Smartsheet (NYSE:SMAR) Q1: Beats On Revenue But Stock Drops 14.3%

Jabin Bastian /
2023/06/07 4:18 pm EDT

Project management software maker Smartsheet (NYSE:SMAR) reported Q1 FY2024 results beating Wall St's expectations, with revenue up 30.6% year on year to $219.9 million. The company expects that next quarter's revenue would be around $229.5 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Smartsheet made a GAAP loss of $50.7 thousand, improving on its loss of $70.5 million, in the same quarter last year.

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Smartsheet (SMAR) Q1 FY2024 Highlights:

  • Revenue: $219.9 million vs analyst estimates of $214.2 million (2.67% beat)
  • EPS (non-GAAP): $0.18 vs analyst estimates of $0.08 ($0.10 beat)
  • Revenue guidance for Q2 2024 is $229.5 million at the midpoint, below analyst estimates of $230.4 million
  • The company reconfirmed revenue guidance for the full year, at $945.5 million at the midpoint
  • Free cash flow of $31.3 million, up 91% from previous quarter
  • Net Revenue Retention Rate: 123%, in line with previous quarter
  • Customers: 18,483 customers paying more than $5,000 annually
  • Gross Margin (GAAP): 79.1%, up from 77.9% same quarter last year

Founded in 2005, Smartsheet (NYSE:SMAR) is a software as a service platform that helps companies plan, manage and report on work.

“Our fiscal year is off to a solid start,” said Mark Mader, President and CEO of Smartsheet. “We continued to drive growth this quarter, exceeding our guidance on both the top and bottom line. We are seeing strong demand from our enterprise customers, who continue to choose Smartsheet to help them accomplish their mission critical work and solve their toughest problems. Looking ahead, we’re planning to expand the AI-based capabilities in our platform to help our customers unlock new, higher value work.”

Sales Growth

As you can see below, Smartsheet's revenue growth has been impressive over the last two years, growing from quarterly revenue of $117.1 million in Q1 FY2022, to $219.9 million.

Smartsheet Total Revenue

And unsurprisingly, this was another great quarter for Smartsheet with revenue up 30.6% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $7.55 million in Q1, compared to $12.8 million in Q4 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Smartsheet is expecting revenue to grow 22.9% year on year to $229.5 million, slowing down from the 41.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 21.5% over the next twelve months.

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Large Customers Growth

You can see below that at the end of the quarter Smartsheet reported 18,483 enterprise customers paying more than $5,000 annually, an increase of 390 on last quarter. That is a bit less contract wins than last quarter and also quite a bit below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.

Smartsheet customers paying more than $5,000 annually

Key Takeaways from Smartsheet's Q1 Results

With a market capitalization of $6.87 billion Smartsheet is among smaller companies, but its more than $489.5 million in cash and positive free cash flow over the last twelve months give us confidence that Smartsheet has the resources it needs to pursue a high growth business strategy.

It was good to see Smartsheet outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see the slowdown in new contract wins and the revenue guidance for the next quarter slightly missed analysts' expectations. Overall, it seems to us that this was a complicated quarter for Smartsheet. The company is down 14.3% on the results and currently trades at $42.03 per share.

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The author has no position in any of the stocks mentioned.