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Smartsheet Inc. Announces Second Quarter Fiscal Year 2021 Results

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·20 min read
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  • Second quarter total revenue grew 41% year over year to $91.2 million

  • Second quarter net operating cash flow was negative $1.3 million, net free cash flow was negative $4.4 million

Smartsheet Inc. (NYSE: SMAR), the enterprise platform for dynamic work, today announced financial results for its second fiscal quarter ended July 31, 2020.

"These results are a reflection of the stabilization we are seeing in the marketplace," said Mark Mader, President and CEO of Smartsheet. "We’re confident in the value of our offerings, the investments we’re making in our future, and our growing opportunity to help enterprises adapt to a reality that demands rapid transformation."

Second Quarter Fiscal 2021 Financial Highlights

  • Revenue: Total revenue was $91.2 million, an increase of 41% year over year. Subscription revenue was $83.6 million, an increase of 43% year over year. Professional services revenue was $7.6 million, an increase of 20% year over year.

  • Operating Loss: GAAP operating loss was $26.7 million, or 29% of total revenue, compared to GAAP operating loss of $20.9 million, or 32% of total revenue, in the second quarter of fiscal 2020. Non-GAAP operating loss was $7.4 million, or 8% of total revenue, compared to non-GAAP operating loss of $10.8 million, or 17% of total revenue, in the second quarter of fiscal 2020.

  • Net Loss: GAAP net loss was $26.6 million, compared to GAAP net loss of $19.1 million in the second quarter of fiscal 2020. GAAP net loss per share was $0.22, compared to GAAP net loss per share of $0.17 in the second quarter of fiscal 2020. Non-GAAP net loss was $7.2 million, compared to non-GAAP net loss of $9.0 million in the second quarter of fiscal 2020. Non-GAAP net loss per share was $0.06, compared to non-GAAP net loss per share of $0.08 in the second quarter of fiscal 2020.

  • Cash Flow: Net operating cash flow was negative $1.3 million, compared to net operating cash flow of negative $2.7 million in the second quarter of fiscal 2020. Net free cash flow was negative $4.4 million, compared to negative $7.3 million in the second quarter of fiscal 2020.

Second Quarter Fiscal 2021 Business Highlights

  • The number of all customers with annualized contract values ("ACV") of $5,000 or more grew to 10,049, an increase of 31% year over year

  • The number of all customers with ACV of $50,000 or more grew to 1,131, an increase of 78% year over year

  • The number of all customers with ACV of $100,000 or more grew to 433, an increase of 92% year over year

  • Average ACV per domain-based customer increased to $4,156, an increase of 40% year over year

  • Dollar-based net retention rate was 128%

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 2021, the Company currently expects:

  • Total revenue of $94.0 million to $95.0 million, representing year-over-year growth of 31% to 33%

  • Calculated billings of $104.0 million to $106.0 million, representing year-over-year growth of 25% to 27%

  • Non-GAAP operating loss of $28.0 million to $26.0 million

  • Non-GAAP net loss per share of $0.23 to $0.22, assuming basic and diluted weighted average shares outstanding of approximately 120.5 million

  • Net free cash flow of negative $10 million to negative $8 million

For the full fiscal year 2021, the Company currently expects:

  • Total revenue of $367.0 million to $373.0 million, representing year-over-year growth of 35% to 38%

  • Non-GAAP operating loss of $66.0 million to $60.0 million

  • Non-GAAP net loss per share of $0.54 to $0.49, assuming basic and diluted weighted average shares outstanding of approximately 120.0 million

  • Net free cash flow of at least negative $30 million

On August 24, 2020, the Company announced its agreement to acquire Brandfolder, Inc. ("Brandfolder"). We expect to pay approximately $155 million for the acquisition, consisting of approximately $124 million in cash and $31 million in common stock, $5 million of which is subject to vesting conditions. For purposes of Smartsheet's guidance for the remainder of fiscal 2021, we are including the expected results of Brandfolder with an assumption that the transaction will close as expected in September 2020.

