Smartsheet Inc. Announces Second Quarter Fiscal Year 2023 Results

BELLEVUE, Wash.--(BUSINESS WIRE)--Smartsheet Inc. (NYSE: SMAR), the enterprise platform for dynamic work, today announced financial results for its second fiscal quarter ended July 31, 2022.

"Our strong quarterly results demonstrate the value customers are seeing from our core platform and premium capabilities," said Mark Mader, President and CEO of Smartsheet. "Smartsheet empowers customers to unlock the potential of their teams and achieve better business results, giving them an edge in today's macro environment. As we head into the second half of the year, we'll continue our disciplined operational approach while delivering innovation to help our customers succeed."

Second Quarter Fiscal 2023 Financial Highlights

• Revenue: Total revenue was $186.7 million, an increase of 42% year over year. Subscription revenue was $173.5 million, an increase of 43% year over year. Professional services revenue was $13.2 million, an increase of 24% year over year.

• Operating Loss: GAAP operating loss was $64.9 million, or 35% of total revenue, compared to GAAP operating loss of $43.6 million, or 33% of total revenue, in the second quarter of fiscal 2022. Non-GAAP operating loss was $16.1 million, or 9% of total revenue, compared to non-GAAP operating loss of $5.2 million, or 4% of total revenue, in the second quarter of fiscal 2022.

• Net Loss: GAAP net loss was $62.3 million, compared to GAAP net loss of $44.2 million in the second quarter of fiscal 2022. GAAP net loss per share was $0.48, compared to GAAP net loss per share of $0.35 in the second quarter of fiscal 2022. Non-GAAP net loss was $13.5 million, compared to non-GAAP net loss of $5.8 million in the second quarter of fiscal 2022. Non-GAAP net loss per share was $0.10, compared to non-GAAP net loss per share of $0.05 in the second quarter of fiscal 2022.

• Cash Flow: Net operating cash flow was positive $10.2 million, compared to net operating cash flow of positive $1.8 million in the second quarter of fiscal 2022. Free cash flow was positive $7.1 million, compared to free cash flow of negative $3.5 million in the second quarter of fiscal 2022.

Second Quarter Fiscal 2023 Business Highlights

• Free cash flow was positive $7.1 million
• Dollar-based net retention rate was 131%
• Calculated billings were $205.6 million, representing year-over-year growth of 44%
• The number of all customers with annualized contract values ("ACV") of $100,000 or more grew to 1,220, an increase of 63% year over year
• The number of all customers with ACV of $50,000 or more grew to 2,738, an increase of 48% year over year
• The number of all customers with ACV of $5,000 or more grew to 16,682, an increase of 24% year over year
• Average ACV per domain-based customer increased to $7,557, an increase of 28% year over year
• Introduced a new security feature that gives system administrators an enhanced layer of control over how data can be exported from Smartsheet
• Brandfolder by Smartsheet was ranked as the number one digital asset management platform in G2's 2022 Summer Grid Report and has been a leader in this report for 18 consecutive quarters
• Released enhancements that make it easier for users to update information in Smartsheet from wherever they are, including a feature that allows customers to use forms in the mobile app while offline
• Released new automation capabilities, including a workflow action that generates new documents based on users' sheet row data and can automatically send documents for e-signature

The section titled "Use of Non-GAAP Financial Measures" below contains a description of the non-GAAP financial measures with a reconciliation between GAAP and non-GAAP information. The section titled "Definitions of Business Metrics" contains definitions of certain non-financial metrics provided within this earnings release.

Financial Outlook

For the third quarter of fiscal year 2023, the Company currently expects:

• Total revenue of $193 million to $194 million, representing year-over-year growth of 33% to 34%
• Non-GAAP operating loss of $21 million to $19 million
• Non-GAAP net loss per share of $0.16 to $0.15, assuming basic and diluted weighted average shares outstanding of approximately 130.5 million

For the full fiscal year 2023, the Company currently expects:

• Total revenue of $750 million to $755 million, representing year-over-year growth of 36% to 37%
• Calculated billings of $870 million to $880 million, representing year-over-year growth of 32% to 33%
• Non-GAAP operating loss of $75 million to $65 million
• Non-GAAP net loss per share of $0.56 to $0.49, assuming basic and diluted weighted average shares outstanding of approximately 129 million
• Free cash flow of $0

We have not reconciled free cash flow guidance to net cash from operating activities because we do not provide guidance on the reconciling items between net cash from operating activities and free cash flow, due to the uncertainty regarding, and the potential variability of, these items. The actual amount of such reconciling items will have a significant impact on our free cash flow. Accordingly, a reconciliation of net cash from operating activities to free cash flow guidance is not available without unreasonable effort. We do not provide reconciliation of calculated billings guidance as its components are solely revenue and deferred revenue, and guidance for revenue is already provided.

