What happened

Shares of Smartsheet (SMAR 1.00%) popped 18% on Wednesday after the work-management platform delivered impressive sales growth and a surprise profit. 

So what

Smartsheet's revenue grew 35% year over year to $212.3 million in its fiscal 2023 fourth quarter, which ended on Jan. 31. The software provider saw solid growth across its customer segments. The number of its clients with annualized contract values of $5,000, $50,000, and $100,000 increased by 19%, 36%, and 45%, respectively.

Smartsheet also expanded its relationships with its existing clients. The company's dollar-based net-retention rate was a sterling 125%.

"Our largest customers continue to expand at a faster rate than our overall net dollar retention rate, a sign of the rapid return on investment they're realizing from Smartsheet's enterprise platform," CEO Mark Mader said in a press release.

Better still, Smartsheet's profitability improved as it scaled its business. Its adjusted operating income checked in at $7.5 million compared to an operating loss of $14.5 million in the prior-year quarter.

Smartsheet's adjusted earnings per share (EPS), in turn, came in at $0.07 versus a loss of $0.12 in the year-ago period. Wall Street had expected a per-share loss of $0.01.

Smartsheet's cash generation also strengthened. It produced operating and free cash flow of $20.2 million and $16.4 million, respectively. "Our Q4 results cap off a strong fiscal year in which we achieved the major milestone of positive free cash flow," Mader said.

Now what

Smartsheet's guidance for fiscal 2024 includes:

  • Revenue of $943 million to $948 million.
  • Adjusted operating income of $35 million to $45 million.
  • Adjusted EPS of $0.31 to $0.38.
  • Free cash flow of $110 million.

"Despite the macro environment, the cost-saving initiatives we put in place in FY23 combined with natural economies of scale in our business will result in significant free cash flows and operating margin expansion," Chief Financial Officer Pete Godbole said.