Smartsheet Inc (SMAR) reports robust Q1 performance with significant ARR growth and strategic pricing changes.
GuruFocus Research
19 hours ago
Summary
- Revenue: $263 million, up 20% year over year.
- Subscription Revenue: $249.1 million, representing year-over-year growth of 21%.
- Services Revenue: $13.9 million.
- Annualized Recurring Revenue (ARR): $1.056 billion, up 19% year over year.
- Gross Margin: 84% total, with subscription gross margin at 88%.
- Operating Income: $42.1 million, or 16% of revenue.
- Free Cash Flow: $45.7 million.
- Customers with ARR over $50,000: 4,028, up 20% year over year.
- Customers with ARR over $100,000: 1,970, up 26% year over year.
- Dollar-Based Net Retention Rate: 114%.
- Q2 FY25 Revenue Guidance: $273 million to $275 million.
- Q2 FY25 Non-GAAP Operating Income Guidance: $38 million to $40 million.
- Q2 FY25 Non-GAAP Net Income per Share Guidance: $0.28 to $0.29.
- FY25 Revenue Guidance: $1.116 billion to $1.121 billion, representing growth of 16% to 17%.
- FY25 Non-GAAP Operating Income Guidance: $157 million to $167 million, representing an operating margin of 14% to 15%.
- FY25 Non-GAAP Net Income per Share Guidance: $1.22 to $1.29.
- FY25 Free Cash Flow Guidance: $220 million, representing a free cash flow margin of 20%.
Release Date: June 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Smartsheet Inc (SMAR, Financial) reported a strong Q1 with annualized recurring revenue (ARR) reaching $1.056 billion, reflecting a 19% year-over-year growth.
- The company saw significant customer expansion, with 53 customers increasing their ARR by more than $100,000 and 72 customers now having ARR over $1 million, up 50% from the previous year.
- Smartsheet Inc (SMAR) introduced a new pricing and packaging model expected to be modestly accretive in the near term and meaningfully accretive in the longer term, providing broader access to features at a lower price per user.
- The company continues to see meaningful adoption of its AI tools, with nearly half of enterprise customer plans using Smartsheet AI since its launch in February.
- Smartsheet Inc (SMAR) reported a total gross margin of 84% and a subscription gross margin of 88%, showcasing strong operational efficiency.
Negative Points
- The company experienced elevated churn rates in its smaller customer segments, which slightly increased the overall churn rate.
- Despite the strong performance, the SMB segment showed consistent trends with no significant improvement, indicating potential challenges in this market segment.
- The new pricing and packaging model, while promising, may introduce some near-term disruption as existing customers transition to the new model in 2025.
- The company’s dollar-based net retention rate, inclusive of all customers, was 114%, indicating room for improvement in customer retention and expansion.
- The macroeconomic environment remains challenging, and the company has adopted a cautious approach in its revenue guidance, reflecting potential uncertainties in the market.
Q & A Highlights
Q: How should we think about the different parts of the market that you primarily sell into for the rest of this year?
A: (Pete Godbole, CFO) Enterprise remains strong and consistent, while SMB performance followed a consistent trend from prior quarters.
Q: Does the new pricing model allow users to access everything you sell, or is it still à la carte?
A: (Mark Mader, CEO) The new model provides access to all features for licensed users, which should drive higher virality and more people creating work on our platform.
Q: How do we frame the impact of the new pricing model on financials?
A: (Pete Godbole, CFO) The previous guidance did not contemplate this pricing model change. The change in ARR guidance reflects the expected modest contribution from the new model this year.
Q: What gives you confidence that the new pricing model will be accretive?
A: (Mark Mader, CEO) Proof points come from customers who have already moved to the new model, showing favorable reactions and increased clarity in pricing.
Q: Are you starting to see bigger enterprises consolidating their work management tools?
A: (Mark Mader, CEO) Yes, there's a higher fluency in the category, with more sophisticated questions and analysis from customers, which plays to our strengths.
Q: Can you give an update on how net dollar retention rate (NDRR) played out in Q1 between enterprise and SMB?
A: (Pete Godbole, CFO) Enterprise NDRR stayed over 120%, while SMB dropped a couple of points but remained over 100%.
Q: How do you plan to minimize potential disruption from the new pricing and packaging changes?
A: (Mark Mader, CEO) We are thoughtful about timing, with new customers onboarding immediately and existing customers transitioning in 2025. Robust communication and close customer engagement will help mitigate disruption.
Q: Can you explain the delta between billings and ARR this quarter?
A: (Pete Godbole, CFO) Billings are impacted by prorated bookings and renewal dates, making ARR a better metric. The delta this quarter was due to bookings with proration effects.
Q: How did the linearity of bookings look in the quarter?
A: (Pete Godbole, CFO) We started slow in February but saw momentum build through the quarter, finishing strong in April.
Q: What are you hearing from customers at the EMEA Engage Conference?
A: (Mark Mader, CEO) High curiosity around modernization and AI, with strong interest and attendance from large caps, indicating a positive outlook for collaborative work management in Europe.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
