SharpSpring Reports Third Quarter 2020 Results

  • Continued Execution of Larger Agency Deals Drives Sequentially Improved Topline and Annual Recurring Revenue
  • Return to Net Positive Agency New Client Additions Underpins Improving Business Conditions in Recent Months

GAINESVILLE, FL / ACCESSWIRE / November 10, 2020 / SharpSpring, Inc. (NASDAQ:SHSP), a leading cloud-based marketing and sales automation platform, reported financial results for the third quarter ended September 30, 2020.

Recent Operational Highlights

  • Appointed award-winning public company CEO and veteran software investor Savneet Singh to the Board of Directors, providing additional investor perspective and directly applicable industry operator experience. Singh has also been named a member of the Company's Compensation and Audit Committees.
  • Recognized by two of the leading software review platforms, earning placement as a 2020 Best Software Award winner on G2 and a Top Rated Marketing Automation Software for 2020 on TrustRadius. Additionally, recognized as sales and marketing automation industry leader in 16 different performance categories as part of the G2 Crowd Fall 2020 Reports.
  • Launched Agency Acceleration Series with top digital marketing experts leading speaker line-up, including superstar industry influencers like Neil Patel, Shama Hyder, Rand Fishkin, Ann Handley, and Seth Godin.
  • Customer acquisition cost (CAC) decreased 26% to $7,900 from $10,700 in the same year-ago period and 29% from $11,100 in the second quarter of 2020. The substantial year-over-year and sequential improvement was primarily due to improvements and cost reductions to the Company's sales and marketing campaigns in recent months.

Third Quarter 2020 Key Performance Indicators (KPIs)

  • Total monthly recurring revenue (MRR) from new customers in the third quarter of 2020 improved 21% to $176,000 compared to $146,000 in the third quarter of 2019 and 9% compared to $162,000 in the second quarter of 2020. The year-over-year and sequential increase in total MRR was primarily a result of larger agency and direct customer deal sizes.
  • New customer additions are expected to generate approximately $2.1 million in annual recurring revenue (ARR).
  • Finished the quarter with approximately 2,000 agency customers, 500 direct customers, and more than 10,000 total businesses across all SharpSpring sales and marketing platforms including Perfect Audience and legacy products.
  • On a year-over-year basis, Q3 2020 net revenue retention was 90.1%, when compared to the third quarter of 2019.

Third Quarter 2020 Financial Results

  • Total revenue increased 28% to a record $7.3 million from $5.7 million in the same year-ago period.
  • Gross profit increased 40% to a record $5.4 million (74% of total revenue) from $3.9 million (68% of total revenue) in the same year-ago period.
  • Net loss was $1.5 million, or $0.13 per share, compared to net loss of $2.5 million, or $0.23 per share, in the same year-ago period.
  • Adjusted EBITDA loss (a non-GAAP metric reconciled below) totaled $468,000, compared to an adjusted EBITDA loss of $2.0 million in the same year-ago period.
  • Core net loss (a non-GAAP metric reconciled below) totaled $735,000, or $0.06 per share, compared to core net loss of $2.1 million, or $0.20 per share, in the same year-ago period.
  • At quarter-end, the Company had $15.0 million in cash, compared to $11.9 million at December 31, 2019.

2020 Financial Outlook
For the fiscal year ending December 31, 2020, SharpSpring now expects total revenue to range between approximately $29.0 million to $29.4 million, which would represent an increase of 28% to 30% compared to the prior year. The Company's guidance is based on recurring revenue from its current customer base and performance results tracked through September of this year. The updated guidance range primarily reflects the uncertainty of digital advertising revenues from Perfect Audience in the fourth quarter of this year. These expectations also include an anticipated impact from the COVID-19 global pandemic based on information available as of the date of this report.

