Smartsheet Inc. (SMAR) Q1 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
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, grew 19% year-over-year.
Customers with ARR over $50,000 4,028, grew 20% year-over-year.
Customers with ARR over $100,000 1,970, grew 26% year-over-year.
Domain Average ARR $9,906, grew 16% year-over-year.
Dollar-based Net Retention Rate 114%.
Total Gross Margin 84%.
Subscription Gross Margin 88%.
Operating Income $42.1 million, or 16% of revenue.
Free Cash Flow $45.7 million.
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Operating Highlights
New Product Launches: Smartsheet AI's GA launch in February has seen nearly half of enterprise customers utilizing it for generating business logic and content. The Analyze Data tool was released in May, allowing users to quickly gain insights from their data.
Upcoming Product Features: Timeline View launched in April 2024, with Board View set to launch in July 2024 and a new table view expected by fall 2024.
Market Expansion: Significant expansions with customers like Nestle Purina, Ross Stores, and Sephora. A large three-year enterprise deal was signed with a technology and consumer electronics company in EMEA.
Customer Engagement: Collaboration with KPMG to develop a standardized service delivery solution for tracking value realization on strategic business transformation projects.
Operational Efficiency: The use of Data Shuttle has doubled and Dynamic View usage has tripled among a global media and entertainment company.
Financial Performance: Q1 revenue was $263 million, up 20% year-over-year, with subscription revenue at $249.1 million, representing 21% growth.
Strategic Shift: New pricing and packaging model to be rolled out on June 24, 2024, aimed at providing broader access to features and increasing control for administrators.
Share Buyback Program: Board authorized an initial $150 million share buyback, expected to commence shortly.
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Risk or Challenges
Competitive Pressures: Smartsheet faces increasing competition in the enterprise work management space, necessitating continuous innovation and enhancements to their platform to maintain market share.
Regulatory Issues: The company operates in a highly regulated environment, which may pose risks related to compliance and potential changes in regulations that could impact operations.
Supply Chain Challenges: As Smartsheet expands its global footprint, it may encounter supply chain challenges, particularly in managing data and services across different regions.
Economic Factors: Economic fluctuations could impact customer spending on software solutions, potentially affecting Smartsheet's revenue growth and customer retention.
Churn Rates: The slight increase in churn rates, particularly in smaller customer segments, indicates potential risks in customer retention that could affect overall revenue.
Transition Risks: The upcoming transition to a new pricing and packaging model may pose risks related to customer acceptance and potential disruptions in revenue during the transition period.
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Guidance & Outlook
Annualized Recurring Revenue (ARR): Ended the quarter with ARR of $1.056 billion, up 19% year-over-year.
Customer Expansion: 53 customers expanded their Smartsheet ARR by more than $100,000; 72 customers with ARR over $1 million, up 50% from Q1 last year.
New Pricing and Packaging Model: Rolling out on June 24, expected to be modestly accretive in the near term and meaningfully accretive in the long term.
AI Tools Adoption: Nearly half of enterprise customer plans have used Smartsheet AI since its launch in February.
New Product Launches: Timeline View launched in April; Board View launching in July; Table View expected by fall 2024.
Collaboration with KPMG: Developing a globally available standardized service delivery solution.
Q2 FY'25 Revenue Guidance: Expected revenue in the range of $273 million to $275 million.
FY'25 Revenue Guidance: Expected revenue of $1.116 billion to $1.121 billion, representing growth of 16% to 17%.
Non-GAAP Operating Income Guidance: Expected in the range of $157 million to $167 million for FY'25.
Free Cash Flow Guidance: Expected free cash flow of $220 million for FY'25, representing a free cash flow margin of 20%.
ARR Growth Guidance: Raising FY'25 ARR growth to be 14% to 14.5%.
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Shareholder Return Plan
Share Buyback Program: The Board authorized an initial $150 million share buyback, expected to commence within the next few days and to be significantly completed by the end of Q4 of fiscal year '25.
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Key Q&A
Q:How should we think about the different parts of the market that you primarily sell into for the rest of this year?
A:Enterprise remained strong for us in Q1, while SMB performance followed consistent trends from prior quarters.
Q:Does the new pricing model allow users to access everything you sell or is it still a la carte?
A:The new model allows licensed users access to the full suite of offerings, which is a significant change from the previous model.
Q:How do we frame the impact of the new pricing model over time?
A:The previous guidance did not contemplate the pricing model change, and we expect a modest contribution this year.
Q:What gives you confidence that the lower pricing and higher user count will be accretive?
A:Proof points come from customers who have already moved to the new model, showing favorable reactions.
Q:What is your plan to minimize disruption from the pricing and packaging changes?
A:We are onboarding new customers to the new model and existing customers will transition at their renewal date in 2025.
Q:Can you provide an update on the NRR dynamics across enterprise and SMB?
A:Enterprise NRR stayed over 120%, while SMB dropped a couple of points but remained over 100%.
Q:What are you seeing from a conversion point of view for collaborators?
A:The conversion rate for collaborators is not disclosed, but all contributors are now considered paid users.
Q:What is the outlook for gross margins with the new pricing model?
A:We expect to maintain gross margin levels as they are a function of total revenue.
Q:What are the key drivers behind the sequential improvement in your performance?
A:Customers are realizing value from our platform, leading to increased enterprise customers.
Q:What is the expected relationship between ARR growth and NRR?
A:The delta between ARR growth and NRR will remain consistent, with ARR growth outpacing NRR.
Q:Review of Unclear Management Responses
A:Management did not provide specific details on the conversion rates of collaborators to paid users, nor did they quantify the exact impact of the new pricing model on revenue and ARR guidance.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bayer
EMEA
Engage
Europe
KPMG
Timeline View
access
app
background
billing
buyback
capital
case
category
change pricing
collaborator
communication
company
convergence
decision
delta
editor
gentleman
guest viewer
line Congrats
member
model organization
model term
noise
notion
packaging model
past
price user
pricing packaging
sale capacity
sharing
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virality
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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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