We have not reconciled net 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 net 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 net free cash flow. Accordingly, a reconciliation of net cash from operating activities to net free cash flow 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 1:30 p.m. Pacific Time on September 2, 2020. 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 (877) 274-9243, or +1 (647) 689-5417 (outside of the US). The conference ID is 4630988. A replay of the call via webcast will be available at https://investors.smartsheet.com or by dialing (800) 585-8367 or +1 (416) 621-4642 (outside of the US). The dial-in replay will be available until the end of day on September 9, 2020. 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 ending October 31, 2020 and the full fiscal year ending January 31, 2021, 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: the impact of the COVID-19 pandemic, 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, and our international expansion strategies. 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, 2020 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 and net loss as GAAP operating and net loss excluding share-based compensation expense, amortization of acquisition-related intangible assets, and one-time costs associated with mergers and acquisitions. 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 net 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) and principal payments on finance lease obligations. We believe net 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. Net 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 net free cash flow as compared to net cash from operating activities, including that net 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.

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 and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

Three Months Ended July 31,

Six Months Ended July 31,

2020

2019

2020

2019

Revenue

Subscription

$

83,622

$

58,315

$

160,785

$

108,636

Professional services

7,600

6,329

15,924

12,202

Total revenue

91,222

64,644

176,709

120,838

Cost of revenue

Subscription

12,696

7,982

24,477

14,183

Professional services

6,322

4,683

12,982

8,967

Total cost of revenue

19,018

12,665

37,459

23,150

Gross profit

72,204

51,979

139,250

97,688

Operating expenses

Research and development

28,089

22,210

54,080

42,448

Sales and marketing

53,779

39,260

108,562

74,673

General and administrative

17,046

11,457

32,142

22,397

Total operating expenses

98,914

72,927

194,784

139,518

Loss from operations

(26,710

)

(20,948

)

(55,534

)

(41,830

)

Interest income

92

2,114

1,419

3,263

Other income (expense), net

134

(319

)

(80

)

(431

)

Loss before income tax provision (benefit)

(26,484

)

(19,153

)

(54,195

)

(38,998

)

Income tax provision (benefit)

75

(39

)

148

(74

)

Net loss and comprehensive loss

$

(26,559

)

$

(19,114

)

$

(54,343

)

$

(38,924

)

Net loss per share attributable to common shareholders, basic and diluted

$

(0.22

)

$

(0.17

)

$

(0.46

)

$

(0.36

)

Weighted-average shares outstanding used to compute net loss per share attributable to common shareholders, basic and diluted

119,921

111,557

119,400

108,626

Share-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands, unaudited):

Three Months Ended July 31,

Six Months Ended July 31,

2020

2019

2020

2019

Cost of subscription revenue

$

1,113

$

356

$

2,008

$

591

Cost of professional services revenue

566

298

999

515

Research and development

6,199

3,317

11,327

5,589

Sales and marketing

6,738

3,276

11,844

5,385

General and administrative

3,544

1,839

6,400

3,303

Total share-based compensation expense*

$

18,160

$

9,086

$

32,578

$

15,383

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

SMARTSHEET INC.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

July 31, 2020

January 31, 2020

Assets

Current assets

Cash and cash equivalents

$

545,975

$

515,924

Short-term investments

50,532

Accounts receivable, net of allowances of $4,114 and $2,989, respectively

54,663

56,863

Prepaid expenses and other current assets

9,969

7,643

Total current assets

610,607

630,962

Restricted cash

659

865

Deferred commissions

51,736

48,255

Property and equipment, net

27,220

26,981

Operating lease right-of-use assets

65,046

57,590

Intangible assets, net

13,456

15,155

Goodwill

16,497

16,497

Other long-term assets

3,662

1,409

Total assets

$

788,883

$

797,714

Liabilities and shareholders’ equity

Current liabilities

Accounts payable

$

1,524

$

7,720

Accrued compensation and related benefits

24,654

39,635

Other accrued liabilities

11,106

12,428

Operating lease liabilities, current

14,116

13,020

Finance lease liabilities, current

1,916

2,465

Deferred revenue

168,566

157,972

Total current liabilities

221,882

233,240

Operating lease liabilities, non-current

54,982

47,913

Finance lease liabilities, non-current

866

1,664

Deferred revenue, non-current

692

837

Other long-term liabilities

4,736

Total liabilities

283,158

283,654

Shareholders’ equity

Preferred stock, no par value; 10,000,000 shares authorized, no shares issued or outstanding as of July 31, 2020 and January 31, 2020

