User support software provider WalkMe (NASDAQ: WKME) fell short of analysts’ expectations in Q3 FY2023, with revenue up 5.8% year on year to $67.02 million. Next quarter’s revenue guidance of $67.5 million also underwhelmed, coming in 2.6% below analysts’ estimates. Turning to EPS, WalkMe made a GAAP loss of $0.10 per share, improving from its loss of $0.27 per share in the same quarter last year.

WalkMe (WKME) Q3 FY2023 Highlights:

• Revenue: $67.02 million vs analyst estimates of $67.41 million (0.6% miss)
• EPS (non-GAAP): $0.04 vs analyst estimates of -$0.01 ($0.05 beat)
• Revenue Guidance for Q4 2023 is $67.5 million at the midpoint, below analyst estimates of $69.3 million
• Free Cash Flow of $6.24 million, up 20.5% from the previous quarter
• Gross Margin (GAAP): 84.6%, up from 78.6% in the same quarter last year

“Q3 was a milestone quarter as WalkMe achieved our goal of reaching profitability ahead of schedule. We believe our investments in our strategic growth drivers are paying off in the public sector and our partner ecosystem as we continue to deliver big value to our global customer base. With AI transformation on the rise, Digital Adoption is now more essential than ever. WalkMe is well positioned to help organizations drive productivity and manage change,” said Dan Adika, CEO of WalkMe.
Founded in Israel in 2011, WalkMe (NASDAQ:WKME) is software that teaches users how to get the most out of new applications.

Customer SupportCompanies need to be able to interact with and sell to their customers as efficiently as possible. This reality coupled with the ongoing migration of enterprises to the cloud drives demand for cloud-based customer relationship management (CRM) software that integrates data analytics with sales and marketing functions.

Sales GrowthAs you can see below, WalkMe’s revenue growth has been strong over the last two years, growing from $50.59 million in Q3 FY2021 to $67.02 million this quarter.

WalkMe’s quarterly revenue was only up 5.8% year on year, which might disappoint some shareholders. However, we can see that the company’s revenue grew by $857,000 quarter on quarter, accelerating from $266,000 in Q2 2023.

Next quarter’s guidance suggests that WalkMe is expecting revenue to grow 4.1% year on year to $67.5 million, slowing down from the 21.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10% over the next 12 months before the earnings results announcement.

ProfitabilityWhat makes the software as a service business so attractive is that once the software is developed, it typically shouldn’t cost much to provide it as an ongoing service to customers. WalkMe’s gross profit margin, an important metric measuring how much money there’s left after paying for servers, licenses, technical support, and other necessary running expenses, was 84.6% in Q3.

That means that for every $1 in revenue the company had $0.85 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, WalkMe’s excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

Key Takeaways from WalkMe’s Q3 Results With a market capitalization of $856.9 million, WalkMe is among smaller companies, but its more than $192.5 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.

It was great to see WalkMe improve its gross margin this quarter. That stood out as a positive in these results. On the other hand, its revenue guidance for next quarter underwhelmed and its full-year revenue guidance missed Wall Street’s estimates. Overall, this was a mixed quarter for WalkMe, with guidance as a major source of disappointment. The company is down 4.2% on the results and currently trades at $9.3 per share.