Concerns over Fed policy, global trade, and slowing growth have sapped investor confidence heading into year-end. We take a break from the Macro panic room and use Amenity Viewer to dive into an earnings analysis highlighting a positive trend from a recent software IPO: Smartsheet (SMAR).

Smartsheet: Top of the Software Sector

In its third quarter as a public company, Smartsheet’s earnings call on 12/3 received an Amenity Score of 73, up from 51 last quarter. For context, the average Amenity Score on earnings calls across all sectors over the last month is 22, so the data is also indicative of broad-based strength in Software. As shown below, that was the highest score in the Software sector over the last month.

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What's Driving the Strength?

With the Amenity Viewer, the score is just the starting point, so we dig into the text of the earnings transcript to identify what is behind the strong overall numbers. First, a quick look at the Key Drivers reveals a stark lack of negative earnings sentiment highlights in the document. Then, in just a few clicks through the Guidance and Market Position categories, two positive trends become apparent that are critical indicators for a SaaS company:

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1. Success Moving "Up Market"

SMAR (12/03):

• "We continue to see very strong growth in our larger customers with 5,575 now paying us $5,000 and more per year, and as Mark mentioned earlier, 360 now paying us $50,000 or more per year.  These customer segments grew year-over-year by 70% and 148% respectively, and now represent approximately 63% and 24% of total ACV."

2. Improving Growth Within the Installed Base

SMAR (12/03):

• "We did accelerate bookings growth, new bookings growth this quarter.  And what’s driving it is how I answered the last question, better expansion, more new products, better uptake.  We also had lower attrition, and so our renewal rate was strong as well."

Any Fly in the Ointment to Watch?

The common theme to the few negative earnings sentiment highlights in the call was cash flow, which is common for a SaaS company of Smartsheet’s size. If the two positive trends above are sustained, free cash flow often takes care of itself as a company scales:

SMAR (12/03):

• "we expect free cash flow to be up to negative $20 million."
• "Free cash flow was negative $2 million, which includes CapEx spend, capitalized internal-use software and principal payments on leases totaling 9% of revenue."

Read-Through to Other Companies?

Using Viwer's Query Insights feature allows us to perform earnings sentiment analysis across a broader sector where we see other mentions of accelerating bookings within the Software sector at Workday, Rapid7, and PTC:

Workday (11/29):

• "The remaining growth was driven by an acceleration of net new bookings growth,including a few deals that pulled in from Q4 and very strong renewals with net retention once again over 100%"

Rapid7 (11/6):

• "We are pleased with our strong performance in the third quarter, which beat our guidance on all key metrics and was highlighted by accelerating ARR growth of 46% year-over-year"

PTC (10/24):

• "Our bookings and software revenue growth accelerated."

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This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.

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