SharpSpring Reports Second Quarter 2020 Results

Rhea-AI Summary

SharpSpring reported a strong second quarter 2020, achieving record revenue of $7.3 million, a 32% increase year-over-year. The company added 276 new customers, with 81% being agency clients. Notably, average annual recurring revenue (ARR) per customer improved by 11%. While net loss decreased to $970,000 from $4.2 million a year ago, the company posted a 39% increase in gross profit. Looking ahead, SharpSpring anticipates total revenue between $29.5 million and $30.5 million, reflecting confidence in its operational model amidst ongoing challenges.

Positive

• Record revenue of $7.3 million, a 32% increase year-over-year.
• 276 new customers added, with 81% being agency clients.
• 11% improvement in average annual recurring revenue (ARR) per customer.
• Gross profit increased by 39% to $5.4 million.
• Net loss significantly reduced to $970,000 from $4.2 million in the previous year.

Negative

• Still reporting a net loss of $970,000 despite improvements.
• Adjusted EBITDA loss of $122,000.

Quarterly ARR Improvements Driven by Consistent, Strong Agency Adoption and Larger Contracts

Company Achieves Thirteenth Consecutive Quarter of Record Revenue and Improved Profitability Metrics, Demonstrating Resilient Operating Model

GAINESVILLE, FL / ACCESSWIRE / August 13, 2020 / SharpSpring, Inc. (NASDAQ:SHSP), a leading cloud-based marketing and sales automation platform, reported financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 and Recent Operational Highlights

• Added 276 new SharpSpring customers, of which 81% were agency customers, who selected the platform to generate leads, convert more leads to sales and measure the ROI of their marketing campaigns. Average annual recurring revenue (ARR) per customer acquired in second quarter of 2020 improved approximately 11% compared to the second quarter of 2019 as a result of landing larger customers.

• Finished the quarter with approximately 2,000 agency customers, 500 direct customers, and more than 8,500 total businesses using SharpSpring to power their sales and marketing efforts.

• On a year-over-year basis, Q2 2020 net revenue retention was 91.6%, when compared to the second quarter of 2019. On a monthly basis, second quarter 2020 average net revenue retention was 97.6%.

• The Perfect Audience platform ended the quarter with more than 1,200 customers.

• Further strengthened the management team by adding former Salesforce Marketing Cloud executive and Software-as-a-Service (SaaS) industry veteran Chip House as the Company's Chief Marketing Officer (CMO).

• 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.

• 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.

Second Quarter 2020 Financial Results

• Total revenue increased 32% to a record $7.3 million from $5.5 million in the same year-ago period.

• Gross profit increased 39% to a record $5.4 million (74% of total revenue) from $3.9 million (71% of total revenue) in the same year-ago period.

• Net loss was $970,000, or $0.08 per share, compared to net loss of $4.2 million, or $0.41 per share, in the same year-ago period.

• Adjusted EBITDA loss (a non-GAAP metric reconciled below) totaled $122,000, compared to an adjusted EBITDA loss of $1.7 million in the same year-ago period.

• Core net loss (a non-GAAP metric reconciled below) totaled $381,000, or $0.03 per share, compared to core net loss of $1.9 million, or $0.19 per share, in the same year-ago period.

• At quarter-end, the Company had $15.3 million in cash, compared to $11.9 million at December 31, 2019.

2020 Financial Outlook

The Company expects total revenue of approximately $29.5 to $30.5 million, which would represent an increase of 32% compared to the prior year. The Company's guidance is based on recurring revenue from its current customer base and performance results tracked through July 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

"In the second quarter of 2020 we built on our strong start to the year and continued to generate consistent results, both in new customer wins and in many of our key operating metrics," said SharpSpring CEO Rick Carlson. "More specifically, the 276 new customers we secured during the period represented approximately $2.2 million in annual recurring revenue, a healthy improvement over last year, which was driven by the introduction and successful execution of larger contracts with several new agencies as well as a return to a more regular deal flow later in the quarter. Additionally, thanks to our ongoing cost reduction measures implemented in conjunction with our comprehensive COVID-19 response plan, we drove healthy improvements in our margins and overall profitability.

"In the uncertain environment we find ourselves, our goal is to be even more deliberate with our spend and more direct with our approach to sales. To that end, we have been focusing our efforts in recent quarters on making SharpSpring a primarily ‘sales-oriented' business, which has already led to a more efficient and effective lead conversion process. Going forward, we'll be looking to make additional investments in growing our brand awareness to drive more organic lead growth in support of our outbound business development initiatives. Heading into the back half of the year, we remain confident in our ability to drive incrementally improved performance and are well-positioned to benefit from the ongoing shift to more digital, remote work."

