10-Q 1 smar-20211031.htm Q3 2022 SMAR 10-Q smar-20211031
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                 
Commission File No. 001-38464
Smartsheet Inc.
(Exact name of Registrant as specified in its charter)
Washington20-2954357
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
10500 NE 8th Street, Suite 1300
Bellevue,WA98004
(Address of principal executive offices)(Zip Code)
(844)324-2360
Registrant’s telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, no par value per shareSMARThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit). Yes    No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 
As of November 30, 2021, there were 126,752,271 shares of the registrant’s Class A common stock outstanding.



SMARTSHEET INC.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended October 31, 2021
Table of ContentsPage



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends, including, but not limited to, the macroeconomic impact of COVID-19, that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described under Part II, Item 1A, “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely on forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or may not occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or will occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.


Part I. Financial Information
Item 1. Financial Statements
SMARTSHEET INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)



Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
Revenue
Subscription$132,597 $90,890 $361,720 $251,675 
Professional services12,031 8,043 31,726 23,967 
Total revenue144,628 98,933 393,446 275,642 
Cost of revenue
Subscription18,253 17,417 55,155 41,894 
Professional services11,162 6,313 28,298 19,295 
Total cost of revenue29,415 23,730 83,453 61,189 
Gross profit115,213 75,203 309,993 214,453 
Operating expenses
Research and development41,151 32,369 116,704 86,449 
Sales and marketing83,114 59,197 231,613 167,759 
General and administrative26,928 19,530 79,567 51,672 
Total operating expenses151,193 111,096 427,884 305,880 
Loss from operations(35,980)(35,893)(117,891)(91,427)
Interest income12 14 35 1,433 
Other income (expense), net(651)(25)112 (105)
Loss before income tax provision (benefit)(36,619)(35,904)(117,744)(90,099)
Income tax provision (benefit)99 (3,933)214 (3,785)
Net loss and comprehensive loss$(36,718)$(31,971)$(117,958)$(86,314)
Net loss per share, basic and diluted$(0.29)$(0.26)$(0.94)$(0.72)
Weighted-average shares outstanding used to compute net loss per share, basic and diluted126,118 121,203 125,157 120,006 
See notes to condensed consolidated financial statements.
4

SMARTSHEET INC.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
October 31, 2021January 31, 2021
Assets
Current assets
Cash and cash equivalents$439,950 $442,200 
Accounts receivable, net of allowances of $6,601 and $6,933, respectively
106,347 102,648 
Prepaid expenses and other current assets26,883 13,524 
Total current assets573,180 558,372 
Restricted cash17 18 
Deferred commissions79,528 60,529 
Property and equipment, net36,768 28,613 
Operating lease right-of-use assets70,723 81,081 
Intangible assets, net46,577 54,139 
Goodwill125,605 125,605 
Other long-term assets3,708 3,432 
Total assets$936,106 $911,789 
Liabilities and shareholders’ equity
Current liabilities
Accounts payable$1,751 $2,851 
Accrued compensation and related benefits48,057 47,861 
Other accrued liabilities23,110 17,263 
Operating lease liabilities, current17,959 17,059 
Deferred revenue266,534 222,689 
Total current liabilities357,411 307,723 
Operating lease liabilities, non-current61,824 71,925 
Deferred revenue, non-current1,214 1,308 
Other long-term liabilities3,904 3,904 
Total liabilities424,353 384,860 
Commitments and contingencies (Notes 11, 12)
Shareholders’ equity
Preferred stock, no par value; 10,000,000 shares authorized, no shares issued or outstanding as of October 31, 2021 and January 31, 2021
  
Class A common stock, no par value; 500,000,000 shares authorized, 126,466,698 shares issued and outstanding as of October 31, 2021; 500,000,000 shares authorized, 123,272,902 shares issued and outstanding as of January 31, 2021
  
Class B common stock, no par value; 500,000,000 shares authorized, no shares issued and outstanding as of October 31, 2021; 500,000,000 shares authorized, no shares issued and outstanding as of January 31, 2021
  
Additional paid-in capital1,001,148 898,366 
Accumulated deficit(489,395)(371,437)
Total shareholders’ equity511,753 526,929 
Total liabilities and shareholders’ equity$936,106 $911,789 
See notes to condensed consolidated financial statements.
5