Management Commentary
"During the third quarter we continued to push forward in a challenging global economic environment and were able to generate sequentially improved results, which were aided by a return to net positive agency client additions for the first time since the pandemic took hold," said SharpSpring CEO Rick Carlson. "While our core business continues to perform according to plan, we did experience a delayed reduction in our Perfect Audience retargeting business, specifically ad spends, which, while unfortunate, should be temporary. On the SharpSpring side, we are driving increased average deal sizes through sales of multi-packs to more mature agencies. Through our new sales-focused approach, we are also driving meaningful improvements to our acquisition costs, which decreased nearly 30% sequentially.

"Operationally, we remain focused on driving new sales, marketing and product initiatives that are designed to have a long-term positive impact on the business. Our Agency Acceleration Series led by top digital marketing experts has been effective in driving inbound leads as well as overall brand recognition. We have also made significant improvements to our onboarding program, reducing the turnaround time on platform integration and introducing new features such as our upcoming in-app engagement tool SpringBoard. As we close out the year, we are cautiously optimistic that the improved conditions we've seen in recent months are indicative of a return to growth and historical industry trends."

Conference Call
SharpSpring management will hold a conference call today, November 10, 2020 at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results.

Company CEO Rick Carlson and Interim CFO Aaron Jackson will host the call, followed by a question and answer period.

U.S. dial-in number: 844-369-8770

International number: 862-298-0840

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 949-574-3860.

The conference call will be broadcast live and available for replay here and via the investor relations section of the company's website at investors.sharpspring.com.

A replay of the conference call will be available after 7:30 p.m. Eastern time today through November 24, 2020.

Toll-free replay number: 877-481-4010

International replay number: 919-882-2331

Replay ID: 38253

About SharpSpring, Inc.
SharpSpring, Inc. (NASDAQ:SHSP) is a rapidly growing, highly-rated global provider of affordable marketing automation delivered via a cloud-based Software-as-a-Service (SaaS) Platform. Thousands of businesses around the world rely on SharpSpring to generate leads, improve conversions to sales, and drive higher returns on marketing investments. Known for its innovation, open architecture and free customer support, SharpSpring offers flexible contracts at a fraction of the price of competitors making it an easy choice for growing businesses and digital marketing agencies. Learn more at sharpspring.com.

Non-GAAP Financial Measures
Adjusted EBITDA, core net loss and core net loss per share are "non-GAAP financial measures" presented as supplemental measures of the Company's performance. These metrics are not presented in accordance with United States generally accepted accounting principles, or GAAP. The Company believes these measures provide additional meaningful information in evaluating its performance over time. However, the measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP. A reconciliation of net loss to these measures is included for your reference in the financial section of this earnings press release.

Important Cautions Regarding Forward-Looking Statements
The information posted in this release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements by use of the words "may," "will," "should," "plans," "explores," "expects," "anticipates," "continues," "estimates," "projects," "intends," and similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, but are not limited to, general economic and business conditions, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing new customer offerings, changes in customer order patterns, changes in customer offering mix, continued success in technological advances and delivering technological innovations, our ability to successfully utilize our cash to develop current and future products, delays due to issues with outsourced service providers, those events and factors described by us in Item 1. A "Risk Factors" in our most recent Form 10-K and other risks to which our Company is subject, and various other factors beyond the Company's control. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Company Contact:
Aaron Jackson
Interim Chief Financial Officer
Phone: 352-448-0967
Email: IR@sharpspring.com

Investor Relations:
Gateway Investor Relations
Matt Glover or Tom Colton
Phone: 949-574-3860
Email: SHSP@gatewayir.com

SharpSpring, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
Revenue  7,306,832  $5,723,978  $21,630,466  $16,567,696 
                 
Cost of services  1,869,278  $1,840,764   6,109,949   5,014,964 
Gross profit  5,437,554   3,883,214   15,520,517   11,552,732 
                 
Operating expenses:                
Sales and marketing  2,705,141   3,102,653   8,134,363   8,976,466 
Research and development  1,380,926   1,207,605   4,443,956   3,684,314 
General and administrative  2,725,254   1,991,329   7,383,655   6,154,295 
Intangible asset amortization  152,801   95,250   489,348   285,750 
                 
