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SI

SMARTSHEET INC (SMAR)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 FY2024 revenue grew 21% YoY to $256.9M and non-GAAP diluted EPS was $0.34; Smartsheet surpassed $1.0B ARR ($1.031B) in the quarter .
  • Strong profitability and cash generation: non-GAAP operating margin 15%, operating cash flow $59.7M, and free cash flow $56.3M (22% of revenue) – quarterly record .
  • FY2025 guidance set conservatively: revenue $1.113B–$1.118B (+16%–17%), ARR growth 14%, non-GAAP operating income $135M–$145M, and free cash flow $200M .
  • Catalysts: enterprise expansion momentum (65 customers >$1M ARR; 98 customers expanding >$100k in Q4), leadership realignment (new President, GTM; President, Product & Innovation) and early AI adoption; offset by SMB expansion weakness and cautious ARR outlook .

What Went Well and What Went Wrong

What Went Well

  • Enterprise momentum and ARR milestone: “Strong demand from our enterprise customers helped us achieve the major milestone of $1 billion in annualized recurring revenue in Q4” – CEO Mark Mader . 65 customers now exceed $1M ARR and ARR reached $1.031B (+21% YoY) .
  • Profitability and cash flow: non-GAAP operating margin expanded to 15%; free cash flow hit $56.3M (22% of revenue), and total gross margin reached 85%, subscription gross margin 88% .
  • Early AI traction and capability self-discovery: “Since the beginning of February, more than 1/3 of our enterprise customers have leveraged these new [AI] tools,” with self-discovery capability bookings >$2M in Q4 (up from <$1M in Q3) .

What Went Wrong

  • SMB headwinds worsened: management cited tighter domestic SMB spending; SMB dollar-based net retention rate was “close to 0” in Q4 and expected to deteriorate into FY2025, impacting overall ARR growth .
  • Capabilities mix growth impacted by macro: CFO noted year-on-year growth deceleration in capabilities given budget scrutiny, though demand remains robust .
  • Conservative FY2025 ARR outlook (14%): reflects sales leadership transition and timing of growth initiatives; management guiding prudently until new product experiences and AI features demonstrate traction .

Financial Results

MetricQ2 FY2024Q3 FY2024Q4 FY2024
Total Revenue ($USD Millions)$235.6 $245.9 $256.9
Subscription Revenue ($USD Millions)$221.5 $232.5 $244.0
Professional Services Revenue ($USD Millions)$14.1 $13.4 $12.9
GAAP Diluted EPS ($USD)$(0.25) $(0.24) $(0.07)
Non-GAAP Diluted EPS ($USD)$0.16 $0.16 $0.34
Total Gross Margin (%)83% 84% 85%
Subscription Gross Margin (%)87% 87% 88%
Non-GAAP Operating Margin (%)8% 8% 15%
Operating Cash Flow ($USD Millions)$48.5 $15.1 $59.7
Free Cash Flow ($USD Millions)$45.5 $11.4 $56.3
Calculated Billings ($USD Millions)$243.1 $268.5 $341.9

Segment breakdown:

Revenue BreakdownQ2 FY2024Q3 FY2024Q4 FY2024
Subscription ($USD Millions)$221.5 $232.5 $244.0
Professional Services ($USD Millions)$14.1 $13.4 $12.9

KPIs:

KPIQ2 FY2024Q3 FY2024Q4 FY2024
ARR ($USD Billions)$0.933 $0.981 $1.031
Dollar-Based Net Retention Rate (%)121% 118% 116%
Avg ARR per Domain-Based Customer ($USD)$8,863 $9,225 $9,672
Customers with ARR ≥ $100K1,665 1,779 1,904
Customers with ARR ≥ $50K3,552 3,719 3,924
Customers with ARR ≥ $5K19,031 19,389 19,818
Calculated Billings ($USD Millions)$243.1 $268.5 $341.9