SMARTSHEET INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(dollars in thousands)
(unaudited)
Three Months Ended October 31, 2021
Common Stock (Class A)Additional Paid-in CapitalAccumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances at July 31, 2021125,622,097 $ $963,825 $(452,677)$511,148 
Issuance of common stock under employee stock plans844,601 — 10,363 — 10,363 
Taxes paid related to net share settlement of equity awards— — (1,447)— (1,447)
Issuance of restricted stock awards— — — — — 
Issuance of common stock for acquisition— — — — — 
Share-based compensation expense— — 28,407 — 28,407 
Net loss and comprehensive loss— — — (36,718)(36,718)
Balances as of October 31, 2021126,466,698 $ $1,001,148 $(489,395)$511,753 
Three Months Ended October 31, 2020
Common Stock (Class A)Additional Paid-in CapitalAccumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances at July 31, 2020120,286,340 $ $816,526 $(310,801)$505,725 
Issuance of common stock under employee stock plans1,091,107 — 10,134 — 10,134 
Taxes paid related to net share settlement of equity awards— — (288)— (288)
Issuance of restricted stock awards96,620 — — — — 
Issuance of common stock for acquisition551,282 — 25,872 — 25,872 
Share-based compensation expense— — 19,110 — 19,110 
Net loss and comprehensive loss— — — (31,971)(31,971)
Balances as of October 31, 2020122,025,349 $ $871,354 $(342,772)$528,582 

See notes to condensed consolidated financial statements.




6

SMARTSHEET INC.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(dollars in thousands)
(unaudited)




Nine Months Ended October 31, 2021
Common Stock (Class A)Additional Paid-in CapitalAccumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances at January 31, 2021123,272,902 $ $898,366 $(371,437)$526,929 
Issuance of common stock under employee stock plans3,193,796 — 26,133 — 26,133 
Taxes paid related to net share settlement of equity awards— — (4,914)— (4,914)
Issuance of restricted stock awards— — — — — 
Issuance of common stock for acquisition— — — — — 
Share-based compensation expense— — 81,563 — 81,563 
Net loss and comprehensive loss— — — (117,958)(117,958)
Balances as of October 31, 2021126,466,698 $ $1,001,148 $(489,395)$511,753 
Nine Months Ended October 31, 2020
Common Stock (Class A)Additional Paid-in CapitalAccumulated DeficitTotal Shareholders’ Equity
SharesAmount
Balances at January 31, 2020118,194,159 $ $770,518 $(256,458)$514,060 
Issuance of common stock under employee stock plans3,183,288 — 24,216 — 24,216 
Taxes paid related to net share settlement of equity awards— — (1,758)— (1,758)
Issuance of restricted stock awards96,620 — — — — 
Issuance of common stock for acquisition551,282 — 25,872 — 25,872 
Share-based compensation expense— — 52,506 — 52,506 
Net loss and comprehensive loss— — — (86,314)(86,314)
Balances as of October 31, 2020122,025,349 $ $871,354 $(342,772)$528,582 

See notes to condensed consolidated financial statements.


7

SMARTSHEET INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
Nine Months Ended October 31,
20212020
Cash flows from operating activities
Net loss$(117,958)$(86,314)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense80,067 50,953 
Depreciation and amortization of property and equipment7,664 8,942 
Amortization of deferred commission costs31,175 22,045 
Unrealized foreign currency loss136 97 
Loss on disposal of assets 268 
Amortization of intangible assets7,562 3,490 
Non-cash operating lease costs11,101 8,517 
Changes in operating assets and liabilities:
Accounts receivable(3,704)(6,310)
Prepaid expenses and other current assets(13,085)(2,891)
Other long-term assets678 (5,975)
Accounts payable(1,079)(2,869)
Other accrued liabilities6,257 (1,124)
Accrued compensation and related benefits4,174 (9,486)
Deferred commissions(50,174)(28,489)
Other long-term liabilities 6,807 
Deferred revenue43,750 19,220 
Operating lease liabilities(9,924)(7,733)
Net cash used in operating activities(3,360)(30,852)
Cash flows from investing activities
Proceeds from early termination of short-term investments 50,532 
Purchases of long-term investments(1,000) 
Purchases of property and equipment(9,169)(2,663)
Capitalized internal-use software development costs(5,509)(5,973)
Payments for business acquisitions, net of cash acquired (125,055)
Net cash used in investing activities(15,678)(83,159)
Cash flows from financing activities
Payments on principal of finance leases (1,973)
Payments of deferred offerings costs (59)
Proceeds from exercise of stock options9,173 11,129 
Taxes paid related to net share settlement of equity awards(4,914)(1,758)
Proceeds from Employee Stock Purchase Plan12,969 10,737 
Net cash provided by financing activities17,228 18,076 
Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash(134)(52)
Net decrease in cash, cash equivalents, and restricted cash(1,944)(95,987)
Beginning of period442,348 516,789 
End of period$440,404 $420,802 
8

