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For enterprise software companies, it's been a mixed bag in terms of the demand environment as some firms experience slowing spending trends within their customer bases, while others are still generating strong business despite the macroeconomic headwinds. Cloud-based work management software provider Smartsheet (SMAR) falls into the latter category, as illustrated by its upside Q1 results and upbeat guidance for Q2 and FY25. Further expressing its confident outlook, the company also announced a new $150 mln share repurchase program.

• There were some mixed signals heading into SMAR's earnings report. On one hand, large enterprise software companies like Salesforce (CMR), Workday (WDAY), and Palo Alto Networks (PANW) issued soft guidance over the past few weeks, citing elevated deal scrutiny and a more measured spending environment. On the other hand, Monday.com (MNDY) and Asana (ASAN) -- two of SMAR's closest competitors -- posted solid earnings reports on May 15 and May 30, respectively.
  • Overall, though, investors remained in a cautious mode ahead of SMAR's results with shares down by about 10% since late May, prior to today's surge higher.
• That caution was also likely based on SMAR's last earnings report in March, which was disappointing due to its downside revenue guidance for Q1 and FY25. During the earnings call, CFO Pete Godbole acknowledged that the company was seeing "tighter domestic spending", particularly in the SMB segment of its business.
• In Q1, the SMB portion of the business was still relatively soft, following a similar trend as prior quarters. However, this weakness was more than offset by strength on the large account side. Specifically, the $1 mln+ ARR group -- SMAR's fastest growing customer segment -- grew by 50% yr/yr to 72 customers. In total, ARR increased by 19% to $1.056 bln, while SMAR's dollar-based net retention rate came in at an impressive 114%.
• Beyond the Q1 results and guidance, SMAR also announced during the earnings call that it's launching a new pricing and packaging model, beginning on June 24. The bottom-line of this new pricing model is that a greater number of licensed users will be set up with a lower price per user on business and enterprise plans. SMAR anticipates this shift to be modestly accretive in the near-term and more significantly accretive in the long term.
• Lastly, SMAR's AI capabilities are also driving growth. Customers are increasingly adopting its AI tools, including Smartsheet AI, which allows users to generate business logic and content with simple language prompts. Nearly half of SMAR's enterprise customers have used Smartsheet AI since the general availability launch in February.

Overall, SMAR had plenty of good news to share and its strong earnings report indicates that it's emerging as a winner in the enterprise software space amid a challenging IT spending backdrop.