Press release

Slack Announces First Quarter Fiscal Year 2020 Results, Second Quarter Fiscal Year 2020 Guidance and Fiscal Year 2020 Full Year Guidance

0
Sponsored by Businesswire

Slack Technologies, Inc., the leading global collaboration hub that
makes people’s working lives simpler, more pleasant and more productive,
today reported financial results for its fiscal quarter ended April 30,
2019.

First Quarter Fiscal 2020 Financial Highlights:

  • Total revenue was $134.8 million, an increase of 67% year-over-year.
  • Calculated Billings was $149.6 million an increase of 47%
    year-over-year.
  • GAAP gross profit was $116.2 million, or 86.2% gross margin, compared
    to $70.8 million, or 87.5% gross margin, in the first quarter of
    fiscal year 2019. Non-GAAP gross profit was $116.9 million, or 86.7%
    gross margin, compared to $71.4 million, or 88.3% gross margin, in the
    first quarter of fiscal year 2019.
  • GAAP operating loss was $38.4 million, or 28% of total revenue,
    compared to a $26.3 million loss in the first quarter of fiscal year
    2019, or 33% of total revenue. Non-GAAP operating loss was $33.8
    million, or 25% of total revenue, compared to a $20.2 million loss in
    the first quarter of fiscal year 2019, or 25% of total revenue.
  • GAAP net loss per basic and diluted share was $0.26. Non-GAAP net loss
    per share was $0.23.
  • Net cash used in operations was $14.1 million, or 10% of total
    revenue, compared to cash provided by operations of $3.4 million, or
    4% of total revenue, for the first quarter of fiscal year 2019. Free
    Cash Flow was $(34.2) million, or 25% of total revenue, compared to
    $(15.0) million, or 18% of total revenue for the first quarter of
    fiscal year 2019.

Recent Business Highlights:

  • First Quarter Highlights:

    • Ended the quarter with over 95,000 Paid Customers
    • Net dollar retention rate was 138%
    • The number of Paid Customers greater than $100,000 in annual
      recurring revenue was 645, up 84% year-over-year
    • Hosted annual Frontiers customer conference in San Francisco, with
      over 1,500 attendees.

Financial Outlook:

For the second quarter of fiscal year 2020, the Company currently
expects:

  • Total revenue of $139 million to $141 million, representing
    year-over-year growth of 51% to 53%.
  • Non-GAAP operating loss of $77 million to $75 million, including
    approximately $32 million of one-time direct listing-related expenses.
  • Non-GAAP net loss per share of $0.20 to $0.19, assuming weighted
    average shares outstanding of 367.7 million.
  • Approximately $280 million associated with the performance-based
    vesting of outstanding, time-vested employee restricted stock units,
    or RSUs, upon the Company’s listing on the NYSE. This charge will
    impact GAAP operating loss and EPS, but not non-GAAP operating loss or
    earnings.

For the full fiscal year 2020, the Company currently expects:

  • Total revenue of $590 million to $600 million, representing
    year-over-year growth of 47% to 50%.
  • Non-GAAP operating loss of $192 million to $182 million, including
    approximately $34 million of one-time direct listing related expenses.
  • Non-GAAP net loss per share of $0.44 to $0.41, assuming weighted
    average shares outstanding of 399.9 million.
  • Calculated Billings of $725 million to $745 million, representing
    year-over-year growth of 40% to 44%.
  • Free Cash Flow net burn of $120 million to $105 million, including
    approximately $34 million of one-time direct listing-related expenses.

Non-GAAP Financial Measures

This press release and the accompanying tables contain the following
non-GAAP financial measures: calculated billings, free cash flow,
non-GAAP gross profit, non-GAAP gross margin, non-GAAP sales and
marketing expenses, non-GAAP research and development expenses, non-GAAP
general and administrative expenses, non-GAAP operating loss, non-GAAP
operating margin, non-GAAP net loss, and non-GAAP net loss per share.
Certain of these non-GAAP financial measures exclude stock-based
compensation and amortization of intangible assets.