Class A common stock, no par value; 500,000,000 shares authorized, 120,286,340 shares issued and outstanding as of July 31, 2020; 500,000,000 shares authorized, 118,194,159 shares issued and outstanding as of January 31, 2020

Class B common stock, no par value; 500,000,000 shares authorized, no shares issued and outstanding as of July 31, 2020; 500,000,000 shares authorized, no shares issued and outstanding as of January 31, 2020

Additional paid-in capital

816,526

770,518

Accumulated deficit

(310,801

)

(256,458

)

Total shareholders’ equity

505,725

514,060

Total liabilities and shareholders’ equity

$

788,883

$

797,714

SMARTSHEET INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended July 31,

2020

2019

Cash flows from operating activities

Net loss

$

(54,343

)

$

(38,924

)

Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation expense

32,468

15,383

Depreciation and amortization of property and equipment

5,926

5,022

Amortization of deferred commission costs

14,076

8,423

Unrealized foreign currency (gain) loss

(9

)

286

Amortization of intangible assets

1,699

1,060

Non-cash operating lease costs

5,613

3,668

Changes in operating assets and liabilities:

Accounts receivable

2,301

(9,310

)

Prepaid expenses and other current assets

(2,273

)

(6,324

)

Other long-term assets

(2,041

)

(198

)

Accounts payable

(6,127

)

(2,099

)

Other accrued liabilities

(567

)

3,970

Accrued compensation and related benefits

(14,912

)

(701

)

Deferred commissions

(17,557

)

(15,024

)

Other long-term liabilities

4,736

(1,003

)

Deferred revenue

10,448

26,704

Operating lease liabilities

(5,041

)

(2,810

)

Net cash used in operating activities

(25,603

)

(11,877

)

Cash flows from investing activities

Proceeds from early termination of short-term investments

50,532

Purchases of short-term investments

(50,000

)

Purchases of property and equipment

(1,989

)

(3,085

)

Capitalized internal-use software development costs

(3,711

)

(3,397

)

Payments for business acquisitions, net of cash acquired

(956

)

(26,839

)

Net cash provided by (used in) investing activities

43,876

(83,321

)

Cash flows from financing activities

Proceeds from follow-on offering of common stock, net of underwriters' discounts and commissions

379,828

Payments on principal of finance leases

(1,347

)

(2,042

)

Payments of deferred offerings costs

(59

)

(706

)

Proceeds from exercise of stock options

7,465

9,738

Shares withheld related to net share settlement of restricted stock units

(1,470

)

Proceeds from Employee Stock Purchase Plan

7,049

4,991

Net cash provided by financing activities

11,638

391,809

Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash

45

(216

)

Net increase in cash, cash equivalents, and restricted cash

29,956

296,395

Beginning of period

516,789

215,705

End of period

$

546,745

$

512,100

Supplemental disclosures

Cash paid for interest

$

84

$

118

Cash paid for income taxes

71

121

Purchases of fixed assets under finance leases

1,682

Right-of-use assets obtained in exchange for new operating lease liabilities

13,069

Accrued purchases of property and equipment (including internal-use software)

819

906

Deferred offering costs, accrued but not yet paid

164

Share-based compensation expense capitalized in internal-use software development costs

897

421

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,

2020

2019

2020

2019

(dollars in thousands)

Loss from operations

$

(26,710

)

$

(20,948

)

$

(55,534

)