Conference Call

SharpSpring management will hold a conference call today, August 13, 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 August 27, 2020.

Toll-free replay number: 877-481-4010
International replay number: 919-882-2331
Replay ID: 35691

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 monthly 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								Six Months Ended
		June 30,								June 30,
		2020				2019				2020				2019
Revenue		$	7,270,905			$	5,517,433			$	14,323,634			$	10,843,718
Cost of services			1,873,029			$	1,625,818				4,240,671				3,174,200
Gross profit			5,397,876				3,891,615				10,082,963				7,669,518
Operating expenses:
Sales and marketing			2,395,100				2,865,610				5,429,222				5,873,813
Research and development			1,484,890				1,217,981				3,063,029				2,476,709
General and administrative			2,244,560				1,935,291				4,658,401				4,162,966
Intangible asset amortization			183,746				95,250				336,547				190,500
Total operating expenses			6,308,296				6,114,132				13,487,199				12,703,988
Operating loss			(910,420	)			(2,222,517	)			(3,404,236	)			(5,034,470	)
Other expense, net			(2,777	)			(41,966	)			(59,556	)			(146,093	)
Loss on induced conversion			-				(2,162,696	)			-				(2,162,696	)
Gain on embedded derivative			-				189,776				-				214,350
Loss before income taxes			(913,197	)			(4,237,403	)			(3,463,792	)			(7,128,909	)
Provision (benefit) for income taxes			57,187				787				(1,505,331	)			3,126
Net loss		$	(970,384	)		$	(4,238,190	)		$	(1,958,461	)		$	(7,132,035	)
Basic net loss per share		$	(0.08	)		$	(0.41	)		$	(0.17	)		$	(0.75	)
Diluted net loss per share		$	(0.08	)		$	(0.41	)		$	(0.17	)		$	(0.75	)
Weighted average common shares outstanding
Basic			11,529,324				10,296,041				11,525,258				9,568,161
Diluted			11,529,324				10,296,041				11,525,258				9,568,161

SharpSpring, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

		June 30,				December 31,
		2020				2019
Assets
Cash and cash equivalents		$	15,286,895			$	11,881,949
Accounts receivable			448,016				340,344
Unbilled receivables			1,134,432				998,048
Income taxes receivable			42,179				15,010
Other current assets			1,203,445				1,363,366
Total current assets			18,114,967				14,598,717
Property and equipment, net			2,336,154				1,996,722
Goodwill			10,925,003				10,922,814
Intangibles, net			4,321,453				4,658,000
Deferred income taxes			5,520				-
Right-of-use assets			8,756,920				5,281,530
Other long-term assets			579,015				549,022
Total assets		$	45,039,032			$	38,006,805
Liabilities and Shareholders' Equity
Accounts payable		$	1,931,572			$	2,052,538
Accrued expenses and other current liabilities			631,042				919,089
Line of credit			1,900,000				-
Deferred revenue			659,650				860,820
Income taxes payable			73,483				13,944
Lease liability, current portion			685,876				370,340
Notes payable, current portion			1,493,024
Total current liabilities			7,374,647				4,216,731
Lease liability, net of current portion			8,172,482				4,976,727
Notes payable, net of current portion			1,906,475
Total liabilities			17,453,604				9,193,458
Shareholders' equity:
Preferred stock, $0.001 par value			-				-
Common stock, $0.001 par value			11,555				11,537
Additional paid in capital			59,587,378				58,851,285
Accumulated other comprehensive loss			(230,362	)			(224,793	)
Accumulated deficit			(31,699,143	)			(29,740,682	)
Treasury stock			(84,000	)			(84,000	)
Total shareholders' equity			27,585,428				28,813,347
Total liabilities and shareholders' equity		$	45,039,032			$	38,006,805

