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We are very bullish on building a durable company in the long-term: Smartsheet CEO

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Smartsheet CEO Mark Mader joins Yahoo Finance Live to discuss the company's recent second quarter earnings, outlook for growth, and the future of return to office.

Video Transcript

- Workflow management company Smartsheet is out with better than expected sales and profits as the pandemic continues to see companies invest in digital workflow. But the stock is getting hit amid a mixed third quarter outlook for Billings. Let's get the-- the one so to speak from Smartsheet CEO Mark Mader.

Mark, always good to speak with you. Thanks for taking some time. Let's just swab the deck on the stock price reaction. Down almost 10% here. I think some concern on the street about the Billings guidance for the third quarter marking. It would be a slowdown compared to what you saw in the second quarter. Have you seen a slowdown in your business?

MARK MADER: Now we've had we had just posted a fantastic quarter. And it was the third quarter of sequential growth and acceleration. We are quite bullish on tackling what is a very young market in work management. We are the just across the half a billion IRR threshold as a business, which is exciting. And we're looking to build really a durable company for the long term.

- So you haven't seen. It has there been a directional change in your business as people have gone back to the office?

MARK MADER: You know, I think-- I think it's more of a category becoming known now. And people trying to figure out how to empower their workforce to achieve more. Whether that's on the collection of data, the management of data, and not only empowering the workforce, but also how do you do that in a way that's actually secure and enterprise grade.

Because today, with all the security threat vectors coming at companies, it's not just about empowering your workforce and sharing within and across companies, it's how do you do that in a secure manner. And one of the things that's really helped fuel our growth in the last quarter is the release of what we call Smartsheet advance, which is our premium platform that allows people to both integrate to other systems very deeply and also govern manage and administer.

- Hey, Mark. It's Julie here. I just want to-- Sorry to dwell on this for another moment I just want to clarify the Billings issue. Because you guys talked about on the call and you clarified it there. And I just want to make sure for our audience that they have that clarification as well.

So because of some sort of one time items year over year comparisons, your guide for Billings this quarter is what closer to 38%, 39%. Is that correct?

MARK MADER: Correct. On a normalized basis. And as you said, Julie, that one time, event of the acquisition of brand folder last year. The digital Asset Management platform does cause that 4% or 5% headwind at one time.

- One of the other things that you guys talked about on the call is the growth that you've seen in particular in the health care space in terms of your clientele. What do you think is driving that? And do you expect that to continue to be-- even though your clients are pretty diversified, do you expect that to continue to be an area of growth for you?

MARK MADER: We do. And what we're seeing is such pressure on organizations to do more with the same or a fewer number of people. I think COVID, especially has put such pressure on health care organizations, as well as pharma companies to work more quickly and efficiently.

I don't see any end in sight there. And those-- those two sectors have been the fastest growing for us at over 50% year over year.

- Another interesting, I think something you announced on the conference call, something called Smartsheet regions. Explain to what that is. Are you hearing-- it seems to be a focus on data privacy for your customers. Are you hearing from customers overseas that they don't want to route their data through a US company?

MARK MADER: Yes, not only through a US company, but through the US infrastructure. So many companies around the world buy from us we serve customers in 190 countries. However, there are some companies in some regions, which need to conform to privacy regulations.

For instance, in Germany. The largest companies are unable or unwilling to have information stored outside of their borders. So we are going to be firing up the Frankfurt region through public cloud provider here in the next month. And the largest companies in Europe will be able to now house their information fully within that region.

And the reason I emphasize fully is because there are quite a few companies who-- who do support residency partially. But still have certain pieces of information checkpoint back to the US. And what we're finding at the enterprise level is that people are looking for full residency as opposed to mostly resident.

- Is this-- Mark, is this just a smart-- Smartsheet thing, or is this something we might see across the tech landscape? I think there's going to be more and more pressure, Brian, on companies to do that full compliance.

The regulatory landscape is changing quickly. And one of those-- this is one of those things that you can't change on the fly very cheaply if you're a provider. So it's really you have to do it the right way from the outset.

So we think that's a real competitive advantage for us in the coming years.

- We've talked many times, Mark, throughout the pandemic. Your top line of your business continues to surge. But when do you think your company will-- will be profitable?

MARK MADER: Well, we've-- we've guided the street to a multiyear plan. And we expect to go through the billion revenue threshold in FY 25. So calendar year 24. And right now when as a collective, the public companies in our category are just about a billion one of the total market, which we think is 25 to 30 today. It's all about reinvesting for growth.

So the overages that we've enjoyed. Our customers really driving demand for our software. We're putting right back into better services, better sales, better marketing, and we believe we're going to be able to generate 20 plus operating margins here in the very near future.

But right now, it's about remaining the leader and taking the majority of that share.

- All right. We'll leave it there. Smart sheets CEO Mark Mader. Good to see you as always. Have a great rest of the week.

MARK MADER: Thank you, Brian. Thank you, Julie.