The Company believes that these non-GAAP measures of financial results
provide useful information to management and investors regarding certain
financial and business trends relating to Slack’s financial condition
and results of operations. The Company’s management uses these non-GAAP
measures to compare the Company’s performance to that of prior periods
for trend analysis, and for budgeting and planning purposes. The Company
believes that the use of these non-GAAP financial measures provides an
additional tool for investors to use in evaluating ongoing operating
results and trends and in comparing the Company’s financial measures
with other software companies, many of which present similar non-GAAP
financial measures to investors. The non-GAAP financial information is
presented for supplemental informational purposes only, and should not
be considered a substitute for financial information presented in
accordance with GAAP, and may be different from similarly-titled
non-GAAP measures used by other companies.

Management of the Company does not consider these non-GAAP measures in
isolation or as an alternative to financial measures determined in
accordance with GAAP. The principal limitation of these non-GAAP
financial measures is that they exclude significant expenses and income
that are required by GAAP to be recorded in the Company’s financial
statements. In addition, they are subject to inherent limitations as
they reflect the exercise of judgment by management about which expenses
and income are excluded or included in determining these non-GAAP
financial measures. Slack urges investors to review the reconciliation
of its non-GAAP financial measures to the comparable GAAP financial
measures, which it includes in press releases announcing quarterly
financial results, including this press release, and not to rely on any
single financial measure to evaluate the Company’s business.

Reconciliation tables of the most comparable GAAP financial measures to
the non-GAAP financial measures used in this press release are included
with the financial tables at the end of this release. Slack has not
reconciled its outlook as to non-GAAP operating loss and non-GAAP net
loss per share to their most directly comparable GAAP measure because
the reconciling item stock-based compensation is out of Slack’s control
and cannot be reasonably predicted. Accordingly, a reconciliation for
forward-looking non-GAAP operating loss and non-GAAP net loss per share
is not available without unreasonable effort.

Forward-Looking Statements

This press release contains “forward-looking statements” within the
meaning of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995, including but not limited to, statements
regarding the Company’s financial outlook and market positioning. These
forward-looking statements are made as of the date they were first
issued and were based on current expectations, estimates, forecasts and
projections as well as the beliefs and assumptions of management. Words
such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,”
“project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,”
“might,” “could,” “intend,” “shall” and variations of these terms or the
negative of these terms and similar expressions are intended to identify
these forward-looking statements. Forward-looking statements are subject
to a number of risks and uncertainties, many of which involve factors or
circumstances that are beyond the Company’s control. The Company’s
actual results could differ materially from those stated or implied in
forward-looking statements due to a number of factors, including but not
limited to, risks detailed in the Company’s Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on May 31,
2019 as well as other documents that may be filed by the Company from
time to time with the Securities and Exchange Commission. In particular,
the following factors, among others, could cause results to differ
materially from those expressed or implied by such forward-looking
statements: the Company’s recent growth rates may not be indicative of
its future growth; the Company may experience quarterly fluctuations in
its results of operations due to a number of factors that make its
future results difficult to predict and could cause its results of
operations to fall below analyst or investor expectations or to
fluctuate more than expected; the Company may fail to manage its growth
effectively and may be unable to execute its business plan or maintain
high levels of service and customer satisfaction; real or perceived
errors, failures, vulnerabilities, or bugs in Slack could harm the
Company’s business, results of operations, and financial condition; a
security incident may allow unauthorized access to the Company’s
systems, networks, or data or the data of organizations on Slack, harm
its reputation, create additional liability, and harm its financial
results; any actual or perceived failure by the Company to comply with
privacy, data protection, information security, consumer privacy, data
residency, or telecommunications laws, regulations, government access
requests, and obligations in one or multiple jurisdictions could result
in proceedings, actions, or penalties against the Company and could harm
its business and reputation; the risk of interruptions or performance
problems, including a service outage, associated with the Company’s
technology or infrastructure; the market and software categories in
which the Company participates are competitive, new, and rapidly
changing, and if it does not compete effectively with established
companies as well as new market entrants its business, results of
operations, and financial condition could be harmed; a protracted
infringement claim, a claim that results in a significant damage award,
or a claim that results in an injunction could harm the Company’s
results of operations; adverse general economic and market conditions;
the Company’s ability to attract and retain qualified employees and key
personnel; changes in foreign exchange rates; general political or
destabilizing events, including war, conflict or acts of terrorism; and
other risks and uncertainties. Past performance is not necessarily
indicative of future results. The forward-looking statements included in
this press release represent the Company’s views as of the date of this
press release. The Company anticipates that subsequent events and
developments will cause its views to change. The Company undertakes no
intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise. These forward-looking statements should not be relied upon as
representing the Company’s views as of any date subsequent to the date
of this press release.