Conference Call Information

Smartsheet will host a conference call and live webcast for analysts and investors at 4:30 p.m. ET (1:30 p.m. PT) on September 1, 2022. A live webcast and accompanying presentation can be accessed on the Investor Relations section of the Company's website at: https://investors.smartsheet.com. The conference call can also be accessed by dialing [phone], or [phone] (outside of the US). The conference ID is 7672979. A replay of the call via webcast will be available at https://investors.smartsheet.com or by dialing [phone] or [phone] (outside of the US). The dial-in replay will be available until the end of day on September 8, 2022. The webcast replay will be available for one year.

Forward-Looking Statements

This press release contains "forward-looking" statements that are based on our management's beliefs and assumptions and on information currently available to management. Forward-looking statements include, but are not limited to, statements about Smartsheet's outlook for the third fiscal quarter and the full fiscal year ending January 31, 2023, and Smartsheet's expectations regarding possible or assumed business strategies, potential growth and innovation opportunities, new products, and potential market opportunities.

Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "believe," "continue," "could," "potential," "remain," "will," "would," or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These risks include, but are not limited to, risks and uncertainties related to: our ability to achieve future growth and sustain our growth rate; our ability to attract and retain customers and increase sales to our customers; our ability to develop and release new products and services and to scale our platform; our ability to increase adoption of our platform through our self-service model; our ability to maintain and grow our relationships with strategic partners; the highly competitive and rapidly evolving market in which we participate; our ability to identify targets for, execute on, or realize the benefits of, potential acquisitions; our international expansion strategies; and the impact of the COVID-19 pandemic. Further information on risks that could cause actual results to differ materially from forecasted results is included in our filings with the SEC, including our Quarterly Report on Form 10-Q for the quarter ended July 31, 2022 to be filed with the SEC. Any forward-looking statements contained in this press release are based on assumptions that we believe to be reasonable as of this date. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons if actual results differ materially from those anticipated in the forward-looking statements.

Use of Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors' overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of the non-GAAP financial measures to such GAAP measures can be found in the accompanying financial statements included with this press release.

We believe that these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects, and allow for greater transparency with respect to important metrics used by our management for financial and operational decision-making. We are presenting these non-GAAP financial metrics to assist investors in seeing our financial performance through the eyes of management, and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

We define non-GAAP operating loss as GAAP operating loss excluding share-based compensation expense, amortization of acquisition-related intangible assets, one-time costs associated with mergers and acquisitions, and litigation expenses and settlements related to matters that are outside the ordinary course of our business. We define non-GAAP net loss as GAAP net loss excluding non-recurring income tax adjustments associated with mergers and acquisitions and the same exclusions that are used to derive non-GAAP operating loss. There are a number of limitations related to the use of these non-GAAP measures as compared to GAAP operating loss and net loss, including that the non-GAAP measures exclude share-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense in our business and an important part of our compensation strategy.

We use the non-GAAP financial measure of free cash flow, which is defined as GAAP net cash flows from operating activities, reduced by cash used for purchases of property and equipment (inclusive of spend on internal-use software). We believe free cash flow is an important liquidity measure of the cash that is available, after capital expenditures and operational expenses, for investment in our business and to make acquisitions. Free cash flow is useful to investors as a liquidity measure because it measures our ability to generate or use cash. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. There are a number of limitations related to the use of free cash flow as compared to net cash from operating activities, including that free cash flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made.

We define calculated billings as total revenue plus the change in deferred revenue in the period. Because we recognize subscription revenue ratably over the subscription term, calculated billings can be used to measure our subscription sales activity for a particular period, to compare subscription sales activity across particular periods, and as an indicator of future subscription revenue.

Definitions of Business Metrics

Average ACV per domain-based customer

We define average ACV per domain-based customer as total outstanding ACV for domain-based subscriptions as of the end of the reporting period divided by the number of domain-based customers as of the same date. We define domain-based customers as organizations with a unique email domain name.

