SharpSpring Reports Second Quarter 2020 Results

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. 

ReleaseID: 601335