Additional information regarding these and other factors that could
affect the Company’s results is included in the Company’s SEC filings,
which may be obtained by visiting its Investor Relations website at
investor.slackhq.com or the SEC’s website at www.sec.gov.

Earnings Webcast

The Company will hold a public webcast at 2:00 p.m. PDT today to discuss
the results for its first quarter fiscal 2020. The live public call can
be accessed by dialing (866) 211-3197 within the U.S., and (647)
689-6597 internationally. The conference ID is 6459414. The webcast
replay, and audio download will also be available on the Company’s
Investor Relations website at investor.slackhq.com.

About Slack

Slack is where work happens. Slack is a new layer of the business
technology stack that brings together people, applications and data – a
hub for collaboration where people can effectively work together, access
critical applications and services, and find important information to do
their best work. People around the world use Slack to connect their
teams, unify their systems and drive their business forward.

Slack and the Slack logo are trademarks of Slack Technologies, Inc. or
its subsidiaries in the U.S. and/or other countries. Other names and
brands may be claimed as the property of others.

SLACK TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 
  Three Months Ended April 30,
2019   2018
Revenue $ 134,821 $ 80,919
Cost of revenue 18,574   10,101  
Gross profit 116,247 70,818
Operating expenses:
Research and development 51,103 35,410
Sales and marketing 66,838 42,168
General and administrative 36,744   19,568  
Total operating expenses 154,685   97,146  
Loss from operations (38,438 ) (26,328 )
Other income (expense), net 7,077   1,802  
Loss before income taxes (31,361 ) (24,526 )
Provision for income taxes 520   350  
Net loss (31,881 ) (24,876 )
Net income (loss) attributable to noncontrolling interest 1,451   6  
Net loss attributable to Slack common stockholders $ (33,332 ) $ (24,882 )
Basic and diluted net loss per share:
Net loss per share attributable to Slack common stockholders, basic
and diluted
$ (0.26 ) $ (0.21 )
Weighted-average shares used in computing net loss per share
attributable to Slack common stockholders, basic and diluted
125,890   118,926  

SLACK TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 
  April 30,
2019
  January 31,
2019
ASSETS
Current assets:
Cash and cash equivalents $ 256,489 $ 180,770
Marketable securities 536,169 660,301
Accounts receivable, net 71,619 87,438
Prepaid expenses and other current assets 60,043     54,213  
Total current assets 924,320 982,722
Restricted cash 38,490 20,490
Strategic investments 15,266 12,334
Property and equipment, net 94,929 88,359
Intangible assets, net 14,170 15,203
Goodwill 48,598 48,598
Other assets 31,257   31,250  
Total assets $ 1,167,030   $ 1,198,956  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 10,396 $ 16,613
Accrued compensation and benefits 30,853 46,151
Accrued expenses and other current liabilities 28,225 29,809
Deferred revenue 254,908     239,825  
Total current liabilities 324,382 332,398
Deferred revenue, noncurrent 1,781 2,048
Other liabilities 24,088     22,904  
Total liabilities 350,251   357,350  
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock 1,392,101 1,392,101
Common stock 13 13
Additional paid-in-capital 112,267 105,633
Accumulated other comprehensive loss (78 ) (498 )
Accumulated deficit (698,895 )   (665,563 )
Total Slack Technologies, Inc. stockholders’ equity 805,408 831,686
Noncontrolling interest 11,371     9,920  
Total stockholders’ equity 816,779   841,606  
Total liabilities and stockholders’ equity $ 1,167,030   $ 1,198,956  