Total operating expenses  6,964,122   6,396,837   20,451,322   19,100,825 
                 
Operating loss  (1,526,568)  (2,513,623)  (4,930,805)  (7,548,093)
                 
Other expense, net  (14,075)  (15,781)  (73,630)  (161,873)
Loss on induced conversion  -   -   -   (2,162,696)
Gain on embedded derivative  -   -   -   214,350 
                 
Loss before income taxes  (1,540,643)  (2,529,404)  (5,004,435)  (9,658,312)
Provision (benefit) for income taxes  1,706   (2,291)  (1,503,625)  835 
                 
Net loss  (1,542,349) $(2,527,113) $(3,500,810) $(9,659,147)
                 
Basic net loss per share $(0.13) $(0.23) $(0.30) $(0.96)
Diluted net loss per share $(0.13) $(0.23) $(0.30) $(0.96)
                 
Weighted average common shares outstanding                
Basic  11,564,856   10,948,416   11,538,457   10,028,246 
Diluted  11,564,856   10,948,416   11,538,457   10,028,246 
                 

SharpSpring, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

  September 30,  December 31, 
  2020  2019 
Assets      
Cash and cash equivalents  15,018,607  $11,881,949 
Accounts receivable  278,624   340,344 
Unbilled receivables  1,144,793   998,048 
Income taxes receivable  42,179   15,010 
Other current assets  1,421,690   1,363,366 
Total current assets  17,905,893   14,598,717 
         
Property and equipment, net  2,271,661   1,996,722 
Goodwill  10,938,143   10,922,814 
Intangibles, net  4,168,652   4,658,000 
Deferred income taxes  4,005   - 
Right-of-use assets  8,555,919   5,281,530 
Other long-term assets  615,994   549,022 
Total assets  44,460,267  $38,006,805 
         
Liabilities and Shareholders' Equity        
Accounts payable  2,282,795  $2,052,538 
Accrued expenses and other current liabilities  954,309   919,089 
Line of credit  1,900,000   - 
Deferred revenue  566,084   860,820 
Income taxes payable  75,643   13,944 
Lease liability, current portion  709,036   370,340 
Notes payable, current portion  2,061,263   - 
Total current liabilities  8,549,130   4,216,731 
         
Lease liability, net of current portion  7,973,813   4,976,727 
Notes payable, net of current portion  1,338,236   - 
Total liabilities  17,861,179   9,193,458 
         
         
Shareholders' equity:        
Preferred stock, $0.001 par value  -   - 
Common stock, $0.001 par value  11,611   11,537 
Additional paid in capital  60,139,290   58,851,285 
Accumulated other comprehensive loss  (226,321)  (224,793)
Accumulated deficit  (33,241,492)  (29,740,682)
Treasury stock  (84,000)  (84,000)
Total shareholders' equity  26,599,088   28,813,347 
         
Total liabilities and shareholders' equity  44,460,267  $38,006,805 
         

SharpSpring, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
Net loss  (1,542,349) $(2,527,113) $(3,500,810) $(9,659,147)
                 
Adjustments to reconcile loss from operations:                
Depreciation and amortization  405,022   256,355   1,179,162   727,873 
Amortization of costs to acquire contracts  207,004   199,058   611,772   630,815 
Non-cash stock compensation  397,471   284,308   1,138,521   849,900 
Deferred income taxes  1,706   -   (3,798)  - 
Gain on disposal of property and equipment  -   -   -   (617)
Non-cash interest  -   -   -   139,372 
Amortization of debt issuance costs and embedded derivative  -   -   -   2,903 
Gain on embedded derivative  -   -   -   (214,350)
Loss on induced conversion  -   -   -   2,162,696 
Unrealized foreign currency loss  10,874   26,344   120,802   43,470 
Changes in assets and liabilities:                
Accounts receivable  171,229   10,280   64,969   (15,014)
Unbilled receivables  (4,203)  (50,188)  (137,518)  (189,008)
Right-of-use assets  201,002   109,247   (3,274,388)  323,180 
Other assets  (461,586)  (330,499)  (740,686)  (746,774)
Income taxes, net  -   (2,291)  33,639   (30,853)
Accounts payable  350,733   82,722   229,798   3,891 
Lease liabilities  (175,508)  (95,068)  3,335,783   (280,643)
Other liabilities  315,812   50,661   27,772   (36,639)
Deferred revenue  (95,491)  193,379   (297,384)  258,991 
Net cash provided by (used in) operating activities  (218,284)  (1,792,805)  (1,212,366)  (6,029,954)
                 
