Smartsheet Inc. (SMAR) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with revenue, ARR, and subscription growth. Guidance has been raised across several metrics, including non-GAAP net income and free cash flow, indicating confidence in future performance. The share buyback program is a positive for shareholder returns. Despite competitive pressures and elevated churn in smaller segments, overall sentiment remains positive. The Q&A session did not reveal major concerns, and the potential acquisition rumors suggest strategic interest in the company. These factors suggest a positive stock price movement in the next two weeks.
Key Financial Performance
Revenue $276.4 million, up 17% year-over-year.
Subscription Revenue $263.5 million, representing year-over-year growth of 19%.
Services Revenue $12.9 million.
Annualized Recurring Revenue (ARR) $1.093 billion, grew 17% year-over-year.
Customers with ARR over $50,000 4,140 customers, grew 17% year-over-year.
Customers with ARR over $100,000 2,056 customers, grew 23% year-over-year.
Dollar-based Net Retention Rate (NDRR) 113%.
Total Gross Margin 84%.
Subscription Gross Margin 87%.
Operating Income $45.3 million, or 16% of revenue.
Free Cash Flow $57.2 million.
Churn Rate 4.5%, increased slightly due to elevated churn in smaller customer segments.
Domain Average ARR $10,291, grew 16% year-over-year.
Share Repurchase Program Repurchased 918,000 shares for a total of $40 million in the quarter.
Remaining Share Buyback Authorization $110 million as of July 31.
Free Cash Flow Guidance Raised to $240 million, representing a free cash flow margin of 21%.
Non-GAAP Operating Income Guidance Raised to $177 million to $182 million, representing an operating margin of 16%.
Non-GAAP Net Income per Share Guidance Raised to $1.36 to $1.39 for the year.
Services Revenue as Percentage of Total Revenue Expected to be around 4.5% of total revenue, down from 5%.
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Operating Highlights
New Pricing and Packaging Model: Launched in June, leading to thousands of new customers and high engagement.
AI Tools Adoption: Nearly 50% sequential growth in users utilizing AI tools, saving an estimated 1 million hours.
New Smartsheet Experience: Showcasing at ENGAGE Seattle, aimed at enhancing project management capabilities.
Customer Expansion: 75 customers expanded ARR by over $100,000; 3 transactions over $1 million.
Enterprise Growth: 77 customers with ARR over $1 million, up 50% from last year.
New Customer Acquisition: Signed a competitive deal with a prominent financial services company.
Operational Efficiency: Streamlined processes for a Big 4 consulting firm, saving 39,000 working hours.
Share Buyback Program: Repurchased 918,000 shares for $40 million in Q2.
Platform Modernization: Ongoing comprehensive modernization of the Smartsheet platform.
Go-to-Market Strategy: Investments in next-gen product experiences and simplified licensing model.
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Risk or Challenges
Competitive Pressures: Smartsheet continues to face competitive pressures in the work management platform market, as indicated by the competitive deal with a prominent financial services company and the ongoing need to differentiate its offerings.
Regulatory Issues: There were no specific regulatory issues mentioned during the call, but the mention of government agencies as customers suggests potential regulatory scrutiny in that sector.
Supply Chain Challenges: No supply chain challenges were discussed in the call.
Economic Factors: The overall economic outlook has dampened, which could impact buying behaviors, although the company reported stable progression in customer demand throughout the quarter.
Churn Rate: The churn rate increased slightly, particularly in smaller customer segments, which could indicate potential risks in retaining these customers.
New Pricing Model Risks: The transition to a new pricing and packaging model may pose risks, as existing customers could resist changes or threaten to leave if they perceive a lack of value in the new structure.
Customer Retention: Concerns were raised about customer retention, particularly in smaller segments, which could affect overall revenue growth.
AI Implementation Costs: There are potential costs associated with providing AI capabilities to customers, which could impact gross margins if not managed effectively.
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Guidance & Outlook
Annualized Recurring Revenue (ARR): Ended the quarter with ARR of $1.093 billion, up 17% year-over-year.
Customer Expansion: 75 customers expanded their Smartsheet ARR by more than $100,000; 3 transactions over $1 million.
New Pricing and Packaging Model: Launched in June, leading to high engagement and new customer transactions.
AI Tools Adoption: Nearly 50% sequential growth in users utilizing AI tools, saving an estimated 1 million hours.
Platform Modernization: Ongoing comprehensive modernization of the Smartsheet platform.
ENGAGE Conference: Upcoming conference to showcase new Smartsheet experience and features.
FY 2025 Revenue Guidance: Maintaining revenue guidance of 16% to 17% growth.
Q3 Revenue Guidance: Expecting revenue in the range of $282 million to $285 million.
