SharpSpring Reports Third Quarter 2019 Results

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Primary Exchange: NASDAQ
Under the Symbol: SHSP

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SharpSpring Reports Third Quarter 2019 Results

Thursday, November 7, 2019 4:05 PM

Tenth Consecutive Record Topline Performance Highlighted by Steady New Customer Additions, Improving Retention Efforts and Agency Customer Expansion

GAINESVILLE, FL / ACCESSWIRE / November 7, 2019 / SharpSpring, Inc. (NASDAQ:SHSP), a leading cloud-based marketing automation platform, reported financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 and Recent Operational Highlights

  • Added 264 new SharpSpring customers, who selected the platform to generate leads, convert more leads to sales and measure the ROI of their marketing campaigns. New customer additions are expected to generate approximately $1.9 million in annual recurring revenue.
  • Agency sales were 221 in Q3 2019, compared to 221 in the prior quarter and 243 in the third quarter of 2018.
  • Direct customer sales were 43 in Q3 2019, of which 84% are annual contracts, compared to 69 in the prior quarter (35% annual contracts), and 103 in the third quarter of 2018 (3% annual contracts).
  • Finished the quarter with 1,933 agency customers, 526 direct customers and nearly 8,500 businesses using the SharpSpring Marketing Automation platform.
  • Reduced average monthly net revenue attrition to 1.2% for comparable cohorts.
  • Strengthened the Company's leadership and improved shareholder representation on its Board of Directors through the appointment of Scott Miller, a multi-decade investment manager with significant operating experience, to the SharpSpring Board.
  • Announced the release of Meetings, a fully integrated calendar tool for individuals and sales teams built to streamline scheduling and increase conversions.

Third Quarter 2019 Financial Results

  • SharpSpring Marketing Automation revenues grew 18% to a record $5.7 million from $4.8 million in the same year-ago period.
  • Total revenue (which includes legacy products) increased 17% to a record $5.7 million from $4.9 million in the same year-ago period.
  • Gross profit increased 14% to $3.9 million (68% of total revenue) from $3.4 million (70% of total revenue) in the same year-ago period.
  • Net loss was $2.5 million, or $0.23 per share, compared to net loss of $2.7 million, or $0.32 per share, in the third quarter of 2018.
  • Adjusted EBITDA loss (a non-GAAP metric reconciled below) totaled $2.0 million, compared to an adjusted EBITDA loss of $1.5 million in the same year-ago period.
  • Core net loss (a non-GAAP metric reconciled below) totaled $2.1 million, or $0.20 per share, compared to core net loss of $1.9 million, or $0.22 per share, in the same year-ago period.
  • At quarter-end, the company had $13.8 million in cash, compared to $9.3 million at December 31, 2018.

2019 Financial Outlook

For the fiscal year ending December 31, 2019, SharpSpring expects total revenue to range between $22.4 million and $22.5 million, which would represent an approximate increase of 20% to 21%, respectively, compared to the prior year. The company's guidance is based on recurring revenue from our current customer base and year-to-date performance continuing in Q4.

Going forward, the Company plans to continue providing revenue guidance on an annual basis. At this time, SharpSpring intends to release a preliminary 2020 financial outlook early in the coming fiscal year.

Management Commentary

"In the third quarter, we continued to make considerable progress against a number of our long-term company initiatives while generating consistent financial results in all of our key operating segments," said SharpSpring CEO Rick Carlson. "Q3 marked our tenth consecutive quarter of record revenue at $5.7 million, which was driven by steady growth in new agency customer wins as well as expansions within existing customers. Year-to-date, we've generated 23% topline growth and currently have over 1,900 agency customers and nearly 8,500 businesses on our platform, which speaks to the ability of our team to continue generating long-term returns.

"Operationally, we made encouraging progress in one of our major ongoing initiatives, which is to reduce customer attrition and increase expansion revenue opportunities, as evidenced by the improvement in our net revenue attrition, which fell to a monthly average of 1.2% for comparable cohorts during the third quarter. We are also pleased with the initial traction we're seeing from our Account Management efforts, where Q3 represented the first quarter with both our agency and direct teams fully staffed. In addition to increasing the lifetime value of our customers, which is always a top priority, we're also continually looking at ways to drive new customer acquisition efficiency at all stages of the funnel. Heading into the end of the year, we're making all the right moves to keep our company headed decisively in the right direction. With our inaugural annual guidance introduced at $22.4 million to $22.5 million, as well as our expectation for higher growth in the new year, we feel strongly that our best results lie ahead of us."

Conference Call

SharpSpring management will hold a conference call today, November 7, 2019 at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results.