Cash flows from investing activities                
Purchases of property and equipment  (48,931)  (154,767)  (401,831)  (483,330)
Proceeds from the sale of property and equipment  -   -   -   617 
Capitalization of software development costs  (138,798)  (295,382)  (562,922)  (578,922)
Net cash used in investing activities  (187,729)  (450,149)  (964,753)  (1,061,635)
                 
Cash flows used in financing activities:                
Proceeds from line of credit  -   -   1,900,000   - 
Proceeds from note payable  -   -   3,399,500   - 
Proceeds from exercise of stock options, net  167,417   19,733   190,880   926,350 
Proceeds from issuance of common stock, net  -       -   10,649,005 
Payments for taxes related to net share settlement of equity awards  (5,420)  -   (33,822)  - 
Net cash provided by financing activities  161,997   19,733   5,456,558   11,575,355 
                 
Effect of exchange rate on cash  (24,272)  (20,504)  (142,781)  (50,690)
                 
Change in cash and cash equivalents  (268,288)  (2,243,725) $3,136,658  $4,433,076 
                 
Cash and cash equivalents, beginning of period  15,286,895   15,997,667  $11,881,949  $9,320,866 
                 
Cash and cash equivalents, end of period  15,018,607   13,753,942  $15,018,607  $13,753,942 
                 
                 

SharpSpring, Inc.
RECONCILIATION TO ADJUSTED EBITDA
(Unaudited, in Thousands)

   Three Months Ended    Nine Months Ended 
   September 30,    September 30, 
   2020    2019    2020    2019 
Net loss    (1,542)  (2,527)  (3,501)  (9,659)
Provision (benefit) for income taxes    2      (2)    (1,504)    1 
Other expense, net    14      16      74      162 
Non-cash gain on embedded derivative    -      -      -      (214)
Non-cash loss on induced conversion    -      -      -      2,163 
Depreciation & amortization    405      256      1,179      728 
Non-cash stock compensation    397      284      1,139      850 
Restructuring    -      -      -      133 
Sales Tax Contingent Liability    256      -      256      - 
Franchise tax settlement    -      -      -      318 
Adjusted EBITDA    (468)      (1,973)      (2,357)      (5,518) 
                                
                                

SharpSpring, Inc.
RECONCILIATION TO CORE NET LOSS AND CORE NET LOSS PER SHARE
(Unaudited, in Thousands)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
Net loss  (1,542) $(2,527) $(3,501) $(9,659)
Amortization of intangible assets  153   95   489   286 
Non-cash stock compensation  397   284   1,139   850 
Non-cash gain on embedded derivative  -   -   -   (214)
Non-cash loss on induced conversion  -   -   -   2,163 
Restructuring  -   -   -   133 
Sales Tax Contingent Liability  256   -   256   - 
Franchise tax settlement  -   -   -   318 
Tax adjustment  1   3   (112)  4 
Core net loss  (735)  $(2,145)  $(1,729)  $(6,119) 
                 
Core net loss per share $(0.06)  $(0.20)  $(0.15)  $(0.61) 
Weighted average common shares outstanding  11,565   10,948   11,538   10,028 
                 

SOURCE: SharpSpring, Inc.



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