Dollar-based net retention rate

We calculate dollar-based net retention rate as of a period end by starting with the ACV from the cohort of all customers as of the 12 months prior to such period end, or Prior Period ACV. We then calculate the ACV from these same customers as of the current period end, or Current Period ACV. Current Period ACV includes any upsells and is net of contraction or attrition over the trailing 12 months, but excludes subscription revenue from new customers in the current period. We then divide the total Current Period ACV by the total Prior Period ACV to arrive at the dollar-based net retention rate. Any ACV obtained through merger and acquisition transactions does not affect the dollar-based net retention rate until one year from the date on which the transaction closed.

About Smartsheet

Smartsheet (NYSE: SMAR) is the enterprise platform for dynamic work. By aligning people and technology so organizations can move faster and drive innovation, Smartsheet enables its millions of users to achieve more. Visit www.smartsheet.com to learn more.

Disclosure of Material Information

Smartsheet announces material information to its investors using SEC filings, press releases, public conference calls, and on its investor relations page of the company's website at https://investors.smartsheet.com.

SMARTSHEET INC. Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited)
	Three Months Ended July 31,								Six Months Ended July 31,
		2022				2021				2022				2021
Revenue
Subscription	$	173,533			$	121,110			$	328,809			$	229,123
Professional services		13,158				10,626				26,192				19,695
Total revenue		186,691				131,736				355,001				248,818
Cost of revenue
Subscription		27,722				18,339				52,860				36,902
Professional services		12,829				9,127				24,849				17,136
Total cost of revenue		40,551				27,466				77,709				54,038
Gross profit		146,140				104,270				277,292				194,780
Operating expenses
Research and development		53,784				39,079				106,303				75,553
Sales and marketing		124,015				77,120				239,406				148,499
General and administrative		33,200				31,621				66,244				52,639
Total operating expenses		210,999				147,820				411,953				276,691
Loss from operations		(64,859	)			(43,550	)			(134,661	)			(81,911	)
Interest income		1,281				12				1,669				23
Other income (expense), net		1,624				(564	)			796				763
Loss before income tax provision		(61,954	)			(44,102	)			(132,196	)			(81,125	)
Income tax provision		359				66				574				115
Net loss	$	(62,313	)		$	(44,168	)		$	(132,770	)		$	(81,240	)
Net loss per share, basic and diluted	$	(0.48	)		$	(0.35	)		$	(1.03	)		$	(0.65	)
Weighted-average shares outstanding used to compute net loss per share, basic and diluted		129,645				125,210				129,091				124,669

Share-based compensation expense included in the condensed consolidated statements of operations was as follows (in thousands, unaudited):
	Three Months Ended July 31,						Six Months Ended July 31,
		2022			2021			2022			2021
Cost of subscription revenue	$	2,849		$	1,602		$	5,460		$	3,097
Cost of professional services revenue		1,756			941			3,233			1,614
Research and development		15,974			10,024			31,589			18,331
Sales and marketing		16,707			10,315			31,452			18,971
General and administrative		8,202			5,751			17,654			10,479
Total share-based compensation expense	$	45,488		$	28,633		$	89,388		$	52,492

