Sign in

You're signed outSign in or to get full access.

SI

SMARTSHEET INC (SMAR)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 delivered accelerating top-line and material profitability expansion: revenue $286.9M (+17% y/y), non-GAAP operating income $56.4M (20% margin), non-GAAP diluted EPS $0.43, and free cash flow $61.8M (22% of revenue) .
  • Smartsheet entered a definitive agreement to be acquired by Blackstone and Vista Equity Partners for $56.50 per share (~$8.4B) and therefore did not host a Q3 earnings call or provide guidance, shifting the near-term stock narrative to M&A closing risk/certainty .
  • KPIs showed durable enterprise momentum but modestly decelerating expansion: ARR $1.133B (+15% y/y); dollar-based net retention 111% (down from 113% in Q2 and 114% in Q1); average ARR per domain-based customer $10,708 (+16% y/y) .
  • Against prior Q2 guidance for Q3, Smartsheet posted an across-the-board beat: revenue (actual $286.9M vs $282–$285M guided), non-GAAP operating income ($56.4M vs $42–$44M guided), and non-GAAP EPS ($0.43 vs $0.29–$0.31 guided) — a significant positive surprise .

What Went Well and What Went Wrong

What Went Well

  • Non-GAAP operating margin expanded to 20% (vs 8% in Q3 FY2024), driven by operating discipline and scale; free cash flow reached $61.8M (22% of revenue), both materially ahead of Q3 guidance ranges .
  • Enterprise KPIs remain strong: average ARR per domain-based customer increased 16% y/y to $10,708 and $100K+ ARR customers rose 20% y/y to 2,137, evidencing deeper enterprise adoption and upsell .
  • Product momentum: unveiled comprehensive platform transformation and introduced a Smartsheet connector for Amazon Q Business to broaden AI-enabled work insights and visibility .

What Went Wrong

  • No earnings call or guidance provided due to pending acquisition, limiting forward-looking visibility for fundamental investors in the near term .
  • Dollar-based net retention rate fell to 111% (from 113% in Q2 and 114% in Q1), consistent with prior commentary about elevated churn in smaller customer cohorts .
  • Professional services revenue declined 2% y/y to $13.2M as partners deliver a higher percentage of services, creating a modest top-line headwind to services mix relative to internal delivery .

Financial Results

Quarterly Financials (Income Statement, EPS, Operating Profitability, Cash Generation)

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Total Revenue ($M)$263.0 $276.4 $286.9
GAAP Diluted EPS ($)$(0.06) $0.06 $0.01
Non-GAAP Diluted EPS ($)$0.32 $0.44 $0.43
Non-GAAP Operating Income ($M)$42.1 $45.3 $56.4
Non-GAAP Operating Margin (%)16% 16% 20%
Free Cash Flow ($M)$45.7 $57.2 $61.8

Segment Revenue Breakdown

Segment Revenue ($M)Q1 FY2025Q2 FY2025Q3 FY2025
Subscription$249.1 $263.5 $273.7
Professional Services$13.9 $12.9 $13.2
Total$263.0 $276.4 $286.9

KPIs

KPIQ1 FY2025Q2 FY2025Q3 FY2025
ARR ($B)$1.056 $1.093 $1.133
Dollar-Based Net Retention (%)114% 113% 111%
Avg ARR per Domain-Based Customer ($)$9,906 $10,291 $10,708
Customers ≥$100K ARR (Count)1,970 2,056 2,137
Customers ≥$50K ARR (Count)4,028 4,140 4,293
Customers ≥$5K ARR (Count)19,977 20,198 20,430

Guidance Changes

MetricPeriodPrevious Guidance (as of Q2 FY2025)Current Guidance (Q3 FY2025)Change
Total Revenue ($M)Q3 FY2025$282–$285 Not provided due to announced transaction Withdrawn
Non-GAAP Operating Income ($M)Q3 FY2025$42–$44 Not provided due to announced transaction Withdrawn
Non-GAAP EPS ($)Q3 FY2025$0.29–$0.31 (142.5M diluted WASO) Not provided due to announced transaction Withdrawn
ARR ($M)FY2025$1,177–$1,180 Not provided due to announced transaction Withdrawn
Total Revenue ($M)FY2025$1,116–$1,121 Not provided due to announced transaction Withdrawn
Non-GAAP Operating Income ($M)FY2025$177–$182 Not provided due to announced transaction Withdrawn
Non-GAAP EPS ($)FY2025$1.36–$1.39 (141.9M diluted WASO) Not provided due to announced transaction Withdrawn
Free Cash Flow ($M)FY2025$240 Not provided due to announced transaction Withdrawn
Non-GAAP Net Income Guide ($M)Q3 FY2025$41.8–$43.8 (reconciling items disclosed) Not provided due to announced transaction Withdrawn

