Smartsheet customer conference Engage

Smartsheet had their annual customer conference and a financial analysts day yesterday.

Here are the slides from the analysts day with a cohort analysis on page 38 and the target financial model on page 46:

https://investors.smartsheet.com/events-and-presentations/pr…

The keynote is on youtube if you search Smartsheet Engage 2019.

It was a little slow off the start, but the back half is good showing the new products they are releasing.

Some notes from the Engage keynote and financial analyst presentation.

  1. They have gone from 1 $1M customer last year to 4 now.

A fortune 500 customer spending over $1M shows how valuable this tool can be to a large company. They have a lot of room to keep increasing the net expansion rate.

  1. committed to being FCF neutral next year.

They had slipped $5M in the FCF forecast this year to expand quicker in the UK and Asia. They also have accelerated the switch to cloud service providers.

  1. Expect to be $1 B in revenue in 3-5 years.

  2. In 75% of fortune 500.

  3. 4000 people at the Engage conference, double last year.

  4. Adding partners to help sell Smartsheet that are value add, example of BDO, 5th largest accounting firm.

  5. Some companies are starting to use Smartsheet as their project management dashboard for the entire company.

  6. Have added the capability, with Adobe, to approve design documents across businesses. An example is a marketing campaign that is be tracked, managed, and all the workflow happening within smartsheet, both from the marketing company and the customer.

• Can do what Docusign does, but within the scope of managing the project.

  1. 10% of subscription business is from accelerators and other add ons, up from 6% last year.

  2. churn for customers >$5K is around 2%.

  3. 159% Net Retention Rate in the fortune 100 customers.

They are focused on what their customers want, and implementing solutions to solve their customers pain points. I think this company has a long runway ahead. I want to see them make progress and get FCF positive with improvement every year, and that will start happening next year. (in 2 Q’s)

Jim

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Thanks for this Jim,

After some review of what they have and an interview with CFO Jenny to assuage my fear of the idea the pundits give “SAMR down on no profit for longer.” I started a position here. She (and the company) has knowledge, confidence, and a plan.

As you state 3) Expect to be $1 B in revenue in 3-5 years.

In her presentation here…(her part are slides 36-50)…

https://s22.q4cdn.com/427584715/files/doc_presentations/2019…

…she shows that on this date a year ago that time period was estimated at 4-6 years.

Note slide 46 shows the target model, with the scale we’re paying for in “high valuations” of (EV/S and P/S) for these SaaS companies, S&M costs moving from 57% to 37%; G&A from 16% to 7% and thereby Op’s margins and cash margins are more like +20%. So what’s showing ($55MM) FY18 will be +$200MM in the 2023-25 time frame.

We should all look at the power of compounding of recurring revenue over 5 years of customer cohorts on slide 38…and your pointing to the 159% NRR from the big order potentials. Just wow.

Joe
Long SMAR

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Note slide 46 shows the target model, with the scale we’re paying for in “high valuations” of (EV/S and P/S) for these SaaS companies, S&M costs moving from 57% to 37%; G&A from 16% to 7% and thereby Op’s margins and cash margins are more like +20%. So what’s showing ($55MM) FY18 will be +$200MM in the 2023-25 time frame.

I like it when companies, particularly non-profitable companies, put out their long term P&L plan for their business. It gives us insights into their thinking and plans and also gives us a measuring stick to track their progress and to compare to our other companies.

So let’s say that SMAR does what they are targeting. $200M in FCF in FY24. Another assumption might be that revenue growth at the end of FY24 (Jan 31, 2024) would have slowed to 40%. So what kind of multiple would you give a 40% grower with $200M FCF margin dollars? 40x FCF multiple on $200M would be a $8B valuation in 3.5 years. There might be about 130M shares outstanding in 3.5 years which would give a share price of $61.5 which is about 58% higher than today’s $39 price. CAGR over 3.5 years would be 14%.

Here’s what I previously wrote ( https://discussion.fool.com/chris-what-multiple-would-you-pay-fo… ) about AYX which also provided a longer term P&L target:

Assuming their recent FCF target/guidance of 30-35% in 4 years and 50% CAGR on TTM revenue for 4 years, I would think that the company would be worth a 40-50x multiple on FCF at that time. So 4 years from now, I think AYX should be worth about $23B in the middle of 2023 with about 80M shares outstanding. Therefore, the share price would be about $290 which would give you a CAGR of 27% from here. I’m not worried about AYX long term.

AYX’s price is now $111 so a $290 price in 4 years is a 161% gain in 4 years or a CAGR of 27%.

So I ask about the assigned multiple of FCF for SMAR and AYX. Why are they different? I think AYX will be growing faster (maybe 45% growth still in 4 years) while I think SMAR will be growing slower (say 40% in 3.5 years). I could be off a bit or a lot.

What about the multiple on FCF? What should it be. Assuming both companies are at scale and there would be no more operational leverage to be squeezed out, the revenue growth rate should be the same as the FCF growth rate. Is it reasonable to pay a multiple equal to the growth rate? I think so, but other can comment on their reasons for paying more or less.

To me the these numbers (company projections and my own assumptions) just look a lot better for AYX than for SMAR. I still own some SMAR (3.9% allocation) but my AYX allocation (25.1%) is much higher.

Chris

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