$

(41,830

)

Add:

Share-based compensation expense*

18,160

9,086

32,578

15,383

Amortization of acquisition-related intangible assets

845

845

1,689

1,045

One-time acquisition costs

334

197

342

527

Non-GAAP operating loss

$

(7,371

)

$

(10,820

)

$

(20,925

)

$

(24,875

)

Operating margin

(29

)

%

(32

)

%

(31

)

%

(35

)

%

Non-GAAP operating margin

(8

)

%

(17

)

%

(12

)

%

(21

)

%

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

Reconciliation from GAAP to non-GAAP net loss

Three Months Ended July 31,

Six Months Ended July 31,

2020

2019

2020

2019

(in thousands)

Net loss

$

(26,559

)

$

(19,114

)

$

(54,343

)

$

(38,924

)

Add:

Share-based compensation expense*

18,160

9,086

32,578

15,383

Amortization of acquisition-related intangible assets

845

845

1,689

1,045

One-time acquisition costs

334

197

342

527

Non-GAAP net loss

$

(7,220

)

$

(8,986

)

$

(19,734

)

$

(21,969

)

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

Anti-dilutive shares (in thousands)

July 31,

2020

2019

Shares subject to outstanding common stock awards

13,103

13,348

Shares issuable pursuant to the 2018 Employee Stock Purchase Plan

145

116

Total potentially dilutive shares

13,248

13,464

Reconciliation from net operating cash flow to net free cash flow

Three Months Ended July 31,

Six Months Ended July 31,

2020

2019

2020

2019

(in thousands)

Net cash used in operating activities

$

(1,318

)

$

(2,691

)

$

(25,603

)

$

(11,877

)

Less:

Purchases of property and equipment

(971

)

(1,747

)

(1,989

)

(3,085

)

Capitalized internal-use software development costs

(1,467

)

(1,844

)

(3,711

)

(3,397

)

Payments on principal of finance leases

(667

)

(1,028

)

(1,347

)

(2,042

)

Free cash flow

$

(4,423

)

$

(7,310

)

$

(32,650

)

$

(20,401

)

Reconciliation from revenue to calculated billings

Three Months Ended July 31,

Six Months Ended July 31,

2020

2019

2020

2019

(in thousands)

Total revenue

$

91,222

$

64,644

$

176,709

$

120,838

Add:

Deferred revenue (end of period)

169,258

123,867

169,258

123,867

Less:

Deferred revenue (beginning of period)

163,214

109,061

158,809

96,133

Calculated billings

$

97,266

$

79,450

$

187,158

$

148,572

Reconciliation from GAAP to non-GAAP operating loss guidance

Q3 FY 2021

FY 2021

Low

High

Low

High

(in millions)

Loss from operations

$

(56.3

)

$

(53.8

)

$

(157.3

)

$

(150.8

)

Add:

Share-based compensation expense*

25.0

25.0

83.0

83.0

Amortization of acquisition-related intangible assets

1.8

1.8

6.3

6.3

One-time costs of acquisition

1.5

1.0

2.0

1.5

Non-GAAP operating loss

$

(28.0

)

$

(26.0

)

$

(66.0

)

$

(60.0

)

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

Reconciliation from GAAP to non-GAAP net loss guidance

Q3 FY 2021

FY 2021

Low

High

Low

High

(in millions)

Net loss

$

(56.3

)

$

(53.8

)

$

(156.3

)

$

(149.8

)

Add:

Share-based compensation expense*

25.0

25.0

83.0

83.0

Amortization of acquisition-related intangible assets

1.8

1.8

6.3

6.3

One-time costs of acquisition

1.5

1.0

2.0

1.5

Non-GAAP net loss

$

(28.0

)

$

(26.0

)

$

(65.0

)

$

(59.0

)

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200902005923/en/

Contacts

Smartsheet Inc.
Investor Relations Contact
Aaron Turner
investorrelations@smartsheet.com

Media Contact
Lindsay Bleier
pr@smartsheet.com