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SI

SMARTSHEET INC (SMAR)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY25 delivered 20% revenue growth to $263.0M, non-GAAP operating margin rose to 16%, and non-GAAP diluted EPS reached $0.32; ARR grew 19% to $1.056B, with continued enterprise strength and expanding large-customer cohorts .
  • Management raised FY25 guidance across revenue ($1.116–$1.121B), non-GAAP operating income ($157–$167M), non-GAAP EPS ($1.22–$1.29), ARR growth (14–14.5%), and FCF ($220M), citing enterprise momentum, pricing/packaging changes, and efficiency initiatives .
  • Q2 FY25 outlook calls for $273–$275M revenue, non-GAAP operating income of $38–$40M, and non-GAAP EPS of $0.28–$0.29 (≈141.0M diluted shares) .
  • Stock reaction catalysts: launch of a modern pricing and packaging model (broader access, lower price per user, expected to be meaningfully accretive over time), inaugural $150M share buyback authorization, and visible product modernization/AI adoption driving confidence and pipeline, especially in enterprise and EMEA .

What Went Well and What Went Wrong

What Went Well

  • Strong enterprise momentum: 72 customers with ARR >$1M (+50% YoY), large deal activity, and international expansion (EMEA strength, major customers citings) .
  • Profitability and cash generation: non-GAAP operating income $42.1M (16% margin), FCF $45.7M (17% of revenue), OCf $50.1M; gross margin total 84%, subscription GM 88% .
  • Clear strategic initiatives: rollout of new pricing/packaging (broader access, lower price per user), growing AI adoption (~half of enterprise plans), and product modernization (Timeline View in April; Board View in July; new Table View by fall) .

What Went Wrong

  • SMB headwinds persisted: modestly elevated churn and lower expansion vs enterprise; SMB NDR slipped “a couple of points,” though still >100% .
  • Billings optics vs ARR: billings impacted by proration/renewal timing; management emphasized ARR as a better bookings proxy; could create confusion for near-term growth interpretation .
  • Macro caution and transition risks: while guidance increased, management acknowledged potential near-term disruption risk with pricing changes and is sequencing transitions to minimize customer friction .

Financial Results

Revenue, EPS, Margins vs Prior Periods

MetricQ3 FY24Q4 FY24Q1 FY25
Total Revenue ($M)$245.9 $256.9 $263.0
GAAP Net Loss per Share$(0.24) $(0.07) $(0.06)
Non-GAAP Diluted EPS$0.16 $0.34 $0.32
Non-GAAP Operating Margin (%)8% 15% 16%
GAAP Operating Margin (%)(14)% (6)% (4)%
Gross Margin (%) Total——84%
Gross Margin (%) Subscription——88%

Segment Revenue Breakdown

SegmentQ3 FY24 ($M)Q4 FY24 ($M)Q1 FY25 ($M)
Subscription$232.5 $244.0 $249.1
Professional Services$13.4 $12.9 $13.9
Total$245.9 $256.9 $263.0

KPIs and Cash Metrics

KPIQ3 FY24Q4 FY24Q1 FY25
ARR ($B)—$1.031 $1.056
Dollar-Based Net Retention (%)118% 116% 114%
Customers ≥$100K ARR/ACV1,779 1,904 1,970
Customers ≥$50K ARR/ACV3,719 3,924 4,028
Customers ≥$5K ARR/ACV19,389 19,818 19,977
Avg ARR/ACV per domain customer ($)$9,225 $9,672 $9,906
Operating Cash Flow ($M)$15.1 $59.7 $50.1
Free Cash Flow ($M)$11.4 $56.3 $45.7
FCF Margin (%)5% 22% 17%
Cash, Cash Equivalents + ST Investments ($M)$568.7 $628.8 $669.5