SMARTSHEET INC. Condensed Consolidated Balance Sheets (in thousands, except share data) (unaudited)
	July 31, 2022				January 31, 2022
Assets
Current assets
Cash and cash equivalents	$	227,370			$	449,074
Short-term investments		228,294				—
Accounts receivable, net of allowances of $5,167 and $7,561, respectively		130,799				151,138
Prepaid expenses and other current assets		37,256				34,390
Total current assets		623,719				634,602
Restricted cash		17				17
Deferred commissions		100,738				91,312
Property and equipment, net		38,584				36,835
Operating lease right-of-use assets		63,619				67,171
Intangible assets, net		39,125				44,096
Goodwill		125,605				125,605
Other long-term assets		2,842				3,194
Total assets	$	994,249			$	1,002,832
Liabilities and shareholders' equity
Current liabilities
Accounts payable	$	3,522			$	1,506
Accrued compensation and related benefits		54,115				66,744
Other accrued liabilities		25,727				18,901
Operating lease liabilities, current		18,544				18,003
Deferred revenue		363,967				332,285
Total current liabilities		465,875				437,439
Operating lease liabilities, non-current		52,292				58,237
Deferred revenue, non-current		1,379				2,377
Total liabilities		519,546				498,053
Shareholders' equity
Preferred stock, no par value; 10,000,000 shares authorized, no shares issued or outstanding as of July 31, 2022 and January 31, 2022		—				—
Class A common stock, no par value; 500,000,000 shares authorized, 130,155,007 shares issued and outstanding as of July 31, 2022; 500,000,000 shares authorized, 127,809,525 shares issued and outstanding as of January 31, 2022		—				—
Class B common stock, no par value; 500,000,000 shares authorized, no shares issued and outstanding as of July 31, 2022; 500,000,000 shares authorized, no shares issued and outstanding as of January 31, 2022		—				—
Additional paid-in capital		1,150,410				1,047,313
Accumulated other comprehensive loss		(403	)			—
Accumulated deficit		(675,304	)			(542,534	)
Total shareholders' equity		474,703				504,779
Total liabilities and shareholders' equity	$	994,249			$	1,002,832

SMARTSHEET INC. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
	Six Months Ended July 31,
		2022				2021
Cash flows from operating activities
Net loss	$	(132,770	)		$	(81,240	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		89,388				52,193
Depreciation and amortization		12,239				9,827
Amortization of deferred commission costs		27,567				19,734
Net amortization of premium or discount on investments		(402	)			—
Unrealized foreign currency (gain) loss		423				222
Non-cash operating lease costs		7,905				7,396
Other		(1,587	)			—
Changes in operating assets and liabilities:
Accounts receivable		20,357				11,522
Prepaid expenses and other current assets		(3,804	)			(11,586	)
Other long-term assets		(131	)			64
Accounts payable		2,002				(974	)
Other accrued liabilities		6,965				1,282
Accrued compensation and related benefits		(8,773	)			3,267
Deferred commissions		(36,994	)			(33,298	)
Deferred revenue		30,653				26,828
Operating lease liabilities		(7,870	)			(6,436	)
Net cash provided by (used in) operating activities		5,168				(1,199	)
Cash flows from investing activities
Purchases of short-term investments		(297,844	)			—
Maturities of short-term investments		69,548				—
Purchases of property and equipment		(3,007	)			(6,975	)
Proceeds from sale of property and equipment		94				—
Proceeds from liquidation of an investment		622				—
Capitalized internal-use software development costs		(4,121	)			(3,556	)
Net cash used in investing activities		(234,708	)			(10,531	)
Cash flows from financing activities
Proceeds from exercise of stock options		3,649				7,085
Taxes paid related to net share settlement of equity awards		(2,513	)			(3,467	)
Proceeds from Employee Stock Purchase Plan		7,836				9,191
Net cash provided by financing activities		8,972				12,809
Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash		(1,225	)			(185	)
Change in cash, cash equivalents, and restricted cash		(221,793	)			894
Cash, cash equivalents, and restricted cash at beginning of period		449,680				442,348
Cash, cash equivalents, and restricted cash at end of period	$	227,887			$	443,242

Supplemental disclosures
Cash paid for income taxes	$	191			$	118
Right-of-use assets obtained in exchange for operating lease liabilities		4,464				—
Right-of-use assets reductions related to operating lease terminations		110				—
Accrued purchases of property and equipment (including internal-use software)		939				1,285
Share-based compensation expense capitalized in internal-use software development costs		1,747				963

SMARTSHEET INC. Reconciliation from GAAP to Non-GAAP Financial Measures (unaudited)
Reconciliation from GAAP to non-GAAP operating loss and operating margin
	Three Months Ended July 31,								Six Months Ended July 31,
		2022				2021				2022				2021
	(dollars in thousands)
Loss from operations	$	(64,859	)		$	(43,550	)		$	(134,661	)		$	(81,911	)
Add:
Share-based compensation expense(1)		45,836				28,633				90,064				52,492
Amortization of acquisition-related intangible assets(2)		2,484				2,517				4,967				5,034
One-time acquisition costs		461				—				461				17
Litigation expenses and settlements(3)		—				7,250				—				7,250
Non-GAAP operating loss	$	(16,078	)		$	(5,150	)		$	(39,169	)		$	(17,118	)
Operating margin		(35	)%			(33	)%			(38	)%			(33	)%
Non-GAAP operating margin		(9	)%			(4	)%			(11	)%			(7	)%
(1) Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.
(2) Consists entirely of amortization of intangible assets that were recorded as part of purchase accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized.
(3) Relates to matters that are outside the ordinary course of our business.