Supplemental disclosures
Cash paid for interest$ $114 
Cash paid for income taxes150 122 
Right-of-use assets obtained in exchange for new operating lease liabilities742 13,965 
Accrued purchases of property and equipment (including internal-use software)726 916 
Share-based compensation expense capitalized in internal-use software development costs1,495 1,505 
Fair value of shares issued as consideration for acquisition 25,872 

See notes to condensed consolidated financial statements.
9

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Overview and Basis of Presentation
Description of business
Smartsheet Inc. (the “Company,” “we,” “our”) was incorporated in the State of Washington in 2005, and is headquartered in Bellevue, Washington. The Company is the enterprise platform for dynamic work, enabling teams and organizations of all sizes to plan, capture, manage, automate, and report on work at scale. Customers access their accounts online via a web-based interface or a mobile application. Some customers also purchase the Company’s professional services, which primarily consist of consulting and training services.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet as of January 31, 2021 was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended January 31, 2021, filed with the SEC on March 25, 2021.
The condensed consolidated financial statements include the results of Smartsheet Inc. and its wholly owned subsidiaries, which are located in the United States, the United Kingdom, Australia, and Germany. All intercompany balances and transactions have been eliminated upon consolidation.
In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of our condensed consolidated financial statements. All such adjustments are of a normal, recurring nature. The results of operations for the three and nine months ended October 31, 2021 are not necessarily indicative of results to be expected for the full year ending January 31, 2022, or for any other interim period, or for any future year.
Use of estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could differ from those estimates. The Company’s most significant estimates and judgments involve revenue recognition with respect to the allocation of transaction consideration for the Company’s offerings; determination of the amortization period for capitalized sales commission costs; capitalization of internal-use software development costs; valuation of assets and liabilities acquired as part of business combinations; and incremental borrowing rate estimates for operating leases, among others.

2. Summary of Significant Accounting Policies
Segment information
The Company operates as one operating segment. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information for purposes of making operating decisions, assessing financial performance, and allocating resources.
10

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Restricted cash
Restricted cash was $0.5 million and $0.1 million as of October 31, 2021 and January 31, 2021, respectively, primarily related to Australian employee contributions to our 2018 Employee Stock Purchase Plan.
Cash as reported on the condensed consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and restricted cash as shown on the condensed consolidated balance sheets. Cash as reported on the condensed consolidated statements of cash flows consisted of the following (in thousands):
October 31,
20212020
Cash and cash equivalents$439,950 $420,417 
Restricted cash included in prepaid expenses and other current assets437 26 
Restricted cash17 359 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$440,404 $420,802 
Internal-use software development costs
The Company capitalizes certain qualifying costs incurred during the application development stage in connection with the development of internal-use software. Costs related to preliminary project activities and post-implementation activities are expensed in research and development (“R&D”) as incurred. R&D expenses consist primarily of employee-related costs, hardware- and software-related costs, costs of outside services used to supplement our internal staff, and overhead allocations.
Internal-use software costs of $2.5 million and $3.1 million were capitalized in the three months ended October 31, 2021 and 2020, respectively, and $6.7 million and $7.0 million were capitalized in the nine months ended October 31, 2021 and 2020, respectively. All capitalized costs related to costs incurred during the application development stage of software development for the Company’s platform to which subscriptions are sold.
Capitalized internal-use software costs are included within property and equipment, net on the condensed consolidated balance sheets, and are amortized over the estimated useful life of the software, which is typically three years. The related amortization expense is recognized in the condensed consolidated statements of operations and comprehensive loss within the function that receives the benefit of the developed software. Amortization expense of capitalized internal-use software costs totaled $1.4 million and $1.0 million for the three months ended October 31, 2021 and 2020, respectively, and $3.8 million and $2.7 million for the nine months ended October 31, 2021 and 2020, respectively. The Company evaluates the useful lives of these assets and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Concentrations of risk and significant customers
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents, and accounts receivable. The Company maintains its cash accounts with financial institutions where deposits, at times, exceed the Federal Deposit Insurance Corporation limits.
No individual customer represented more than 10% of accounts receivable as of October 31, 2021 or January 31, 2021. No individual customer represented more than 10% of revenue for the three and nine months ended October 31, 2021 or 2020.
11