Note: Q3 FY24 used ACV; beginning Q4 FY24, management re-labeled ACV to ARR (definitions did not materially change) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)FY25$1,113–$1,118 $1,116–$1,121 Raised
Non-GAAP Operating Income ($M)FY25$135–$145 $157–$167 Raised
Non-GAAP EPS ($)FY25$1.06–$1.13 (≈142.2M diluted WASO) $1.22–$1.29 (≈141.0M diluted WASO) Raised
ARR YoY Growth (%)FY2514% 14–14.5% Raised
Free Cash Flow ($M)FY25$200 $220 Raised
Services Mix (%)FY25—≈5% of revenue New detail
Revenue ($M)Q2 FY25—$273–$275 New
Non-GAAP Operating Income ($M)Q2 FY25—$38–$40 New
Non-GAAP EPS ($)Q2 FY25—$0.28–$0.29 (≈141.0M diluted WASO) New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY24, Q4 FY24)Current Period (Q1 FY25)Trend
AI/Technology InitiativesQ3: Platform features incl. AI-driven insights at ENGAGE . Q4: GA of gen-AI tools (formulas, text, summaries); more AI assistant/analyze data to follow .~50% of enterprise plans have used Smartsheet AI; launched AI analyze data; expanding applied AI and build assistant roadmap .Increasing adoption and capability breadth
Pricing & Packaging—New model launches 6/24: broader access, lower price/user, provisional member access; expected modestly accretive near-term, meaningfully accretive long-term .Strategic change; accretive potential
Enterprise vs SMB DynamicsQ3: Enterprise-leading use cases; recognition, international expansion . Q4: Enterprise demand drove ARR >$1B milestone .Enterprise NDR >120%; SMB still >100% but slipped; strong enterprise deal volume and cohorts growth .Enterprise strength sustained; SMB mixed
Regional Trends—EMEA ENGAGE drew ~500 companies; Europe “pretty strong” in Q1 with growing interest .Positive EMEA pipeline
Capital Allocation—Inaugural $150M share repurchase authorized; expected to significantly complete by end of Q4 FY25 .New buyback supports shareholder return
Billings vs ARRQ3: Reported calculated billings +22% YoY . Q4: Shift to ARR key metric; billings definition maintained .Management emphasizing ARR over billings due to proration/renewal timing distortions .Transition to ARR focus

Management Commentary

  • “We continue to see significant demand from our enterprise customers and now have 72 customers with annualized recurring revenue over $1 million, an increase of 50% year over year… This will be a pivotal year for Smartsheet.” — CEO Mark Mader .
  • “On June 24, we will be rolling out a new pricing and packaging model… modestly accretive in the near term and meaningfully accretive in the longer term.” — CEO Mark Mader .
  • “We expect to commence this buyback within the next few days and expect to significantly complete the share repurchases by the end of Q4 of fiscal year ’25.” — CFO Pete Godbole .
  • “Our enterprise segment continues to be the fastest-growing… Overall operating income in the quarter was $42.1 million or 16% of revenue. Free cash flow… $45.7 million.” — CFO Pete Godbole .
  • “Nearly half of our enterprise customer plans have used Smartsheet AI… analyze data enables users to inquire and get insights from their data more quickly.” — CEO Mark Mader .

Q&A Highlights

  • Pricing/Packaging Accretion: Model change not contemplated in prior guidance; FY25 ARR growth raised partly due to launch; accretive over time as licensed user count expands with lower price/user and full feature access .
  • SMB vs Enterprise: Enterprise NDR >120% and strong bookings; SMB NDR slipped a couple points but >100%; near-term SMB consistent; pricing change expected to help SMB over time .
  • Billings vs ARR: Billings growth variance driven by proration/renewal timing; ARR viewed as superior bookings proxy hence guidance emphasis .
  • Gross Margin Impacts: Pricing changes not expected to affect gross margins; total GM 84%, subscription GM 88% .
  • Capital Allocation: $150M buyback sized considering undervaluation, maintaining balance sheet health, and preserving M&A/investment flexibility .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 FY25 and forward was unavailable via our S&P Global tool in this environment; as a result, we cannot quantify beats/misses versus consensus. Values would normally be retrieved from S&P Global.
  • Given the unavailability, comparisons focus on reported results and guidance vs prior company guidance. Values retrieved from S&P Global would be presented here if accessible.

Key Takeaways for Investors

  • Enterprise-led durability: Large-customer expansion and >$1M ARR cohort growth support sustained ARR increases and margin accretion .
  • Pricing/packaging as a catalyst: Broader feature access and lower price/user should drive higher licensed user penetration and cross-sell over time; modest FY25 contribution, larger out-year impact .
  • Profitability inflection: Raised FY25 non-GAAP operating income ($157–$167M) and EPS ($1.22–$1.29) reflect operating discipline, mix, and efficiencies; FCF guided to $220M (≈20% margin) .
  • ARR focus over billings: Use ARR to track bookings momentum and cohort health; expect seasonality with higher growth early in the year .
  • EMEA and product modernization: Europe pipeline strength and modernized views (Timeline/Board/Table) plus AI tools should improve engagement and upsell attach rates, especially for capabilities (Control Center, Dynamic View, Data Shuttle) .
  • Share repurchase supports capital returns without constraining growth investments; management sees undervaluation and maintains flexibility for M&A .
  • Watch SMB trends and transition execution: Near-term SMB softer; monitor collaborator-to-member licensing transitions, education/nudging strategy, and early adoption signals post 6/24 launch .