Reconciliation from GAAP to non-GAAP net loss
	Three Months Ended July 31,								Six Months Ended July 31,
		2022				2021				2022				2021
	(in thousands)
Net loss	$	(62,313	)		$	(44,168	)		$	(132,770	)		$	(81,240	)
Add:
Share-based compensation expense(1)		45,836				28,633				90,064				52,492
Amortization of acquisition-related intangible assets(2)		2,484				2,517				4,967				5,034
One-time acquisition costs		461				—				461				17
Litigation expenses and settlements(3)		—				7,250				—				7,250
Non-GAAP net loss	$	(13,532	)		$	(5,768	)		$	(37,278	)		$	(16,447	)
(1) Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.
(2) Consists entirely of amortization of intangible assets that were recorded as part of purchase accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized.
(3) Relates to matters that are outside the ordinary course of our business.

Anti-dilutive shares (in thousands)
	July 31,
	2022		2021
Shares subject to outstanding common stock awards	11,799		11,315
Shares issuable pursuant to the 2018 Employee Stock Purchase Plan	53		143
Total potentially dilutive shares	11,852		11,458

SMARTSHEET INC. Reconciliation from GAAP to Non-GAAP Financial Measures (unaudited)
Reconciliation from net operating cash flow to free cash flow
	Three Months Ended July 31,								Six Months Ended July 31,
		2022				2021				2022				2021
	(in thousands)
Net cash provided by (used in) operating activities	$	10,221			$	1,762			$	5,168			$	(1,199	)
Less:
Purchases of property and equipment		(1,316	)			(3,755	)			(3,007	)			(6,975	)
Capitalized internal-use software development costs		(1,798	)			(1,539	)			(4,121	)			(3,556	)
Free cash flow	$	7,107			$	(3,532	)		$	(1,960	)		$	(11,730	)

Reconciliation from revenue to calculated billings
	Three Months Ended July 31,						Six Months Ended July 31,
		2022			2021			2022			2021
	(in thousands)
Total revenue	$	186,691		$	131,736		$	355,001		$	248,818
Add:
Deferred revenue (end of period)		365,346			250,826			365,346			250,826
Less:
Deferred revenue (beginning of period)		346,423			239,667			334,662			223,997
Calculated billings	$	205,614		$	142,895		$	385,685		$	275,647

Reconciliation from GAAP to non-GAAP operating loss guidance
	Q3 FY 2023								FY 2023
	Low				High				Low				High
	(in millions)
Loss from operations	$	(70.2	)		$	(68.2	)		$	(280.7	)		$	(270.7	)
Add:
Share-based compensation expense(1)		46.0				46.0				194.0				194.0
Amortization of acquisition-related intangible assets(2)		2.9				2.9				11.0				11.0
One-time costs of acquisition		0.3				0.3				0.7				0.7
Non-GAAP operating loss	$	(21.0	)		$	(19.0	)		$	(75.0	)		$	(65.0	)
(1) Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.
(2) Consists entirely of amortization of intangible assets that were recorded as part of purchase accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized.

SMARTSHEET INC. Reconciliation from GAAP to Non-GAAP Financial Measures (unaudited)
Reconciliation from GAAP to non-GAAP net loss guidance
	Q3 FY 2023								FY 2023
	Low				High				Low				High
	(in millions)
Net loss	$	(70.2	)		$	(68.2	)		$	(278.5	)		$	(268.5	)
Add:
Share-based compensation expense(1)		46.0				46.0				194.0				194.0
Amortization of acquisition-related intangible assets(2)		2.9				2.9				11.0				11.0
One-time costs of acquisition		0.3				0.3				0.7				0.7
Non-GAAP net loss	$	(21.0	)		$	(19.0	)		$	(72.8	)		$	(62.8	)
(1) Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.
(2) Consists entirely of amortization of intangible assets that were recorded as part of purchase accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized.

 

Contacts

Smartsheet Inc.
Investor Relations Contact
Aaron Turner
[e-mail]

Media Contact
Chrissy Vaughn
[e-mail]