-based momentum across large customers, emerging products, and international business, with no one-time items driving the Q1 beat that necessitated the raise. - Guidance is derisked to account for potential downside scenarios, per the company's standard guidance philosophy. - Management expects gross margins to remain roughly flat for full year FY27, with operating margin expansion driven by G&A cost optimization and reallocation.

Segment performance

Samsara reports overall performance and breaks down performance by customer size and product category, rather than traditional geographic or product segments: 1. Total ARR: Ended Q1 FY27 at ~$2 billion, growing 30% year-over-year. 2. Net new ARR: $101 million in Q1, growing 30% YoY (27% constant currency), the second highest growth rate in the past 9 quarters. Trailing 12-month net new ARR reached $455 million, growing 27% YoY (25% constant currency) and accelerating for the fourth consecutive quarter. 3. $100,000+ ARR customers: Total ARR from this segment is $1.2 billion, growing 37% YoY and accelerating for the third consecutive quarter. This segment represents 62% of total ARR, up from 58% one year ago and 56% two years ago. There are 3,363 total customers in this segment, with 169 net new additions in Q1. 4. $1 million+ ARR customers: ARR from this segment grew 62% YoY, accelerating for the fourth consecutive quarter at larger scale. 15 net new $1 million+ customers were added in Q1, with 11 total $1 million+ net new ACV transactions (Samsara's second highest quarter ever for this deal size). 5. Emerging products: Contributed more than 20% of net new ACV for the second consecutive quarter. 7 of the top 10 net new ACV transactions included an emerging product, and 42 transactions included over $100,000 in emerging product net new ACV. 6. Geographies: 18% of net new ACV came from non-U.S. markets, tied for a quarterly record. Europe achieved a record net new ACV mix and landed its largest ever new logo win with a leading U.K. grocery retailer. Canadian net new ACV growth accelerated sequentially for the second consecutive quarter, reaching its highest mix in 8 quarters. 7. Vertical markets: Wholesale and retail trade was the largest vertical in Q1, contributing its second highest ever net new ACV mix and growing sequentially for the third consecutive quarter. Construction was the second highest contributor to net new ACV mix in the quarter.

Risks & headwinds

- Tighter DRAM and NAND memory component supply has led to rising component prices, and shorter-term supply visibility is reduced compared to previous periods. - Large enterprise deals have longer sales cycles, leading to inherent quarterly volatility in the timing of deal closes, creating uncertainty around near-term growth cadence. - Operational AI and new emerging product adoption is still in very early innings, with unproven long-term monetization and adoption trajectories. - Growth in large deals depends on pipeline development, with reduced visibility into deal timing for the back half of the fiscal year. - Higher oil and fuel input costs impact customer operating margins, though management notes customers are using Samsara's tools to offset these costs and end market demand remains strong.

Analyst Q&A

• Q: What is the current adoption stage of connected asset maintenance, and how large is Samsara's current penetration of the addressable market? /

  A: The shift from time/mileage-based to data-driven connected asset maintenance is still very early in its adoption curve. Samsara has only offered the product for a few quarters, so current penetration of the total addressable market remains very low. The long-term opportunity is very large, as all asset-heavy physical operations companies require maintenance for their fleets and equipment. Initial growth to date has been strong, highlighted by the large recent deal with Hertz.

• Q: What is driving the recent year-over-year 200 bps gross margin decline, how will gross margins trend going forward, and are rising memory component prices impacting results? /

  A: The gross margin decline is driven by increased AI and cloud infrastructure investment to support new product development. Management expects to offset these additional costs with other COGS optimizations and OpEx reallocation from G&A, which delivered 5pp of year-over-year cost improvement. Management expects full year FY27 gross margins to remain roughly flat, with leverage flowing through to the operating margin line, which guided up from 19% to 20% for the full year. While memory prices are rising, Samsara's supply chain team has consistently avoided stockouts to meet demand, and visibility is only moderately reduced. Samsara is better capitalized than competitors to navigate this environment, creating potential market share gain opportunities.

• Q: What pricing models will Samsara use for new operational AI products, when will these products contribute meaningfully to ACV, and which product category is expected to see the strongest momentum? /

  A: Different operational AI products use different pricing models: some like waste intelligence are sold as additional SKUs alongside existing core products, while others like road/ground intelligence are priced on a per-mile basis as data-only offerings that do not require Samsara hardware. For future agentic AI capabilities, Samsara expects to test consumption-based pricing that aligns costs with customer value. Early beta results and customer feedback have been very strong across all three initial new AI products, and it is still too early to predict which will see the strongest market momentum as adoption scales.

• Q: What is driving the consistent acceleration in $1 million+ ARR customer growth, and will operational AI require changes to Samsara's go-to-market model? /

  A: Large $1 million+ customers are attracted to Samsara's unified connected operations platform, which allows them to coordinate tens of thousands of dispersed assets, vehicles, and frontline workers on a single system. Strong momentum comes from both multi-product adoption in large new deals and ongoing expansion as customers digitize more of their operations, a core long-term strategic focus that is now flowing through to results. For go-to-market, most Samsara customers are in early stages of digital transformation and do not require the same forward-deployed engineering model common in enterprise IT software. Management will stay close to customer needs but does not plan major changes to the existing go-to-market motion at this time.

• Q: With Samsara now at $2 billion in ARR and still growing 30% YoY, what are the core durable growth drivers that will sustain this growth going forward? /

  A: Durable growth is supported by multiple firing-on-all-cylinders growth vectors: accelerating large customer growth, where $100k+ and $1M+ customers have now accelerated sequentially for multiple quarters at increasing scale; emerging products, which have contributed over 20% of net new ACV for two consecutive quarters with more new products continuing to launch; and international expansion, which just delivered its strongest quarter ever with 18% of net new ARR coming from outside the U.S. This broad-based growth across multiple vectors supports durable 30% ARR growth even at Samsara's current larger scale.