Smartsheet (SMAR)
General:
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Founded in 2005 to build a universal application for work management that doesn’t require coding. IPO 4/27/18.
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Geared toward non-technical business users and teams.
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Their main product is a cloud-based platform for work execution to capture, manage, automate and create reports for unstructured work (email, notes, spreadsheets, meetings, calls, etc). They have broad use cases that apply to almost any industry. They categorize their products at the Individual, Team, Business and Enterprise levels. It is currently available in eight languages. Their products integrate with Office 365, Google G Suite, Salesforce, Atlassian, ServiceNow, Tableau, Dropbox and Box.
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They run a cloud-based software subscription model. Their basic go-to-market strategy consists of an unassisted freemium (with available self-service upgrade), inside sales, enterprise sales and reseller channels.
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They are currently in the Accelerated Certification Program for FedRAMP, which allows them to sell to government. They expect that to happen sometime in FY 2020.
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TAM estimated at $21.4B in '17 and $31.6B in '21.
The Numbers:
Revenues (4Q19 is current guidance) % YoY
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 $13.66 $15.79 $17.84 $19.68 $66.96 2017 0
2018 $22.24 $26.67 $29.39 $32.96 $111.25 2018 62.8% 68.9% 64.7% 67.5% 66.1%
2019 $36.32 $42.38 $46.87 $50.00 $175.60 2019 63.3% 58.9% 59.5% 51.7% 57.8%
Subscription Revenues % YoY
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 $12.84 $14.76 $16.45 $18.37 $62.42 2017 0
2018 $20.38 $23.80 $26.44 $29.76 $100.37 2018 58.7% 61.3% 60.7% 62.0% 60.8%
2019 $32.06 $37.47 $41.52 2019 57.3% 57.5% 57.0%
Op Expenses % YoY
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 $14.13 $16.23 $17.34 $20.30 $67.99 2017 0
2018 $24.94 $44.00 $34.18 $35.43 $138.55 2018 76.5% 171.2% 97.1% 74.6% 103.8%
2019 $42.03 $47.19 $54.57 2019 68.5% 7.2% 59.7%
non-GAAP Gross Margin * Targeting 78-80%
Q1 Q2 Q3 Q4 YR
2017 79.5% 79.0% 78.8% 78.7% 79.0%
2018 79.9% 80.1% 80.8% 81.6% 80.7%
2019 80.4% 81.6% 82.2%
Non-GAAP Subscription Gross Margins
Q1 Q2 Q3 Q4
2017
2018 88.0% 89.0%
2019 87.0% 88.0% 89.0%
non-GAAP Services Gross Margin
Q1 Q2 Q3 Q4
2017
2018 20.0% 12.0%
2019 29.0% 30.0% 31.0%
Op Ex as % Revenues
Q1 Q2 Q3 Q4 YR
2017 103.4% 102.7% 97.2% 103.2% 101.5%
2018 112.1% 165.0% 116.3% 107.5% 124.5%
2019 115.7% 111.3% 116.4%
Calculated Billings (4Q19 guidance) % YoY
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 $17.38 $19.47 $20.66 $22.59 $80.10 2017 0
2018 $30.34 $33.62 $32.52 $39.35 $135.82 2018 74.5% 72.7% 57.4% 74.2% 69.6%
2019 $45.38 $52.20 $54.86 $59.56 $212.00 2019 49.6% 55.3% 68.7% 51.4% 56.1%
Customers wth ACV >$5K (000) % YoY
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 2017 0
2018 2.44 2.82 3.28 3.79 2018
2019 4.35 4.96 5.58 2019 78.5% 75.6% 70.2%
Customers with ACV >$50K % YoY
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 2017 0
2018 100 121 145 189 2018
2019 239 298 360 2019 139.0% 146.3% 148.3%
ACV per customer (000) % YoY
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 $0.90 $0.96 $1.02 $1.11 2017 0
2018 $1.23 $1.35 $1.49 $1.64 2018 37.1% 40.9% 46.8% 48.3%
2019 $1.81 $2.00 $2.21 2019 47.0% 48.7% 48.5%
non-GAAP Op Income (4Q19 guidance) % Revenues
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 -$3.07 -$3.53 -$2.99 -$4.44 -$14.02 2017 -22.5% -22.3% -16.8% -22.6% -20.9%
2018 -$6.65 -$6.72 -$9.41 -$7.50 -$30.28 2018 -29.9% -25.2% -32.0% -22.8% -27.2%
2019 -$11.02 -$8.73 -$10.24 -$14.00 -$44.00 2019 -30.3% -20.6% -21.9% -28.0% -25.1%
Non-GAAP Net Income % Revenues
Q1 Q2 Q3 Q4 YR Q1 Q2 Q3 Q4 YR
2017 -$15.20 2017 -22.7%
2018 -$6.64 -$6.65 -$9.31 -$49.10 2018 -29.9% -24.9% -31.7% -44.1%
2019 -$11.00 -$8.07 -$9.41 2019 -30.3% -19.0% -20.1%
Free Cash Flow
Q1 Q2 Q3 Q4 YR
2017 -$1.23 -$1.30 $2.35 -$1.89 -$2.07
2018 -$7.75 -$2.40 -$5.15 -$9.96 -$25.26
2019 -$9.72 -$4.20 -$1.98 -$15.90
non-GAAP EPS
Q1 Q2 Q3 Q4 YR
2017
2018 -$0.08 -$0.08 -$0.11
2019 -$0.12 -$0.08 -$0.09 -$0.13
* $212M cash
* dollar-based retention was a record 132% last Q, climbing steadily from 116% in 1Q16
* Dollar-based retention of 149% for ACV $5K+ entering 2018
My Take:
The Good
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It’s obviously easy to like the revenue growth. It should stay above 50% for a few quarters at least.
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Subscription growth and gross margins both fit with companies we discuss here. Their subscription margins are strong. They even make a little on their service revenues, which isn’t the case for some other SaaS companies who are looking to expand.
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The ACV (annual contract value) and dollar-based retention rates both grabbed my attention. Their expand of the land and expand equation seems to be real.
The Not-So-Good
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I’m not crazy about the Op Ex rates either quarterly or as a percentage of revenues, but it’s not out of line with some other recent IPO’s stressing growth (say ESTC).
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Their operating and net income losses as a percentage of revenues are still pretty strong. They have contracted slightly the last few Q’s, but I noticed they’ve guided for an expansion in 4Q. A beat would alleviate this, but it’s something to watch.
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I have some general concern as to just how mission-critical their software is. Their products are about improving existing functions rather than being vital to the business operation itself like say data analysis, communication centers or security. While their retention rates suggest existing customers clearly see the value, I’m wondering how their ability to add new customers would be affected in a general economic slowdown. The truth is potential new customers don’t necessarily need their product to survive.
Summary:
I liked what I saw enough to personally add a starter position early this month with a small add a couple of days ago. In technical terms I believe I shot first and am asking questions later. Regardless, I thought the name was worthy of a deeper look in this forum.
I hope everyone is off to a good start in 2019.
Joe