Samsara: The industrial IoT company that is a SaaS super star

Samsara is not a pure software company like other SaaS players. Instead, this Industrial Internet of Things (IIoT) company has built a range of hardware sensors for industrial applications and is providing the software to unlock value.?

Samsara is one of only six SaaS companies with more than 1 billion US dollars in annual recurring revenues (ARR)*. It is one of only two publicly traded SaaS companies in the industrial tech space. Samsara went public on the NYSE on December 15, 2021 with already $493 million in ARR.

Such success is a prompt to look at three key SaaS metrics in more detail: Revenue growth, the ‘Magic Number’ as a proxy for sales efficiency, and the ‘rule of 40’ as indicator of how fast-growing SaaS companies balance growth and profitability.

There is broad consensus in the investment community that GAAP principles are not suitable for SaaS companies, and that a different set of metrics is needed to actually run a SaaS company and to benchmark performance against a peer group of competitors on a quarterly and annual basis.?

It is important to note that no definition is ‘better’ than the other but it rather matters to pick one definition and execute against it. Scale Venture Partners in Silicon Valley has probably most extensively used, benchmarked, and written about SaaS metrics, and they have defined ‘Four Vital Signs of SaaS’.?

The Samsara performance can be compared against C3.ai as the only other publicly traded industrial tech company and against the median and mean of the Meritech benchmarks for publicly traded companies as of November 14, 2023.?

46% year on year last twelve months (LTM) revenue growth

Samsara revenues increased by 46% over the past twelve months; twice as much as the mean SaaS company.?

The picture is similar for the implied ARR growth with Samsara at 43% vs. 19% for the SaaS median and the mean. Next twelve months (NTM) revenues are expected to grow by 31% vs. 15% for the SaaS median, and 17% for C3.ai.?

Samsara has introduced SaaS pricing to the Industrial Internet of Things (IIoT) where they price their subscriptions on a per asset per application basis. They committed to a multi-product strategy early on, and today offer 21 products across 5 core use cases.

Magic Number >1 is a proxy for sales efficiency

?For a recurring revenue business, the ‘Magic Number’ is calculated as current quarter net new implied ARR divided by prior quarter non-GAAP sales and marketing expense. A Magic Number greater than 1x tends to be a compelling business investment, and a sample of public SaaS company benchmarks can be found here.?

Samsara maps well against the median SaaS company (no data was provided for C3.ai). On one hand this is a positive given that sales in the industrial tech space tend to be highly complex. On the other hand, an industry focussed SaaS company like Veeva is able to achieve a best in class magic number of 3.9 by focussing on the pharma space. While Samsara has more than 50% of their customer base in transportation, trade and construction, they are serving a very wide range of industries.

Samsara has consistently generated between $60 and $70m in net new ARR over the past four quarters. The median SaaS average contract value (ACV) is $70k. Both Veeva and C3.ai sell contracts > $1 million. While Meritech does not provide an estimate for Samsara, the S-1 filing from November S-1 listed a large SMB customer base and an average ACV of $20k. Recent results have highlighted that the share of deals >$100k contribute about half of the ARR and is rising. In fact, Samsara has identified mid market customers between SMB and enterprise as the starting sweet spot.?

Samsara primarily sells through a direct sales force, which focuses on landing and expanding large enterprise and mid-market customers with numerous physical assets. The net new revenues are equally contributed from new customers and from upselling existing accounts.The focus is multi-application adoption: Customers may land with large-scale, multi-application contracts, or land with one application within one division and expand their adoption over time.

Rule of 40

SaaS management teams are driving towards either rapid growth or increased profitability, and the Rule of 40 has become a construct for framing the balance of these two phenomena. The Rule of 40 (‘Ro40’ or ‘efficiency score’) states that, at scale, a company's revenue growth rate plus profitability margin should be equal to or greater than 40%. A ten-year look at the data shows that the Ro40 has remained quite consistent among public SaaS companies, suggesting that the measure is a useful barometer of the balance between a business' expansion and profitability, and by extension, the general sustainability of company performance over longer intervals of time.

Samsara clocked an impressive 43% implied ARR YoY growth at a negative? -3% FCF margin to yield a? 40% efficiency score. Samsara is on the way to a positive FCF margin for the year and generated positive FCF in their Q2 in 2023.

Median SaaS companies grew 19%? but had a positive FCF margin for a 31% efficiency score (no data was available for C3.ai).

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* At the time of writing, the others are Snowflake, Cloudflare, Crowdstrike, Scaler and Bill.com