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Smartsheet (SMAR) Q3 Earnings & Revenues Surpass Estimates

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Zacks Equity Research
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Smartsheet Inc. SMAR reported third-quarter fiscal 2021 non-GAAP loss of 12 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 22 cents. The figure was also narrower than the year-ago quarter’s loss of 15 cents, and management’s anticipated non-GAAP net loss between 23-22 cents per share.

Revenues surged 38% year over year to $98.9 million and surpassed the Zacks Consensus Estimate by 4.65%. Management had anticipated revenues between $94 million and $95 million. The year-over-year improvement in revenues was driven by strong momentum for Smartsheet’s offerings courtesy of higher demand for robust data collection and risk assessment capabilities amid the ongoing coronavirus pandemic.

On Aug 24, 2020, Smartsheet had inked deal to acquire Denver, CO-based, Brandfolder, in a bid to gain digital asset management capabilities and strengthen product portfolio to facilitate dynamic work.

The company closed the buyout worth $152.5 million during the reported quarter, which comprised $126.6 million in cash and $25.9 million in stock. Brandfolder contributed approximately $1.7 million to revenues and $3.2 million to billings in the fiscal third quarter. Also, the company acquired deferred revenues of $4.7 million from the buyout.

Smartsheet’s Subscription revenues (92% of total revenues) increased 41% year over year to $90.9 million. Moreover, Professional services (8% of total revenues) revenues rose 12% year over year to $8 million.

Smartsheet Inc. Price, Consensus and EPS Surprise

Smartsheet Inc. Price, Consensus and EPS Surprise
Smartsheet Inc. Price, Consensus and EPS Surprise

Smartsheet Inc. price-consensus-eps-surprise-chart | Smartsheet Inc. Quote

User Base Increased Y/Y

Customers with annualized contract value (ACV) of $5,000 or higher increased 33% year over year to 11,172. Additionally, customers with ACV of $50,000 or higher surged 73% year over year to 1,331. Moreover, customers with ACV of $100,000 or higher soared 81% year over year to 504.

Notably, 106 companies increased their annual recurring revenues (ARR) by more than $50,000. Of these, 36 companies increased ARR by more than $100,000.

Smartsheet’s net dollar retention rate was 125% in the reported quarter. Moreover, Smartsheet’s average ACV per domain-based customer increased 42% year over year to $4,665.

Expanded use of Smartsheet’s offerings by companies including Mimecast MIME, QAD Inc. QADA, and Boomi, which is part of Dell Technologies’ DELL business, and KEEN, Inc., remains noteworthy.

Increase in customer base is expected to instill investor optimism in the stock. Shares of Smartsheet, currently carrying a Zacks Rank #3 (Hold), have returned 39% year to date, compared with industry’s rally of 101.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Calculated Billings in the reported quarter increased 35% year over year to $112.4 million. Management had anticipated Calculated billings to grow 25-27% year over year to $104-$106 million. Better-than-expected billings performance was driven by consistent improvement in purchases from customers across mid-market and enterprise verticals, and increase in number of big deals, during the reported quarter. Quarterly, semi-annual and multi-year billings represented about 4% of total billings reported in the quarter.

Year-to-Date Price Performance

Operating Details

Non-GAAP gross margin contracted 300 basis points (bps) on a year-over-year basis to 79%. During the reported quarter, the company completed transition to the public cloud due to which it incurred wind down costs pertaining to legacy data centers. This, in turn, led to a drop in gross margin. Management anticipates gross margin to rebound in the fiscal fourth quarter as the exit from data center infrastructure has been completed.

Subscription gross margin was 83%, which contracted 500 bps year over year. Professional services margin was 29%, which shrunk 300 bps year over year.

Non-GAAP operating expenses increased 17.2% year over year to $92.9 million. As a percentage of revenues, operating expenses contracted 17% year over year to 94%.

Research & development (R&D) and general & administrative (G&A) expenses, as a percentage of revenues contracted 400 bps and 100 bps to 26% and 15%, respectively, on a year-over-year basis. Sales & marketing (S&M) expenses, as a percentage of revenues contracted from 66% in the year-ago quarter to 52% in the fiscal third quarter.

Non-GAAP operating loss was almost $15 million, narrower than the year-ago quarter’s loss of $20.7 million. Management had anticipated non-GAAP operating loss between $28 million and $26 million. Operating loss was narrower than the company’s expectations owing to higher revenue base, and favorable timing of marketing investments.

Balance Sheet & Cash Flow

Smartsheet had cash & cash equivalents of $420.4 million as of Oct 31, 2020, compared with $546 million as of Jul 31, 2020.
Net cash used in operating activities was $5.2 million during the quarter compared with $1.3 million used in the previous quarter. Free cash outflow was $8.8 million compared with free cash outflow of $4.4 million in the previous quarter.


Smartsheet expects revenues between $102 million and $103 million for fourth-quarter fiscal 2021. This indicates year-over-year growth of 30-31%. The Zacks Consensus Estimate for revenues is currently pegged at $99.5 million.

Non-GAAP operating loss is expected between $18 million and $16 million, while non-GAAP net loss is anticipated to be 15-13 cents per share. The Zacks Consensus Estimate for the bottom line is currently pegged at loss of 13 cents.

For fiscal 2021, Smartsheet raised guidance. The company now anticipates revenues between $378 million and $379 million, which indicates year-over-year growth of 39-40%. Earlier, management had projected revenues in the range of $367-$373 million. The Zacks Consensus Estimate for revenues is currently pegged at $370.6 million.

The company now expects non-GAAP operating loss of $54-$52 million, compared with prior guided range of operating loss of $66-$60 million.

Non-GAAP net loss is now expected between 44 cents and 42 cents, compared with previously guided loss of 54-49 cents. The Zacks Consensus Estimate for the bottom line currently stands at a loss of 52 cents.

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