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Smartsheet (SMAR) Q3 Earnings, Revenues Surpass Estimates

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Smartsheet Inc. (SMAR - Free Report) reported third-quarter fiscal 2019 non-GAAP loss of 9 cents per share, which was narrower than the Zacks Consensus Estimate of 16 cents and year-ago quarter loss of 11 cents.

Revenues surged 59.5% year over year to $46.9 million and surpassed the Zacks Consensus Estimate of $44 million. The increase in revenues was driven by customer wins, product launches and efficient performance of the sales force.

Quarter in Details

Subscription revenues climbed 57.3% from the year-ago quarter to $41.5 million. This growth was driven by scale in hosting and flat credit card processing fees.

Professional services revenues soared 82.8% from the year-ago quarter to $5.3 million, driven by efficient performance of consulting staff.
 
Smartsheet was successful in attracting large customers in the reported quarter. Annual recurring revenues (ARR) for customers paying $50,000 or more and $5,000 or more per year were 360 and 5575, respectively compared with 298 and 4956 customers in the previous quarter, reflecting a year-over-year increase 148% and 70%.

The company also recorded robust billings of $54.9 million, up 69% year over year. This was driven primarily by new product launch and large customer wins in the reported quarter. Notably, 34 customers paying $50,000 or more expanded from 26 customers in the previous quarter.

Smartsheet also witnessed an increase in net dollar retention rate of 132%, increasing 1% year over year, primarily driven by its portfolio strength. Moreover, the company recorded a low attrition rate, which contributed to strong renewal rates.

The company also launched 23 new products including enhanced dashboards, assignment capabilities, time-based triggers and individual workflow builder, in the reported quarter.

In the reported quarter, Smartsheet was among the four cloud service providers accepted into an accelerated program to receive certification from the federal government. Such certifications are expected to make the company more attractive to large enterprises in the near term.  

Smartsheet’s average annualized contract value (ACV) per domain-based customer grew 48% year over year, reflecting growing demand for the company’s products, which is a tailwind.

Smartsheet Inc. Price, Consensus and EPS Surprise

Operating Details

Non-GAAP gross margin increased 150 basis points (bps) from the year-ago quarter to 82.1%.

Operating expenses surged 59.6% year over year to $54.6 million. Research & development (R&D), general & administrative (G&A) and sales & marketing (S&M) expenses increased significantly year over year.

The increase in R&D expenses was primarily driven by higher capitalization related to internal-use software while increase in S&M was due to the company’s brand marketing campaigns.

Research & development and G&A expenses, as percentage of revenues, increased 300 bps and 370 bps, respectively, year over year. However, S&M expenses declined 660 bps year over year.

Non-GAAP operating loss was $10.2 million in the reported quarter compared to a loss of $9.4 million in the year-ago quarter.  

Balance Sheet & Cash Flow

Smartsheet exited the quarter with cash & cash equivalents of $212 million compared with $211 million in the previous quarter.

Robust billings and stronger collections contributed to positive cash flow from operations of $2.4 million.

Free cash flow totaled negative $2 million at the end of the reported quarter compared with negative free cash flow of $4.2 million at the end of the second quarter. Cash outflow from operations was $1.1 million.

Guidance

For fourth-quarter fiscal 2019, Smartsheet expects revenues of $49 and $50 million. Non-GAAP operating loss is expected between $16 and $14 million.

For fiscal 2019, Smartsheet anticipates revenues of $174.6 and 175.6 million, representing growth of 57-58%. The company expects non-GAAP operating loss between $46 and $44 million.

The company expects dollar-based net retention rate to be above 130% in the fourth quarter

Zacks Rank & Stocks to Consider

Currently, Smartsheet has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader computer and technology sector include Generac Holdings Inc. (GNRC - Free Report) , SS&C Technologies Holdings, Inc. (SSNC - Free Report) and Symantec Corp. (SYMC - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Generac, SS&C and Symantec is projected to be 6.5%, 13.5% and 7.9%, respectively.

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