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Recent accounting pronouncements not yet adopted
In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update 2021-08, Business Combinations-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Accounting Standards Codification (“ASC”) Topic 606 as if the acquirer had originated the contracts. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect adoption of this standard to have a material effect on the Company’s condensed consolidated financial statements.

3. Revenue from Contracts with Customers
During the three months ended October 31, 2021 and 2020, the Company recognized $109.0 million and $73.5 million of subscription revenue, respectively, and $4.3 million and $2.4 million of professional services revenue, respectively, which were included in the deferred revenue balance as of July 31, 2021 and 2020, respectively.
During the nine months ended October 31, 2021 and 2020, the Company recognized $196.6 million and $141.3 million of subscription revenue, respectively, and $4.7 million and $3.3 million of professional services revenue, respectively, which were included in the deferred revenue balance as of January 31, 2021 and 2020, respectively.
As of October 31, 2021, approximately $316.7 million of revenue, including amounts already invoiced and amounts contracted but not yet invoiced, was expected to be recognized from remaining performance obligations, of which $312.3 million related to subscription services and $4.4 million related to professional services. Approximately 90% of revenue related to total remaining performance obligations is expected to be recognized in the next 12 months.

4. Deferred Commissions
Deferred commissions were $79.5 million as of October 31, 2021 and $60.5 million as of January 31, 2021.
Amortization expense for deferred commissions was $11.4 million and $7.9 million for the three months ended October 31, 2021 and 2020, respectively, and $31.2 million and $22.0 million for the nine months ended October 31, 2021 and 2020, respectively. Deferred commissions are amortized over a period of three years and the amortization expense is recorded in sales and marketing on the Company’s condensed consolidated statements of operations and comprehensive loss.
12

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
5. Net Loss Per Share
The following table presents calculations for basic and diluted net loss per share (in thousands, except per share data):
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
Numerator:
Net loss
$(36,718)$(31,971)$(117,958)$(86,314)
Denominator:
Weighted-average common shares outstanding
126,118 121,203 125,157 120,006 
Net loss per share, basic and diluted
$(0.29)$(0.26)$(0.94)$(0.72)
The following outstanding shares of common stock equivalents (in thousands) as of the periods presented were excluded from the computation of diluted net loss per share attributable to common shareholders for the periods presented because the impact of including them would have been anti-dilutive:
October 31,
20212020
Shares subject to outstanding common stock awards10,926 12,422 
Shares issuable pursuant to the 2018 Employee Stock Purchase Plan43 52 
Total potentially dilutive shares10,969 12,474 

6. Fair Value Measurements
Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The lowest level of significant input determines the placement of the fair value measurement within the following hierarchical levels:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity.
Assets and liabilities measured at fair value on a recurring basis
The following tables present information about the Company’s financial assets and liabilities that are measured at fair value and indicate the fair value hierarchy of the valuation inputs used (in thousands):
October 31, 2021
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$378,290 $ $ $378,290 
Total assets$378,290 $ $ $378,290 
13

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
January 31, 2021
Level 1Level 2Level 3Total
Assets
Cash equivalents:
Money market funds$378,281 $ $ $378,281 
Total assets$378,281 $ $ $378,281 
The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.
It is the Company’s policy to recognize transfers of assets and liabilities between levels of the fair value hierarchy at the end of a reporting period. The Company does not transfer out of Level 3 and into Level 2 until observable inputs become available and reliable. There were no transfers between fair value measurement levels during the three and nine months ended October 31, 2021 and 2020.
Assets and liabilities measured at fair value on a non-recurring basis
See Note 7, Business Combinations, and Note 8, Goodwill and Net Intangible Assets, of these notes to our condensed consolidated financial statements for fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis.

