Business software company Smartsheet surpassed $1 billion in annualized recurring revenue in the fourth quarter, within the timeframe established by the company during its first analyst day as a public company in 2018.
The milestone came despite caution from many companies about expanding their commitments to existing tech vendors, counteracted in part by interest in new efficiencies and capabilities from artificial intelligence.
“While people are definitely exercising more scrutiny on expansion, and being more diligent, the demand for technology is higher than it’s ever been,” Smartsheet CEO Mark Mader said in an interview with GeekWire after the company’s fourth-quarter earnings report Thursday afternoon. “It’s an exciting time right now.”
The Bellevue, Wash.-based company makes cloud-based enterprise work management technologies for managing and tracking projects, collaborating, storing data, and automating and assigning tasks, among other capabilities. The company has more than 3,300 employees and a market value of more than $5 billion.
Its competitors include Airtable, Asana, Atlassian, ClickUp, Monday.com, Planview, and Wrike. Features of Google, Microsoft, and Adobe products also compete with Smartsheet’s capabilities.
Customers are closely scrutinizing software purchases, and carefully evaluating the expected return on investment, in contrast with more liberal buying practices at the height of the pandemic, Mader said. This is part of what’s impacting expansion decisions after initial purchases, traditionally a key area of growth for Smartsheet.
“We’re still expanding,” Mader said, noting that the company led its category with a dollar-based net retention rate of 116% in the quarter, which measures the share of annual recurring revenue from existing customers. “But that’s down meaningfully from a year ago. And that’s what a lot of folks are saying.”
At the same time, he said, AI is helping to boost interest and curiosity.
Smartsheet recently launched its first two AI features, allowing customers to create formulas from natural language, and interpreting customer data for summaries and translations. The company says adoption has been strong so far, with more than a third of enterprise customers leveraging the new AI tools since the February launch.
The company is moving next to inject AI into Smartsheet experiences that are used more frequently, including analytics capabilities, which should increase interactions “materially,” Mader told analysts on a conference call.
Smartsheet is using Microsoft Azure AI to translate natural language prompts. It’s using Google AI to work with content such as images. Looking ahead, it’s also working on integrated search via Amazon Q.
Exits and hires: Smartsheet announced leadership changes impacting two of its key internal groups — hiring Microsoft, Adobe and NetApp veteran Max Long to the new position of president of go-to-market, to lead what the company described as a “newly unified” operations and marketing team.
With the change, two longtime Smartsheet executives are leaving.
- Chief Marketing Officer Andrew Bennett, who has been with the company for nearly 10 years, is leaving for an unidentified opportunity outside of Smartsheet, according to an announcement.
- Mike Arntz, chief revenue officer, is retiring March 31, after more than seven years with the company. He will serve as an advisor in the transition to Long until mid-May.
Engineering and product leader Praerit Garg was named to an expanded role as president of product and innovation.
Smartsheet’s employee count of more than 3,300 people, as of the Jan. 31 end of its fiscal year, was up from about 3,200 people a year earlier.
Close to a third of Smartsheet employees are now located outside the U.S., Mader said. Overall, about 40% of Smartsheet’s employees now live outside of the company’s main hubs in Seattle and Boston, reflecting the company’s distributed workforce model and flexible remote work policy.
Mader said he believes the company will be able to scale its business significantly with its existing team, and may need to hire at a much lower rate than in the past to support revenue growth due to increased productivity and efficiency gains from factors including its own internal use of AI technologies.
Financial results: For the fourth quarter, the company said growth rates were impacted by tighter domestic spending by its customers, specifically citing macroeconomic headwinds in the market for small- and medium-sized businesses.
- Revenue rose 21% in the fourth quarter to $256.9 million.
- Earnings were 34 cents a share, after adjusting for stock-based compensation and other expenses, exceeding analysts’ expectations of 18 cents a share.
- On the same basis, operating profits were $39.6 million, up from operating profits of $7.5 million in the year-ago quarter.
Smartsheet’s shares slipped more than 10% in after-hours trading Thursday, and nearly 6% in early trading Friday off its Thursday closing price of $40.30 share.
The declines came after the company gave first quarter guidance of $257 million to $259 million in revenue, up 17% to 18%; with non-GAAP operating income of $32 million to $34 million. Analysts on the earnings call questioned why Smartsheet isn’t keeping a tighter rein on spending to boost margins given the expectation of slower revenue growth.
Mader said in the interview that the continued investments reflect a belief in Smartsheet’s growth potential.
“The market does what it does, and we obviously care deeply about our shareholders, and we’re working super hard for them,” he said. “But I haven’t met a shareholder yet who says, please be a one-hit wonder.”
