Smartsheet Inc. has announced its second-quarter fiscal year 2025 results. Revenue rose 17% year-over-year to $276.4 million. ARR also rose by 17% to $1.093 billion. GAAP Net Income was $7.9 million, compared to GAAP net loss of $(33.4) million in the second quarter of fiscal 2024. Smartsheet also ended the quarter with cash, cash equivalents, and short-term investments of $706.6 million. Cash flow was a very healthy $56 million.
Mark Mader, CEO of Smartsheet, commented, “Q2 was a strong quarter highlighted by continued growth in the enterprise. Our customers are scaling their work on Smartsheet, with over 70 customers expanding their Smartsheet annualized recurring revenue by more than $100,000 this quarter. We have a significant opportunity ahead to drive durable, long-term growth. We’ve been investing in product innovations that empower our customers to manage their work at an even larger scale on our platform, which we look forward to sharing more about at our annual customer conference, ENGAGE Seattle, in a few weeks.”
While the net retention rate of 113% seems strong, this has been falling for the last six quarters. However, this seems to be a reflection of a drag with the SMB net retention rate, which wasn’t publicised. The enterprise retention rate was 120% for the quarter.
The growth in Enterprise customers is significant, with 2,056 customers now spending over $100,000 (up 23%) and 4,140 customers spending over $50,000 (up 17%). There are also 20,198 customers spending over $5,000 (up 6%).
What has happened in the quarter
This quarter, Smartsheet introduced a new subscription model and also introduced a self-service capability for premium features. These have simplified pricing and administration and made it easier for customers to budget. The new subscription model is in place for new customers, and all customers will transition during the next calendar year, 2025.
On the product side, Mader made it clear that AI and Generative AI are making a big difference. He commented, ”In Q2, we saw a nearly 50% sequential growth in the number of users utilizing our AI tools. Adoption is already showing significant benefits to our customers, with approximately 47,000 users having already saved an estimated 1 million hours from AI automations and performance improvements.”
He also added, “Generative AI is proving to be a helpful differentiator for Smartsheet.” (Source: The Motley Fool.)
In mid-July, the firm also released board view, a new Kanban-style view that gives customers clear visibility into task status so they can see what’s in progress, what’s completed, and what’s coming up next at a glance.
Smartsheet Outlook
In the second half of the year, Smartsheet believes growth will slow slightly. In Q3, it expects total revenue of $282 million to $285 million, representing year-over-year growth of 15% to 16%. For the full year, it expects total revenue of $1,116 million to $1,121 million, representing year-over-year growth of 16% to 17%.
The firm will also host Smartsheet ENGAGE between October 8th and 10th in Seattle, expect a lot more announcements at its annual event. The announcements at the successful ENGAGE in London were impressive, and this one should be even more so.
Enterprise Times: What does this mean
Another solid quarter from Smartsheet as it continues to grow. While Mader did not mention the success of the free entry-level criteria, there is strong growth in the Enterprise segment. However, Smartsheet needs to keep an eye on new customer acquisition. At the bottom end it is facing fierce competition from many competitors.
The big question is whether the land and expand strategy will continue to work long term. Is it adding new users from larger customers that will, in time, turn into larger customers. Or is its free offering merely attracting SMEs? It will be interesting to see how the customer numbers fair in the next set of results. Will Mader reveal how many free customers that have gained and retained?