7. Business Combinations
Brandfolder
On September 14, 2020, we acquired 100% of the outstanding equity of Brandfolder, Inc. (“Brandfolder”), a Delaware corporation, pursuant to an Agreement and Plan of Merger (the “Brandfolder Merger Agreement”). Combining Brandfolder capabilities with Smartsheet creates dynamic solutions that manage workflows around content and collaboration. The Company has included the financial results of Brandfolder in our condensed consolidated financial statements from the acquisition date. We incurred acquisition costs of $1.0 million during the year ended January 31, 2021 and less than $0.1 million during the three and nine months ended October 31, 2021. These costs included legal and accounting fees and other costs directly related to the acquisition of Brandfolder and are recognized within general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The acquisition date fair value of the consideration transferred for Brandfolder was approximately $152.5 million, which consisted of the following (in thousands):
Fair Value
Cash$126,589 
Class A Common Stock25,872 
Total$152,461 
The fair value of the Class A Common Stock issued as part of the consideration paid for Brandfolder was determined on the basis of the closing market price of Smartsheet’s common shares on the acquisition date.
Of the cash paid at closing, $0.7 million was held in a third-party escrow account after closing to secure our indemnification rights under the Brandfolder Merger Agreement. The amount was released on December 7, 2021.
Additionally, we granted certain continuing employees of Brandfolder restricted stock awards with service conditions, which total 96,620 shares of our Class A common stock with an aggregate grant date fair value of $4.5 million that will be accounted for as post-acquisition share-based compensation expense over the vesting period. In the three and nine months ended October 31, 2021, we incurred share-based compensation expense related to these awards of $0.3 million and $1.2 million, respectively.
14

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
We accounted for the transaction as a business combination using the acquisition method of accounting. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. The excess purchase price consideration was recorded as goodwill, and is primarily attributable to the acquired assembled workforce and expanded market opportunities. The goodwill recognized upon acquisition is not expected to be deductible for U.S. federal income tax purposes. Fair values were determined using income and cost approaches. The fair value measurements of the intangible assets were based primarily on significant unobservable inputs and thus represent a Level 3 measurement as defined in ASC 820.
We engaged a third-party valuation specialist to aid our analysis of the fair value of the acquired intangibles. All estimates, key assumptions, and forecasts were either provided by or reviewed by us. While we chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect the conclusions of management and not those of any third party.
The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the reporting date and are considered final. The following table presents the final allocation of the purchase price at the acquisition date (in thousands):
September 14, 2020
Cash$2,530 
Accounts receivable2,649 
Contract assets1,620 
Right-of-use assets895 
Other assets991 
Intangible assets45,270 
Goodwill109,108 
Accounts payable, accrued expenses and other current liabilities(1,411)
Deferred revenue(4,655)
Lease liabilities, non-current(522)
Net deferred tax liability (4,014)
Total$152,461 
The estimated useful lives and fair values of the identifiable intangible assets at acquisition date were as follows (dollars in thousands):
Fair ValueExpected Useful LifeDiscount Rate
Software technology$17,400 5 years10.0 %
Customer relationships16,590 7 years11.0 %
Customer relationships - reseller7,280 7 years13.0 %
Trade name4,000 9 years13.8 %
Total intangible assets$45,270 
The related software technology amortization expense is recognized over its useful life within cost of revenues in the condensed consolidated statements of operations and comprehensive loss. The amortization expense related to customer relationships and trade name intangible assets are recognized over their useful lives within sales and marketing in our condensed consolidated statements of operations and comprehensive loss. The weighted-average amortization period of the acquired intangible assets is 6.4 years.

