Smartsheet(SMAR) - 2024 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements Smartsheet reported $219.9 million total revenue, a 31% increase, with net loss narrowing and operating cash flow turning positive Condensed Consolidated Statements of Operations Total revenue grew 31% to $219.9 million, with gross profit at $174.0 million and net loss narrowing to $29.9 million Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Total Revenue | $219,886 | $168,310 | | Subscription Revenue | $206,001 | $155,276 | | Gross Profit | $174,005 | $131,152 | | Loss from Operations | $(32,115) | $(69,802) | | Net Loss | $(29,870) | $(70,457) | | Net Loss Per Share | $(0.23) | $(0.55) | Condensed Consolidated Balance Sheets Total assets were $1.11 billion, with $489.5 million in cash and investments, and total liabilities decreased to $602.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | April 30, 2023 | January 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $294,946 | $223,156 | | Short-term investments | $194,593 | $233,225 | | Total Assets | $1,109,950 | $1,110,209 | | Deferred Revenue (Current) | $453,831 | $457,534 | | Total Liabilities | $601,985 | $624,551 | | Total Shareholders' Equity | $507,965 | $485,658 | Condensed Consolidated Statements of Cash Flows Operating activities generated $34.6 million in cash, leading to a $71.8 million net increase in cash during the quarter Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $34,571 | $(5,053) | | Net cash provided by (used in) investing activities | $31,641 | $(210,572) | | Net cash provided by financing activities | $5,694 | $6,808 | | Net increase (decrease) in cash | $71,798 | $(209,638) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, remaining performance obligations, deferred commissions, and share-based compensation expenses - As of April 30, 2023, the company had approximately $525.8 million in remaining performance obligations, with about 92% expected to be recognized as revenue within the next 12 months[38] - Deferred commissions were $129.1 million as of April 30, 2023. The amortization period for these commissions was changed from three to four years, effective August 1, 2022[39][40] - Total share-based compensation expense for the quarter was $51.8 million, an increase from $43.9 million in the prior-year period[85] Revenue by Geographic Area (in thousands) | Region | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | United States | $185,595 | $139,694 | | EMEA | $17,724 | $15,285 | | Asia Pacific | $8,207 | $6,534 | | Americas (other) | $8,360 | $6,797 | | Total | $219,886 | $168,310 | Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 31% driven by strong subscription performance, achieving non-GAAP operating income and positive free cash flow Key Business Metrics Average ACV per domain-based customer increased to $8,520, while the dollar-based net retention rate decreased to 123% Key Business Metrics Comparison | Metric | April 30, 2023 | April 30, 2022 | | :--- | :--- | :--- | | Average ACV per domain-based customer | $8,520 | $7,210 | | Dollar-based net retention rate (trailing 12 months) | 123% | 133% | | Customers with ACV of $100k or more | 1,569 | 1,108 | | Customers with ACV of $50k or more | 3,343 | 2,516 | | Customers with ACV of $5k or more | 18,483 | 15,879 | Results of Operations Total revenue increased 31% to $219.9 million, with improved gross margin and reduced operating expenses as a percentage of revenue - Subscription revenue increased by $50.7 million (33%) YoY, with $25.1 million from user-based plans and $25.6 million from capabilities-based products[129] - Sales and marketing expenses decreased as a percentage of revenue from 69% to 52% YoY, primarily due to a $5.2 million reduction in brand awareness and demand generation costs[128][137] - Research and development expenses increased by $3.7 million (7%) YoY, mainly due to higher employee-related costs[136] Non-GAAP Financial Measures Non-GAAP operating income reached $22.8 million (10% margin), a significant turnaround, with free cash flow at $31.3 million Non-GAAP Operating Income (Loss) Reconciliation (in thousands) | Metric | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Loss from operations (GAAP) | $(32,115) | $(69,802) | | Share-based compensation expense | $52,200 | $44,228 | | Amortization of acquisition-related intangible assets | $2,709 | $2,483 | | Non-GAAP operating income (loss) | $22,800 | $(23,091) | Free Cash Flow (in thousands) | Metric | Three Months Ended April 30, 2023 | Three Months Ended April 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $34,571 | $(5,053) | | Less: Purchases of property and equipment | $(853) | $(1,691) | | Less: Capitalized internal-use software | $(2,397) | $(2,323) | | Free cash flow | $31,321 | $(9,067) | Liquidity and Capital Resources Principal liquidity sources include $294.9 million in cash and investments, with $455.4 million in deferred revenue - Principal sources of liquidity as of April 30, 2023, were $294.9 million in cash and cash equivalents and $194.6 million in short-term investments[159] - A substantial source of cash is deferred revenue