Company CEO Rick Carlson and CFO Brad Stanczak will host the call, followed by a question and answer period.

U.S. dial-in number: 888-567-1602
International number: 862-298-0701

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 on the same day through November 21, 2019.

Toll-free replay number: 877-481-4010
International replay number: 919-882-2331
Replay ID: 54489

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 www.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:

Brad Stanczak
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,  
 
  2019     2018     2019     2018  
Revenue
  $ 5,723,978     $ 4,873,329     $ 16,567,696     $ 13,500,281  
 
                               
Cost of services
    1,840,764       1,472,410       5,014,964       4,380,069  
Gross profit
    3,883,214       3,400,919       11,552,732       9,120,212  
 
                               
Operating expenses:
                               
Sales and marketing
    3,102,653       2,640,697       8,976,466       7,368,128  
Research and development
    1,207,605       1,106,995       3,684,314       3,065,689  
General and administrative
    1,991,329       1,518,106       6,154,295       4,368,744  
Non-employee stock issuance expense
    -       508,561       -       508,561  
Intangible asset amortization
    95,250       115,000       285,750       345,000  
 
                               
Total operating expenses
    6,396,837       5,889,359       19,100,825       15,656,122  
 
                               
Operating loss
    (2,513,623 )     (2,488,440 )     (7,548,093 )     (6,535,910 )
 
                               
Other expense, net
    (15,781 )     (243,956 )     (161,873 )     (513,759 )
Loss on induced conversion
    -       -       (2,162,696 )     -  
Gain (loss) on embedded derivative
    -       27,295       214,350       (426,154 )
 
                               
Loss before income taxes
    (2,529,404 )     (2,705,101 )     (9,658,312 )     (7,475,823 )
Provision (benefit) for income taxes
    (2,291 )     5,130       835       (247,415 )
 
                               
Net loss
  $ (2,527,113 )   $ (2,710,231 )   $ (9,659,147 )   $ (7,228,408 )
 
                               
Basic net loss per share
  $ (0.23 )   $ (0.32 )   $ (0.96 )   $ (0.85 )
Diluted net loss per share
  $ (0.23 )   $ (0.32 )   $ (0.96 )   $ (0.85 )
 
                               
Weighted average common shares outstanding
                               
Basic
    10,948,416       8,530,858       10,028,246       8,482,976  
Diluted
    10,948,416       8,530,858       10,028,246       8,482,976  


SharpSpring, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
  September 30,     December 31,  
 
  2019     2018  
Assets
           
Cash and cash equivalents
  $ 13,753,942     $ 9,320,866  
Accounts receivable
    95,498       80,521  
Unbilled receivables
    927,952       740,425  
Income taxes receivable
    43,813       22,913  
Other current assets
    1,414,396       1,184,217  
Total current assets
    16,235,601       11,348,942  
 
               
Property and equipment, net
    1,880,926       1,260,798  
Goodwill
    8,860,980       8,866,413  
Intangibles, net
    1,580,250       1,866,000  
Right-of-use assets
    5,392,330       -  
Other long-term assets
    559,186       665,123  
Total assets
  $ 34,509,273     $ 24,007,276  
 
               
Liabilities and Shareholders' Equity
               
Accounts payable
  $ 1,617,034     $ 1,613,477  
Accrued expenses and other current liabilities
    729,476       774,944  
Deferred revenue
    508,804       250,656  
Income taxes payable
    13,340       23,705  
Lease liability
    362,065       -  
Total current liabilities
    3,230,719       2,662,782  
 
               
Convertible notes, including accrued interest
    -       8,342,426  
Convertible notes embedded derivative
    -       214,350  
Lease liability, net of current portion
    5,081,623       -  
Total liabilities
    8,312,342       11,219,558  
 
               
Shareholders' equity:
               
Preferred stock, $0.001 par value
    -       -  
Common stock, $0.001 par value
    10,972       8,639  
Additional paid in capital
    53,515,915       30,446,838  
Accumulated other comprehensive loss
    (234,103 )     (231,053 )
Accumulated deficit
    (27,011,853 )     (17,352,706 )
Treasury stock
    (84,000 )     (84,000 )
Total shareholders' equity
    26,196,931       12,787,718  
 
               
Total liabilities and shareholders' equity
  $ 34,509,273     $ 24,007,276  

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

 
  Three Months Ended     Nine Months Ended  
 
  September 30,     September 30,  
 
  2019     2018     2019     2018  
Net loss
  (2,527,113 )   (2,710,231 )   (9,659,147 )   (7,228,408 )
 
                               
Adjustments to reconcile loss from operations:
                               