15

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
8. Goodwill and Net Intangible Assets
There were no changes in the carrying amount of goodwill or measurement period adjustments during the nine months ended October 31, 2021.
The following table presents the components of net intangible assets (in thousands):
As of October 31, 2021
As of January 31, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Acquired software technology$25,400 $(7,925)$17,475 $25,400 $(4,115)$21,285 
Acquired customer relationships32,150 (6,614)25,536 32,150 (3,235)28,915 
Trade names4,100 (595)3,505 4,100 (233)3,867 
Patents170 (122)48 170 (111)59 
Domain name13  13 13  13 
Total$61,833 $(15,256)$46,577 $61,833 $(7,694)$54,139 
The components of acquired intangible assets as of the periods presented were as follows (dollars in thousands):
As of October 31, 2021
As of January 31, 2021
Net Carrying AmountWeighted Average Life (Years)Net Carrying AmountWeighted Average Life (Years)
Acquired software technology$17,475 3.6$21,285 4.3
Acquired customer relationships25,536 5.828,915 6.5
Trade names3,505 7.93,867 8.6
Total$46,516 5.1$54,067 5.8
Amortization expense related to intangible assets was $2.5 million and $1.8 million for the three months ended October 31, 2021 and 2020, respectively, and $7.6 million and $3.5 million for the nine months ended October 31, 2021 and 2020, respectively. As of October 31, 2021, estimated remaining amortization expense for the finite-lived intangible assets by fiscal year is as follows (in thousands):
Remainder of Fiscal 2022$2,513 
Fiscal 20239,942 
Fiscal 20249,942 
Fiscal 20258,740 
Fiscal 20267,023 
Thereafter8,404 
Total$46,564 

9. Share-Based Compensation
The Company has issued incentive and non-qualifying stock options to employees and non-employee directors under the 2005 Stock Option/Restricted Stock Plan, the 2015 Equity Incentive Plan (the “2015 Plan”), and the 2018 Equity Incentive Plan (the “2018 Plan”).
The Company has also issued restricted stock units (“RSUs”) to employees and non-employee directors pursuant to the 2015 Plan and the 2018 Plan.
16

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company has issued restricted stock awards (“RSAs”) to certain Brandfolder employees subject to vesting conditions. These shares were issued in a private placement transaction. As vesting of these RSAs is dependent on continuous employment, these were not considered part of the purchase price in accounting for the acquisition.
Employee stock options are granted with exercise prices at the fair value of the underlying common stock on the grant date, in general vest based on continuous employment over four years, and expire 10 years from the date of grant. Employee RSUs are measured based on the grant date fair value of the awards and in general vest based on continuous employment over four years. The RSAs are measured based on the grant date fair value of the awards and vest over a three-year period.
Stock options
The following table includes a summary of the option activity during the nine months ended October 31, 2021:
Options OutstandingWeighted-Average Exercise Price
Outstanding at January 31, 20216,533,474 $12.07 
Granted325,358 63.97 
Exercised(1,413,559)6.61 
Forfeited or canceled(207,794)32.42 
Outstanding at October 31, 20215,237,479 15.96 
Exercisable at October 31, 20214,170,428 9.52 
Restricted stock units
The following table includes a summary of the RSU activity during the nine months ended October 31, 2021:
Number of Shares Underlying Outstanding RSUsWeighted-Average Grant-Date Fair Value per RSU
Outstanding at January 31, 20214,765,240 $42.15 
Granted3,245,060 65.94 
Vested(1,489,648)40.98 
Forfeited or canceled(831,811)48.19 
Outstanding at October 31, 20215,688,841 55.15 
Restricted stock awards
The following table includes a summary of the RSA activity during the nine months ended October 31, 2021:
Number of Shares Weighted-Average Grant-Date Fair Value per Share
Outstanding at January 31, 202192,318 $46.93 
Granted  
Vested(33,640)46.93 
Forfeited or canceled  
Outstanding at October 31, 202158,678 46.93 
2018 Employee Stock Purchase Plan
In April 2018, we adopted our 2018 Employee Stock Purchase Plan (“ESPP”). The ESPP became effective on April 26, 2018, with the effective date of our initial public offering.
17

