Smartsheet's (NYSE:SMAR) Q1 Sales Top Estimates But Stock Drops

Kayode Omotosho /
2022/06/07 4:13 pm EDT

Project management software maker Smartsheet (NYSE:SMAR) reported Q1 FY2023 results that beat analyst expectations, with revenue up 43.7% year on year to $168.3 million. The company expects that next quarter's revenue would be around $180.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Smartsheet made a GAAP loss of $70.4 million, down on its loss of $37 million, in the same quarter last year.

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Smartsheet (SMAR) Q1 FY2023 Highlights:

  • Revenue: $168.3 million vs analyst estimates of $162.5 million (3.54% beat)
  • EPS (GAAP): -$0.55
  • Revenue guidance for Q2 2023 is $180.5 million at the midpoint, above analyst estimates of $179.3 million
  • The company reconfirmed revenue guidance for the full year, at $758.5 million at the midpoint
  • Free cash flow was negative $9.06 million, compared to negative free cash flow of $2.74 million in previous quarter
  • Net Revenue Retention Rate: 133%, in line with previous quarter
  • Customers: 15,879 customers paying more than $5,000 annually
  • Gross Margin (GAAP): 77.9%, in line with 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. The future of work requires teams to collaborate across departments and remote offices. Project management software is both driving this change and benefiting from it. While the trend of collaborative work management has been strong for a while, the Covid pandemic has definitively accelerated the demand for tools that allow work to be done remotely.

“Our global team delivered a solid start to the year,” said Mark Mader, President and CEO of Smartsheet.

Sales Growth

As you can see below, Smartsheet's revenue growth has been impressive over the last year, growing from quarterly revenue of $117 million, to $168.3 million.

Smartsheet Total Revenue

And unsurprisingly, this was another great quarter for Smartsheet with revenue up 43.7% year on year. But the growth did slow down a little compared to last quarter, as Smartsheet increased revenue by $10.9 million in Q1, compared to $12.7 million revenue add in Q4 2022. 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 37% year on year to $180.5 million, slowing down from the 44.4% 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 34.6% 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 15,879 enterprise customers paying more than $5,000 annually, an increase of 729 on last quarter. That is a bit less contract wins than last quarter but about the same as what we have typically seen over the last year, suggesting that the company still has decent sales momentum, even if this was a weaker quarter.

Smartsheet customers paying more than $5,000 annually

Key Takeaways from Smartsheet's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Smartsheet’s balance sheet, but we note that with a market capitalization of $5.04 billion and more than $446.6 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Smartsheet delivered this quarter. And we were also excited to see that the guidance outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see the slowdown in new contract wins and gross margin deteriorated a little. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But investors might have been expecting more and the company is down 6.83% on the results and currently trades at $37.89 per share.

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