SLACK TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

 
  Three Months Ended April 30,
2019   2018
Cash flows from operating activities:
Net loss $ (31,881 ) $ (24,876 )
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 5,876 2,815
Loss on disposal of property and equipment 290
Stock-based compensation 3,639 6,118
Amortization of deferred contract acquisition costs 1,463 453
Net amortization of bond premium (discount) on debt securities
available for sale
(1,081 ) (134 )
Change in fair value of strategic investments (3,025 )
Other non-cash charges 37 153
Changes in operating assets and liabilities:
Accounts receivable 15,620 (88 )
Prepaid expenses and other assets (6,462 ) (385 )
Accounts payable (1,039 ) 1,621
Accrued compensation and benefits (15,298 ) (7,488 )
Deferred revenue 14,816 21,161
Other current and long-term liabilities 3,209   3,793  
Net cash provided by (used in) operating activities (14,126 ) 3,433  
Cash flows from investing activities:
Purchases of marketable securities (24,907 ) (229,976 )
Maturities of marketable securities 150,686 209,250
Purchases of property and equipment (20,077 ) (18,402 )
Sales of property and equipment 520
Purchase of strategic investments (3,100 )
Proceeds from liquidation of strategic investments 2,858    
Net cash provided by (used in) investing activities 105,460   (38,608 )
Cash flows from financing activities:
Proceeds from exercise of stock options 2,385 773
Repurchase of common stock   (15 )
Net cash provided by financing activities 2,385   758  
Net increase (decrease) in cash, cash equivalents and restricted cash 93,719 (34,417 )
Cash, cash equivalents and restricted cash at beginning of period 201,260   138,063  
Cash, cash equivalents and restricted cash at end of period $ 294,979   $ 103,646  

SLACK TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(In thousands)

(Unaudited)

 

Calculated Billings

 
Three Months Ended April 30,
2019   2018
Revenue $ 134,821 $ 80,919
Add: Total deferred revenue, end of period 256,689 146,614
Less: Total deferred revenue, beginning of period (241,873 ) (125,453 )
Calculated Billings $ 149,637   $ 102,080  

Free Cash Flow

 
Three Months Ended April 30,
2019   2018
Net cash provided by (used in) operating activities $ (14,126 ) $ 3,433
Purchases of property and equipment (20,077 ) (18,402 )
Free Cash Flow $ (34,203 ) $ (14,969 )

SLACK TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP DATA

(In thousands, except per share data)

(Unaudited)

 
  Three Months Ended April 30,
2019   2018
Reconciliation of gross profit:
GAAP gross profit $ 116,247 $ 70,818
Add: Stock-based compensation 46 603
Add: Amortization of acquired intangible assets 558    
Non-GAAP gross profit $ 116,851   $ 71,421  
 
Reconciliation of operating expenses:
GAAP research and development $ 51,103 $ 35,410
Less: Stock-based compensation (1,635 ) (3,395 )
Less: Amortization of acquired intangible assets (150 )  
Non-GAAP research and development $ 49,318   $ 32,015  
 
GAAP sales and marketing $ 66,838 $ 42,168
Less: Stock-based compensation (382 ) (1,204 )
Less: Amortization of acquired intangible assets (325 )  
Non-GAAP sales and marketing $ 66,131   $ 40,964  
 
GAAP general and administrative $ 36,744 $ 19,568
Less: Stock-based compensation (1,576 ) (916 )
Non-GAAP general and administrative $ 35,168   $ 18,652  
 
Reconciliation of loss from operations:
GAAP operating loss $ (38,438 ) $ (26,328 )
Add: Stock-based compensation 3,639 6,118
Add: Amortization of acquired intangible assets 1,033    
Non-GAAP operating loss $ (33,766 ) $ (20,210 )
 
Reconciliation of net loss and net loss per share:
Net loss attributable to Slack common stockholders $ (33,332 ) $ (24,882 )
Add: Stock-based compensation 3,639 6,118
Add: Amortization of acquired intangible assets 1,033    
Non-GAAP net loss $ (28,660 ) $ (18,764 )
 
GAAP net loss per share $ (0.26 ) $ (0.21 )
Add: Stock-based compensation 0.03 0.05
Add: Amortization of acquired intangible assets    
Non-GAAP net loss per share $ (0.23 ) $ (0.16 )
 
Weighted-average common shares outstanding, basic and diluted 125,890 118,926