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Under our ESPP, eligible employees are able to acquire shares of our Class A common stock by accumulating funds through payroll deductions of up to 15% of their compensation, subject to plan limitations. Purchases are accomplished through participation in discrete offering periods. Each offering period is six months (commencing each March 25 and September 25) and consists of one six-month purchase period, unless otherwise determined by our board of directors or our compensation committee. Beginning January 1, 2022, each offering period will commence on January 1 and July 1. This change requires an abbreviated, one-time purchase period from September 25, 2021 through December 31, 2021 to align to the new offering periods.The purchase price for shares of our common stock purchased under our ESPP is 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period or (ii) the last trading day of the purchase period in the applicable offering period.
Shares available for issuance
The following table includes a summary of the activity during the nine months ended October 31, 2021 of our shares available for issuance under our 2018 Plan and our ESPP:
2018 Plan2018 ESPP
Balance at January 31, 202113,654,077 3,234,516 
Authorized6,163,646 1,232,730 
Granted(3,570,418)(355,578)
Forfeited1,039,605  
Balance at October 31, 202117,286,910 4,111,668 
The aggregate number of shares reserved for issuance under our ESPP will increase automatically on February 1 of each of the first 10 calendar years after the first offering date under the ESPP by the number of shares equal to 1% of the total outstanding shares of our Class A common stock and Class B common stock as of the immediately preceding January 31 (rounded to the nearest whole share) or such lesser number of shares as may be determined by our board of directors in any particular year. The aggregate number of shares issued over the term of our ESPP, subject to stock-splits, recapitalizations or similar events, may not exceed 20,400,000 shares of our Class A common stock.
As of October 31, 2021, $2.3 million has been withheld on behalf of our employees for a future purchase under the ESPP and is recorded in accrued compensation and related benefits in the condensed consolidated balance sheet.
Share-based compensation expense
Share-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
Cost of subscription revenue$1,629 $1,123 $4,726 $3,131 
Cost of professional services revenue1,034 576 2,648 1,575 
Research and development10,095 6,509 28,426 17,836 
Sales and marketing9,595 6,512 28,566 18,356 
General and administrative5,707 3,833 16,186 10,233 
Total share-based compensation expense*$28,060 $18,553 $80,552 $51,131 
*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

18

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
10. Income Taxes
The provision for income taxes for interim tax periods is generally determined using an estimate of the Company’s annual effective tax rate, excluding jurisdictions for which no tax benefit can be recognized due to valuation allowances, and adjusted for discrete tax items in the period. Each quarter the Company updates its estimate of the annual effective tax rate and makes a cumulative adjustment if the estimated annual tax rate has changed.
 The Company’s effective tax rate generally differs from the U.S. federal statutory tax rate primarily due to a valuation allowance related to the Company’s U.S. federal, state, and certain foreign deferred tax assets partially offset by the windfall from share-based compensation tax deductions.
The Company recorded a provision for income taxes of $0.1 million and $0.2 million for the three and nine months ended October 31, 2021, respectively, primarily attributable to income taxes in foreign jurisdictions and state income taxes. We recorded a benefit for income taxes of $3.9 million and $3.8 million for the three and nine months ended October 31, 2020, respectively, primarily attributable to a $4.0 million release of the Company’s federal and state valuation allowance on deferred tax assets as a result of the deferred tax liabilities established for definite lived intangible assets from the acquisition of Brandfolder, partially offset by income taxes in foreign jurisdictions and state income taxes.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company elected to defer the employer portion of Social Security taxes and recorded the expense as incurred. As of October 31, 2021, these taxes totaled $7.8 million, of which $3.9 million was recorded in accrued compensation and related benefits and $3.9 million was recorded in other long-term liabilities on our condensed consolidated balance sheet. The deferral of these taxes does not impact the Company’s condensed consolidated statements of operations and comprehensive loss.

11. Leases
The Company has operating leases primarily related to corporate offices and certain equipment. Our leases have remaining lease terms of less than 1 year to 8 years, some of which include options to extend the leases for up to 5 years.
The components of lease expense recorded in the condensed consolidated statements of operations and comprehensive loss were as follows (in thousands):
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
Operating lease cost$4,768 $3,732 $13,966 $11,134 
Finance lease cost:
Amortization of assets 976  3,093 
Interest on lease liabilities 30  114 
Short-term lease cost7 343 357 1,070 
Variable lease cost745 629 2,089 1,879 
Total lease costs$5,520 $5,710 $16,412 $17,290 
19

SMARTSHEET INC.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Other information related to leases was as follows (dollars in thousands):
Nine Months Ended October 31,
20212020
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases*$4,634 $10,386 
Operating cash flows from finance leases$ $114 
Financing cash flows from finance leases$ $1,973 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$742 $13,965 
Finance leases$ $ 
Weighted-average remaining lease term (in years):
Operating leases5.55.7
Finance leases— — 
Weighted-average discount rate:
Operating leases5.0 %5.5 %
Finance leases %4.5 %
*Includes cash paid for lease liability accretion of $3.2 million and $2.8 million for the nine months ended October 31, 2021 and 2020, respectively.