Smartsheet (SMAR 28.00, +0.94, +3.47%) is trading modestly higher after the
company reported Q3 (Oct) results last night. Having made its NYSE debut in
late April of this year, Smartsheet is a recent IPO, and this was only its
third earnings report since going public. Smartsheet is a provider of
cloud-based software that enables companies to plan, capture, manage, automate
and report on work at scale. Smartsheet‘s product is visually reminiscent of an
Excel spreadsheet, but it has a lot more functionality in terms of supporting
task workflow among groups.
Smartsheet can be adapted to manage virtually any type of work. Customers use Smartsheet for a variety of tasks, including software migration planning, vendor and contract management, brand launches, compliance reporting, event planning, customer onboarding, budget approvals, patent application processing, talent acquisition, benefit and retirement tracking, sales enablement, IR tracking, and website management, among others.
Clients are then able to tailor their Smartsheet use to meet their unique needs. For example, Cisco uses Smartsheet to oversee a $300 mln annual spend on programs and technology, produce events, and manage infrastructure projects while Starbucks uses Smartsheet to disseminate important updates across thousands of stores. MOD Pizza built a standardized system in Smartsheet to manage and organize the company's rapid growth, ensuring consistency and repeatability for 100 new store openings. Weyerhaeuser uses Smartsheet to provide account executives with real-time insights into the status of accounts. South Water Signs uses Smartsheet to schedule shifts of workers, process permit applications and approvals, and prioritize new client requests.
Turning to the Q3 (Oct) results, Smartsheet reported a non-GAAP loss of $(0.09) per share, which was a bit better than the $(0.11) loss in the prior year period. It was well above prior guidance of $(0.16)-(0.15). Revenue rose 59.5% year/year to $46.9 mln, which also was above prior guidance of $43.5-44.5 mln. Subscription revenue, a key metric for SMAR, came in at $41.5 mln, an increase of 57% year/year. In terms of guidance, SMAR expects a Q4 (Jan) non-GAAP loss of $(0.15)-(0.13) and revenue of $49-50 mln. Both of these are above market expectations.
On the call, management said that momentum from 1H18 continued in Q3. Notable expansions occurred this quarter through customers such as Roche Diagnostics, Fox, and Steelcase. Customers are expanding with Smartsheet at a rate never seen before as product enhancements made over the past year enable the company to address increasingly high value workloads at its customers' organizations.
For many of Smartsheet's largest and fastest-growing customers, their use of Smartsheet has evolved from using it as a valuable tool for collaboration and work tracking by individuals and teams, to also employing it to serve as a mission critical platform that drives operationally important processes across their business. Collaborative work management is no longer an emerging segment composed of nice-to-have technologies but is essential for the competitiveness of digital businesses.
The company was asked why large customer momentum was so strong. This includes customers paying $50K and up. SMAR had an interesting take on this. It said that conversations with customers have really changed from years ago; back then, those discussions focused on asking how many licenses the client needs and what that client hoped to use Smartsheet to solve. As Smartsheet has added features over the last couple of years, those conversation have evolved to encompass solutions for more complex and specific needs for which organizations have demand. These enhancements drive transaction sizes, making them only larger but better equipped to solve higher value problems for customers.
This was another good quarter for Smartsheet. The results came in ahead of prior guidance, and the outlook for JanQ looks good as well. Profits are still a way off as SMAR has been spending to develop its platform and acquire new customers. SMAR's focus right now is not profits; rather, it wants to achieve scale and grow the top line. The stock has been up and down since its IPO debut in late April. It seems investors are still not quite sure what to make of Smartsheet.
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