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD Millions)Q4 FY2024$254–$256 $256.9 (Actual) Beat vs guidance
Non-GAAP Operating Income ($USD Millions)Q4 FY2024$21–$23 $39.6 (Actual) Beat vs guidance
Non-GAAP Diluted EPS ($USD)Q4 FY2024$0.17–$0.19 $0.34 (Actual) Beat vs guidance
Total Revenue ($USD Millions)Q1 FY2025N/A$257–$259 New
Non-GAAP Operating Income ($USD Millions)Q1 FY2025N/A$32–$34 New
Non-GAAP Diluted EPS ($USD)Q1 FY2025N/A$0.26–$0.27 New
Total Revenue ($USD Millions)FY2025N/A$1,113–$1,118 New
Non-GAAP Operating Income ($USD Millions)FY2025N/A$135–$145 New
Non-GAAP Diluted EPS ($USD)FY2025N/A$1.06–$1.13 New
ARR YoY Growth (%)FY2025N/A14% New
Free Cash Flow ($USD Millions)FY2025N/A$200 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY2024)Previous Mentions (Q3 FY2024)Current Period (Q4 FY2024)Trend
AI/technology initiativesPrivate beta features; monetization reserved for enterprise plan; no revenue baked into H2 ~50k enterprise users in early access; expanding rollout; focus on applied AI in dashboards/insights One-third of enterprise customers used new AI tools since early Feb; expanding high-frequency use areas; aim to enable solution building and insights Adoption rising; commercialization staged
Macro/SMB pressureHigh-velocity transactions pressured; macro caution across base SMB expansion degradation continued into Q4 outlook; enterprise stable SMB DBNR near 0 in Q4 and worsening into FY2025; enterprise strength persists SMB headwinds intensifying
Capabilities/productsCapabilities ~32% of subscription revenue; self-discovery launched (Data Shuttle, Dynamic View) Capabilities present in top expansions; self-discovery bookings ~<$1M in Q3 Self-discovery bookings >$2M in Q4; demand robust but growth rate impacted by macro Broadening exposure; macro-sensitive
International/data residencyGermany instance live; Australia instance planned; IRAP pursuit International seen as 16% of revenue; investments in AU data center and Japan market Continued AU data center plan; partner-first regions emphasized Gradual build-out
Partner ecosystemGrowing partner enablement; advanced bundles in large enterprise deals Shift of services delivery to partners; billings impact noted Doubling channel enablement capacity; GSIs and regional partners central to expansion Scaling partnerships
Sales leadership changesN/AN/ACRO retirement; appoint Max Long (President, GTM) and Praerit Garg (President, Product & Innovation) New GTM/product leadership
Metrics focus (ARR vs billings)Billings used; ARR strong Guidance included billings growth; ARR discussed Company standardizing on ARR disclosure/guidance going forward Shift to ARR transparency

Management Commentary

  • “Strong demand from our enterprise customers helped us achieve the major milestone of $1 billion in annualized recurring revenue in Q4.” – Mark Mader, CEO .
  • “We are setting the foundation for the next era of profitable growth… paired with enterprise-grade product innovation informed by decades of data, work patterns, and customer use cases.” – Mark Mader .
  • “We continue to see tighter domestic spending tied to the current macro environment negatively impact expansion, particularly in the SMB segment… we are expecting [SMB] to continue to be under pressure in FY ’25.” – Pete Godbole, CFO .
  • “We will be disclosing and guiding annualized recurring revenue or ARR, rather than billings… ARR provides a better reflection of our quarterly net bookings performance.” – Pete Godbole .

Q&A Highlights

  • SMB dynamics and ARR guide: Management expects SMB DBNR to deteriorate further into FY2025, underpinning conservative ARR growth guidance of 14%; enterprise DBNR was >120% in Q4 .
  • AI adoption and monetization: Early enterprise usage strong; near-term focus on high-frequency experiences (dashboards/insights) and formula/content generation; monetization and broader GA rollouts staged to drive plan upgrades and paid conversions .
  • Capabilities penetration and pricing: Demand robust; growth rates affected by macro and packaging choices (Advance vs à la carte); planned mechanisms to ramp smaller customers into paid capabilities to broaden penetration beyond mid-single-digit base .
  • Capital allocation: CFO noted buybacks remain in strategic consideration; balance sheet strength maintained to support potential adjacent M&A .
  • Partner channel and international: Doubling capacity to enable partners; building partner-first regions; AU data center and Japan investments continue .

Estimates Context

  • We attempted to retrieve S&P Global consensus estimates for Q4 FY2024 (Revenue, EPS, number of estimates) but data were unavailable due to a missing CIQ mapping for SMAR, so estimate comparisons to consensus are not provided at this time [SpgiEstimatesError].
  • As a proxy, the company exceeded its own Q4 guidance for revenue ($256.9M vs $254–$256), non-GAAP operating income ($39.6M vs $21–$23), and non-GAAP diluted EPS ($0.34 vs $0.17–$0.19) .

Key Takeaways for Investors

  • Enterprise strength offsets SMB headwinds: ARR momentum (to $1.031B) and >$100k/$1M cohort growth support durability, even as SMB expansion remains pressured; narrative focus is shifting to ARR as the primary performance metric .
  • Profitability inflecting: Non-GAAP operating margin reached 15% and FCF margin 22% in Q4; FY2025 outlook targets $200M FCF and 12%–13% operating margin, indicating continued operating leverage .
  • AI and product modernization are near-term catalysts: Early AI usage by one-third of enterprise customers and new modern views aim to improve conversion and retention, potentially stabilizing NRR later in FY2025 if traction materializes .
  • Capabilities penetration opportunity: With capabilities contributing 34% of subscription revenue and penetration still low, packaging and self-discovery/commercial motions could unlock incremental ARR across the installed base .
  • Conservative FY2025 guide suggests room for upside: New GTM leadership, partner expansion, and product-led motions create optionality; upside depends on execution and macro stabilization (especially SMB) .
  • Watch ARR/DBNR trajectory and SMB indicators: Quarter-to-quarter ARR growth seasonality expected to be higher early in the year; DBNR likely to mirror ARR path – stabilizing/improving would be a key sentiment driver .
  • Trading implication: Near-term, the stock may react to conservative ARR guidance and SMB commentary; medium-term, proof points around AI adoption, capabilities monetization, and partner-enabled bookings could re-rate growth and margins .