Note: Q3 actuals materially exceeded Q3 guidance set in Q2 (revenue, non-GAAP operating income, and non-GAAP EPS) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025)Previous Mentions (Q2 FY2025)Current Period (Q3 FY2025)Trend
New pricing & packagingLaunch detailed; intended to be modestly accretive near-term, meaningfully accretive longer term; aim to double paid user base, simplify licensing First true-ups encouraging; expect higher ARR contributions; efficiency from self-discovery; maintained FY revenue guide despite services shift No call; press release notes platform transformation; no guidance due to acquisition Positive but paused on disclosure
AI initiativesBroad adoption goals; Analyze Data capability; vision for AI build assistant to co-create; enterprise adoption near 50% plans ~50% sequential growth in AI users; ~47k users saved ~1M hours; temporary broad access through 12/31/24; minimal cost impact due to efficient compute model Amazon Q Business connector for intelligent assistant visibility Expanding features; usage momentum
Enterprise momentumLarge deals; $1M+ ARR customers up 50% y/y; EMEA pipeline strong; use-case framework emphasized Largest quarterly expansion; enterprise NDRR ~120%; wins vs CWM competitors; bookings linearity steady $100K+ ARR customers +20% y/y to 2,137; average ARR/customer +16% y/y Solid growth; decelerating NDRR
SMB churnSmall biz NDRR ~100% and soft; slight uptick in churn; expected NRR to track down Slight churn uptick in smaller segments; reiterated NRR trend lower DBNRR 111% (down from Q2/Q1) Mild headwind persists
Services mix shiftn/aMore services delivered by partners lowers services revenue % (~4.5% FY) PS revenue -2% y/y; partners continue to deliver Ongoing shift
Capital returns$150M buyback authorized; plan to complete substantially by Q4 FY25 Repurchased $40M in Q2; $110M remaining n/a (no call)Ongoing pending M&A
M&An/aNo comment on reports; buyback continues Definitive agreement to be acquired at $56.50/share Transformative transaction

Management Commentary

  • “Given the announced transaction, we will not be hosting an earnings conference call nor providing financial guidance in conjunction with this press release.” — Company statement (Q3 FY2025 press release) .
  • “We introduced a new subscription model… leading to high engagement… encouraged by the positive early results.” — CEO prepared remarks (Q2 FY2025) .
  • “FY ’25 will be a transformative year… through a use case-oriented value framework, a simplified licensing model, new user experiences and class-leading scale.” — CEO prepared remarks (Q2 FY2025) .

Q&A Highlights

  • New pricing model conversion: initial true-ups showed higher ARR contributions; early customer behavior supported “lower P, higher Q” thesis .
  • AI activation and costs: broad access through year-end; minimal gross margin impact due to efficiency gains in compute model .
  • Churn and NRR: slight uptick in churn for smaller segments; NRR expected to trend down consistent with ARR growth guidance .
  • Share repurchase: buyback program continues as set up to run through the year .
  • Competitive stance and bookings: steady bookings linearity vs prior quarter; continued wins at high end without meaningful competitive change .

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 FY2025 was unavailable via our data interface at the time of retrieval (mapping error for SMAR), so we cannot provide definitive consensus EPS and revenue comparisons this quarter. We relied on Q2-issued Q3 guidance as the benchmark, which Smartsheet exceeded on revenue, non-GAAP operating income, and non-GAAP EPS .
  • If/when consensus becomes available, estimates are likely to revise upward for profitability and FCF given the magnitude of beat vs prior guidance and sustained enterprise traction; however, lack of forward guidance and pending acquisition limit the near-term utility of Street revisions .

Key Takeaways for Investors

  • Q3 exhibited strong execution: revenue acceleration and margin expansion produced a significant beat vs prior guidance, with free cash flow at 22% of revenue — supportive of a durable profitability thesis .
  • Enterprise momentum remains intact: average ARR per domain-based customer and large customer cohorts grew double digits, reinforcing Smartsheet’s enterprise position and upsell opportunity .
  • Expansion metrics are moderating: net retention declined to 111%, consistent with prior commentary about smaller customer churn; watch retention stabilization as pricing model migrates across the base .
  • Services mix shift to partners lowers reported services revenue share but supports ecosystem scalability; core subscription growth remains the primary driver .
  • Strategic product evolution continues: platform modernization and AI integrations (including Amazon Q Business connector) expand value realization and should support multi-tenant upsell opportunities over time .
  • Near-term trading is principally an M&A arbitrage story: with an all-cash $56.50/share offer (~$8.4B), the focus shifts to regulatory approval, shareholder vote, and closing timeline rather than quarterly beats/misses .
  • For medium-term thesis considerations (if the deal were not to close): the company’s operating discipline and enterprise-led growth, coupled with pricing model changes and AI leverage, suggest upside to structural margins and FCF; monitor NRR trends and SMB churn normalization .

Additional Materials Reviewed

  • Q3 FY2025 8-K 2.02 press release, full financials and reconciliations .
  • Q2 FY2025 8-K 2.02 press release and call transcript -.
  • Q1 FY2025 8-K 2.02 press release and call transcript -.
  • Acquisition 8-K (Agreement and Plan of Merger) detailing transaction terms and closing conditions .