Depreciation and amortization
    256,355       240,416       727,873       632,132  
Amortization of costs to acquire contracts
    228,812       194,479       431,757       758,014  
Non-cash stock compensation
    284,308       234,659       849,900       710,879  
Non-employee stock issuance expense
    -       508,561       -       508,561  
Deferred income taxes
    -       (45,625 )     -       (153,890 )
(Gain)/Loss on disposal of property and equipment
    -       -       (617 )     -  
Non-cash interest
    -       100,000       139,372       204,301  
Amortization of debt issuance costs and embedded derivative
    -       6,359       2,903       12,991  
(Gain)/loss on embedded derivative
    -       (27,295 )     (214,350 )     426,154  
Loss on induced conversion
    -       -       2,162,696       -  
Unrealized foreign currency gain/loss
    26,344       122,475       43,470       290,386  
Changes in assets and liabilities:
                               
Accounts receivable
    10,280       (1,251 )     (15,014 )     40,253  
Unbilled receivables
    (50,188 )     (49,419 )     (189,008 )     (143,716 )
Right-of-use assets
    109,247       -       323,180       -  
Other assets
    (360,253 )     (321,026 )     (547,716 )     (973,904 )
Income taxes, net
    (2,291 )     211,913       (30,853 )     2,050,292  
Accounts payable
    82,722       104,774       3,891       669,474  
Lease liabilities
    (95,068 )     59,370       (280,643 )     27,784  
Other liabilities
    50,661       -       (36,639 )     -  
Deferred revenue
    193,379       19,063       258,991       59,972  
Net cash used in operating activities
    (1,792,805 )     (1,352,778 )     (6,029,954 )     (2,108,725 )
 
                               
Cash flows from investing activities
                               
Purchases of property and equipment
    (450,149 )     (208,035 )     (1,062,252 )     (396,153 )
Proceeds from the sale of property and equipment
    -       -       617       -  
Net cash used in investing activities
    (450,149 )     (208,035 )     (1,061,635 )     (396,153 )
 
                               
Cash flows used in financing activities:
                               
Proceeds from issuance of convertible note
    -       -       -       8,000,000  
Debt issuance costs
    -       -       -       (141,657 )
Proceeds from exercise of stock options
    19,733       207,455       926,350       449,259  
Proceeds (cost) from issuance of common stock, net
    -       -       10,649,005       -  
Net cash provided by financing activities
    19,733       207,455       11,575,355       8,307,602  
 
                               
Effect of exchange rate on cash
    (20,504 )     635       (50,690 )     (18,687 )
 
                               
Change in cash and cash equivalents
  (2,243,725 )   (1,352,723 )   4,433,076     5,784,037  
 
                               
Cash and cash equivalents, beginning of period
  15,997,667     12,536,507     9,320,866     5,399,747  
 
                               
Cash and cash equivalents, end of period
  13,753,942     11,183,784     13,753,942     11,183,784  

 

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

 
  Three Months Ended     Nine Months Ended  
 
  September 30,     September 30,  
 
  2019     2018     2019     2018  
Net loss
  (2,527 )   (2,710 )   (9,659 )   (7,228 )
Provision (benefit) for income taxes
    (2 )     5       1       (247 )
Other expense, net
    16       244       162       514  
Non-cash gain on embedded derivative
    -       (27 )     (214 )     426  
Non-cash loss on induced conversion
    -       -       2,163       -  
Depreciation & amortization
    256       240       728       632  
Non-cash stock compensation
    284       235       850       711  
Non-employee stock issuance expense
    -       509       -       509  
Franchise tax settlement
    -       -       318       -  
Restructuring
    -       -       133       -  
Adjusted EBITDA
    (1,973 )     (1,504 )     (5,518 )     (4,683 )


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,  
 
  2019     2018     2019     2018  
Net loss
  (2,527 )   (2,710 )   (9,659 )   (7,228 )
Amortization of intangible assets
    95       115       286       345  
Non-cash stock compensation
    284       235       850       711  
Non-employee stock issuance expense
    -       509       -       509  
Non-cash gain on embedded derivative
    -       (27 )     (214 )     426  
Non-cash loss on induced conversion
    -       -       2,163       -  
Franchise tax settlement
    -       -       318       -  
Restructuring
    -       -       133       -  
Tax adjustment
    3       2       4       (77 )
Core net loss
  (2,145 )   (1,876 )   (6,119 )   (5,314 )
 
                               
Core net loss per share
  (0.20 )   (0.22 )   (0.61 )   (0.63 )
Weighted average common shares outstanding
    10,948       8,531       10,028       8,483  

 

SOURCE: SharpSpring, Inc.


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