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2020				2019				2020				2019
Net loss		$	(970,384	)		$	(4,238,190	)		$	(1,958,461	)		$	(7,132,035	)
Adjustments to reconcile loss from operations:
Depreciation and amortization			417,560				244,265				774,140				471,518
Amortization of costs to acquire contracts			202,329				228,812				404,767				431,757
Non-cash stock compensation			370,418				262,074				741,051				565,592
Deferred income taxes			(5,504	)			-				(5,504	)			-
Gain on disposal of property and equipment			-				(617	)			-				(617	)
Non-cash interest			-				43,373				-				139,372
Amortization of debt issuance costs and embedded derivative			-				903				-				2,903
Gain on embedded derivative			-				(189,776	)			-				(214,350	)
Loss on induced conversion							2,162,696				-				2,162,696
Unrealized foreign currency loss			29,201				6,387				109,928				17,126
Changes in assets and liabilities:
Accounts receivable			(20,988	)			(39,742	)			(106,260	)			(25,294	)
Unbilled receivables			(40,819	)			(45,047	)			(133,315	)			(138,819	)
Right-of-use assets			(3,069,671	)			107,718				(3,475,390	)			213,933
Other assets			63,772				(373,421	)			(279,099	)			(416,276	)
Income taxes, net			1,596,583				(30,901	)			33,639				(28,562	)
Accounts payable			(1,010,945	)			195,806				(120,934	)			(78,830	)
Lease liabilities			3,090,202				(93,540	)			3,511,291				(185,575	)
Other liabilities			106,198				(18,019	)			(288,041	)			(87,300	)
Deferred revenue			(107,604	)			26,027				(201,893	)			65,612
Net cash provided by (used in) operating activities			650,348				(1,751,192	)			(994,081	)			(4,237,149	)
Cash flows from investing activities
Purchases of property and equipment			(211,970	)			(69,553	)			(352,900	)			(239,530	)
Proceeds from the sale of property and equipment			-				617				-				617
Capitalization of software development costs			(151,842	)			(195,376	)			(424,124	)			(372,574	)
Net cash used in investing activities			(363,812	)			(264,312	)			(777,024	)			(611,487	)
Cash flows used in financing activities:
Proceeds from line of credit			-				-				1,900,000				-
Proceeds from note payable			3,399,500				-				3,399,500
Proceeds from exercise of stock options, net			12,288				302,752				23,462				906,617
Proceeds from issuance of common stock, net			-				(23,439	)			-				10,649,005
Payments for taxes related to net share settlement of equity awards			(1,869	)		-					(28,402	)			-
Net cash provided by financing activities			3,409,919			279,313					5,294,560				11,555,622
Effect of exchange rate on cash			(34,609	)			(18,901	)			(118,509	)			(30,186	)
Change in cash and cash equivalents		$	3,661,846			(1,755,092		)		$	3,404,946			$	6,676,800
Cash and cash equivalents, beginning of period		$	11,625,049				17,752,758			$	11,881,949			$	9,320,866
Cash and cash equivalents, end of period		$	15,286,895			15,997,666				$	15,286,895			$	15,997,666

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2020				2019				2020				2019
Net loss		$	(970	)		$	(4,238	)		$	(1,958	)		$	(7,132	)
Provision (benefit) for income taxes			57				1				(1,505	)			3
Other expense, net			3				42				60				146
Non-cash gain on embedded derivative			-				(190	)			-				(214	)
Non-cash loss on induced conversion			-				2,163				-				2,163
Depreciation & amortization		418				244				774				472
Non-cash stock compensation			370				262				741				566
Restructuring			-				-				-				133
Franchise tax settlement			-				-				-				318
Adjusted EBITDA		(122		)		(1,716		)		(1,888		)		(3,545		)

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2020				2019				2020				2019
Net loss		$	(970	)		$	(4,238	)		$	(1,958	)		$	(7,132	)
Amortization of intangible assets			184				95				337				191
Non-cash stock compensation			370				262				741				566
Non-cash gain on embedded derivative			-				(190	)			-				(214	)
Restructuring			-				-				-				133
Non-cash loss on induced conversion			-				2,163				-				2,163
Franchise tax settlement			-				-				-				318
Tax adjustment			35								(112	)			1
Core net loss		$	(381)			$	(1,908)			$	(992)			$	(3,974)
Core net loss per share		$	(0.03)			$	(0.19)			$	(0.09)			$	(0.42)
Weighted average common shares outstanding			11,529				10,296				11,525				9,568

SOURCE: SharpSpring, Inc.

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FAQ

What were SharpSpring's revenue results for Q2 2020?

SharpSpring reported record revenue of $7.3 million for Q2 2020, a 32% increase compared to the same period in 2019.

How many new customers did SharpSpring acquire in Q2 2020?

In Q2 2020, SharpSpring added 276 new customers, with 81% being agency clients.

What is SharpSpring's financial outlook for 2020?

SharpSpring expects total revenue to be approximately $29.5 to $30.5 million for 2020, reflecting a 32% increase year-over-year.

How did SharpSpring's net loss change in Q2 2020?

SharpSpring's net loss decreased to $970,000 in Q2 2020, down from $4.2 million in the same quarter of the previous year.

What is the average annual recurring revenue (ARR) improvement for SharpSpring in Q2 2020?

In Q2 2020, SharpSpring's average annual recurring revenue (ARR) per customer improved by approximately 11% compared to Q2 2019.