Full Year Revenue Projection: Expecting revenue of $1.116 billion to $1.121 billion.
Non-GAAP Operating Income: Raising to $177 million to $182 million for FY 2025.
Free Cash Flow Guidance: Raising to $240 million for FY 2025.
ARR Guidance: Updating to $1.177 billion to $1.180 billion, representing growth of 14.2% to 14.5%.
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Shareholder Return Plan
Share Buyback Program: In Q2, Smartsheet launched its share buyback program and repurchased 918,000 shares for a total of $40 million. As of July 31, there is $110 million remaining on the existing share buyback authorization.
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Key Q&A
Q:Have you thought about potentially some of these existing enterprise customers going ahead and starting to leverage the new pricing ahead of time?
A:We do see expect some interest from our existing customers and that could translate into potential dollars for us this fiscal year.
Q:Any rule of thumb for how much of what you typically expect would just be the free users, are now monetized?
A:We're really pleased to see confirming data come out of that. So high level, more users, more value being realized by a greater number of people.
Q:Some reports out about the company possibly being in play for an acquisition. I'm just curious, if we can get your thoughts on those reports first.
A:Yes. We're not going to comment on that today, but happy to take any other questions on the quarter or outlook.
Q:Will there be any gross margin impact to that where you're providing these capabilities?
A:No. We don't really expect that to be a major topic.
Q:Did you notice any sort of change in buying behaviors throughout the quarter?
A:We saw momentum build up as we went through the first month to the second and the third.
Q:Are you giving customers the ability to renew earlier than 2025 to lock in the prior pricing model one last time?
A:We're not giving them an option to renew under the old model, for long durations.
Q:Can you reiterate what you're seeing like-for-like customer spend on the new model versus the previous model?
A:We're not giving specifics to that.
Q:What do you mean by transformative year?
A:I see maturity in our model, I see maturity in our go-to-market motion, I see maturity in our product offerings.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the potential acquisition reports and did not provide specifics on customer spend under the new pricing model.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI tool
Ader KeyBanc
BMO Capital
Bank America
Capital Markets
ENGAGE
Jackson Ader
Smartsheet experience
capability people
change term
client
competition
customer support
deal end
difference
engineering
framework
home experience
hour
idea
indication
interface
maturity
model ability
model people
packaging
price
pricing model
project delivery
reporting
repurchase program
saving
simplifies
software
thousand model
time math
SMAR Transcript
Smartsheet Inc. (SMAR) Q2 2025 Earnings Call Transcript
Positive9-5
The earnings call indicates strong financial performance with revenue, ARR, and subscription growth. Guidance has been raised across several metrics, including non-GAAP net income and free cash flow, indicating confidence in future performance. The share buyback program is a positive for shareholder returns. Despite competitive pressures and elevated churn in smaller segments, overall sentiment remains positive. The Q&A session did not reveal major concerns, and the potential acquisition rumors suggest strategic interest in the company. These factors suggest a positive stock price movement in the next two weeks.
Smartsheet Inc. (SMAR) Q1 2025 Earnings Call Transcript
Positive6-6
The earnings call highlights strong financial metrics with a gross margin of 84%, a net retention rate over 120% for enterprises, and an ARR surpassing $1 billion. The launch of AI features and a new pricing model is well-received, indicating potential for future growth. The guidance for FY '25 shows optimism with expected revenue growth and strong cash flow. Despite some uncertainties in the timeframe of pricing model impact, the overall sentiment is positive, suggesting a likely stock price increase in the next two weeks.
Smartsheet Inc. (SMAR) Q4 2024 Earnings Call Transcript
Unknown3-15
The earnings call summary and Q&A reflect mixed signals. While there is strong enterprise growth and positive AI adoption, SMB performance is weak, and guidance is conservative. Management's focus on capital allocation and potential M&A is positive, but the macro environment and unclear responses regarding SMB issues and AI impact create uncertainties. The lack of clear guidance on AI revenue growth and leadership changes further dampens sentiment. Overall, the sentiment is neutral, balancing positive enterprise trends with SMB challenges and macroeconomic pressures.
Smartsheet Inc. (SMAR) Q3 2024 Earnings Call Transcript
Unknown12-8
The earnings call summary presents a mixed picture. While there are positive aspects like strong enterprise activity and positive feedback on AI solutions, there are also concerns such as deceleration in billings growth, SMB pressures, and cautious guidance. The Q&A section reveals management's cautious approach and lack of specific guidance, which may lead to investor uncertainty. The overall sentiment is balanced, with no strong positive or negative catalysts, leading to a neutral prediction for stock price movement.
SMAR Report
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