from customers paying in advance for annual subscriptions, which totaled $455.4 million as of April 30, 2023[161] - Material contractual obligations total $135.0 million, primarily for cloud-based hosting services, with $56.4 million due in the next 12 months[164] Quantitative and Qualitative Disclosures about Market Risk The company faces interest rate risk on $489.5 million in investments and foreign currency risk, without current hedging - The company holds $489.5 million in cash, cash equivalents, and short-term investments, which are subject to interest rate risk. A hypothetical 100-basis point increase in interest rates is not expected to materially impact their value[180][182] - The company has foreign currency risks related to revenue and expenses in currencies such as the British pound, euro, Australian dollar, and Canadian dollar, but does not currently hedge this exposure[183][184] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of April 30, 2023[186] - No material changes to the company's internal control over financial reporting occurred during the quarter[187] Part II. Other Information Legal Proceedings The company is subject to various legal matters but does not expect a material impact on its financial condition or results - The company is subject to various legal matters from time to time but does not expect them to have a material impact on its financial condition[190] Risk Factors The company faces risks including intense competition, dependence on a single offering, historical losses, and security threats Risks Related to Our Industry, Platform, and Infrastructure Risks include intense competition, security threats, reliance on cloud providers, and the need to adapt to technological changes - The market for collaborative work management software is highly competitive, with rivals including Airtable, Asana, Atlassian, Google, and Microsoft[199][200] - The business is vulnerable to security threats and attacks, which could lead to unauthorized access to customer data, significant liabilities, and reputational harm[207][211] - The company depends on public cloud service providers, and any service outages or disruptions from these third parties could significantly harm the business[217] Risks Related to Our Commercial and Financial Operations Financial risks include a history of cumulative losses, dependence on a single offering, and revenue recognition over subscription terms - The company has a history of cumulative losses, with an accumulated deficit of $788.0 million as of April 30, 2023, and cannot guarantee future profitability[237] - The company derives substantially all of its revenue from its cloud-based collaborative work management platform, making it vulnerable to shifts in demand for this single offering[244] - Because revenue is recognized ratably over the subscription term, downturns in new sales or renewals may not be immediately reflected in financial results[245] Risks Related to Our General Operations Operational risks stem from managing rapid growth, expanding sales, attracting personnel, and international expansion challenges - The company has experienced rapid growth, with employee headcount rising to 3,176 as of April 30, 2023, which places a significant strain on management and infrastructure[254] - Long-term growth depends on successful international expansion, which carries risks related to currency fluctuations, regulatory compliance, and cultural differences[267] - Failure to protect intellectual property rights or being sued by third parties for infringement could impair the company's ability to protect its technology and brand[272][275] Risks Related to Ownership of Our Common Stock Stock ownership risks include high stock price volatility and charter provisions that could hinder acquisitions - The market price of the company's Class A common stock has been and is expected to remain volatile[283] - Provisions in the company's charter and under Washington law could discourage or prevent a merger or acquisition, potentially limiting shareholder value[290] Risks Related to Governmental Regulation The company is subject to complex global regulations, including data privacy, tax, export control, and anti-corruption laws - The company is subject to numerous laws and regulations regarding privacy, data protection, and information security, such as GDPR and CCPA, with non-compliance posing risks of significant fines and penalties[296][299][300] - The applicability of sales and other taxes to the company's platform is unclear in various jurisdictions, potentially leading to future tax liabilities[308] - As an international business dealing with government customers, the company is subject to anti-corruption laws like the FCPA and export control regulations, violations of which could lead to severe penalties[315][319] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period covered by this report - None[341] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications and iXBRL financial data - The report includes filed exhibits such as CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and iXBRL financial data (101, 104)[343]