SharpSpring Reports Second Quarter 2019 Results

Company Achieves Ninth Consecutive Record Topline Performance, Introduces First of New Premium Features Designed to Generate Expansion Revenues and Improved Customer Lifetime Values

GAINESVILLE, FL / ACCESSWIRE / August 6, 2019 / SharpSpring, Inc. (NASDAQ:SHSP), a leading cloud-based marketing automation platform, reported financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 and Recent Operational Highlights

  • Added 290 new SharpSpring customers, who selected the platform to generate leads, convert more leads to sales and measure the ROI of their marketing campaigns.
  • Finished the quarter with 1,854 agency customers and over 8,000 businesses using the SharpSpring Marketing Automation platform.
  • Released Sales Optimizer, a first-of-its-kind suite of tools that allows users to control the quality and cadence of the entire sales process, leading to more closed deals and increased revenue.
  • Recognized with three major industry awards, including “Top Rated All-in-One Marketing Tool for 2019” and “2019 Most Revolutionary Software Award” from TrustRadius and “Top Marketing Resource Management Software” from G2 Crowd.
  • Joined the Russell® 3000 Index, effective July 1, 2019.

Second Quarter 2019 Financial Results

  • SharpSpring Marketing Automation revenues grew 26% to a record $5.5 million from $4.3 million in the same year-ago period.
  • Total revenue (which includes legacy products) increased 24% to a record $5.5 million from $4.4 million in the same year-ago period.
  • Gross profit increased 33% to $3.9 million (71% of total revenue) from $2.9 million (66% of total revenue) in the same year-ago period.
  • Net loss was $4.2 million, or $0.41 per share, compared to net loss of $2.5 million, or $0.29 per share, in the second quarter of 2018. Current year net loss includes a one-time, non-cash charge of $2.2 million related to the settlement of convertible debt.
  • Adjusted EBITDA loss (a non-GAAP metric reconciled below) totaled $1.7 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 $1.9 million, or $0.19 per share, compared to core net loss of $1.7 million, or $0.21 per share, in the same year-ago period.
  • At quarter-end, the company had $16.0 million in cash, compared to $9.3 million at December 31, 2018.

Management Commentary

“In the second quarter we put together our ninth consecutive record revenue performance and continued to make considerable progress on our product roadmap and long-term retention initiatives,” said SharpSpring CEO Rick Carlson. “After adding another nearly 300 total customers in the quarter, we now have over 1,850 agency partners and over 8,000 businesses on our platform, which translated into a 24% topline increase to $5.5 million. Early in Q2 we also made the strategic decision to switch incoming direct customers to annual subscriptions, which delayed certain deal-closings in the near-term, but should generate substantial improvements in retention and lifetime value as we attract a higher quality of customer and deliver a better onboarding and account management experience for new cohorts.

“Additionally, with the new premium offerings we’ve recently released, including our Sales Optimizer, as well as additional products slated for the second half of the year, we have significant opportunities within new and existing customers to make our products more essential to their operations while also generating meaningful expansion revenues. Looking ahead, we remain confident in our ability to continue winning new business and continue to focus on ensuring that we’re built for long-term growth. Put together, SharpSpring has effectively positioned itself to continue taking an increasing share of the marketing automation industry.”

Conference Call

SharpSpring management will hold a conference call today, August 6, 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: 844-602-0380
International number: 862-298-0970

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 August 20, 2019.

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

Replay ID: 51876

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. Forwardlooking 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 forwardlooking 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 forwardlooking statements. Therefore, you should not rely on any of these forwardlooking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forwardlooking 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 Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Revenue
$ 5,517,433 $ 4,442,289 $ 10,843,718 $ 8,626,952
Cost of services
1,625,818 1,507,362 3,174,200 2,907,659
Gross profit
3,891,615 2,934,927 7,669,518 5,719,293
Operating expenses:
Sales and marketing
2,865,610 2,356,400 5,873,813 4,727,431
Research and development
1,217,981 1,008,019 2,476,709 1,958,694
General and administrative
1,935,291 1,424,404 4,162,966 2,850,638
Intangible asset amortization
95,250 115,000 190,500 230,000
Total operating expenses
6,114,132 4,903,823 12,703,988 9,766,763
Operating loss
(2,222,517 ) (1,968,896 ) (5,034,470 ) (4,047,470 )
Other expense, net
(41,966 ) (338,431 ) (146,093 ) (269,803 )
Loss on induced conversion
(2,162,696 ) (2,162,696 )
Gain (loss) on embedded derivative
189,776 (453,449 ) 214,350 (453,449 )
Loss before income taxes
(4,237,403 ) (2,760,776 ) (7,128,909 ) (4,770,722 )
Provision (benefit) for income taxes
787 (294,543 ) 3,126 (252,546 )
Net loss
$ (4,238,190 ) $ (2,466,233 ) $ (7,132,035 ) $ (4,518,176 )
Basic net loss per share
$ (0.41 ) $ (0.29 ) $ (0.75 ) $ (0.53 )
Diluted net loss per share
$ (0.41 ) $ (0.29 ) $ (0.75 ) $ (0.53 )
Weighted average common shares outstanding
Basic
10,296,041 8,474,616 9,568,161 8,459,036
Diluted
10,296,041 8,474,616 9,568,161 8,459,036

SharpSpring, Inc.
CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30, December 31,
2019 2018
Assets
Cash and cash equivalents
$ 15,997,667 $ 9,320,866
Accounts receivable
106,042 80,521
Unbilled receivables
880,333 740,425
Income taxes receivable
43,813 22,913
Other current assets
1,255,109 1,184,217
Total current assets
18,282,964 11,348,942
Property and equipment, net
1,591,883 1,260,798
Goodwill
8,869,548 8,866,413
Intangibles, net
1,675,500 1,866,000
Right-of-use assets
5,501,577
Other long-term assets
588,715 665,123
Total assets
$ 36,510,187 $ 24,007,276
Liabilities and Shareholders’ Equity
Accounts payable
$ 1,534,797 $ 1,613,477
Accrued expenses and other current liabilities
678,837 774,944
Deferred revenue
317,077 250,656
Income taxes payable
16,234 23,705
Lease liability
356,245
Total current liabilities
2,903,190 2,662,782
Convertible notes, including accrued interest
8,342,426
Convertible notes embedded derivative
214,350
Lease liability
5,182,511
Total liabilities
8,085,701 11,219,558
Shareholders’ equity:
Preferred stock, $0.001 par value
Common stock, $0.001 par value
10,966 8,639
Additional paid in capital
53,211,881 30,446,838
Accumulated other comprehensive loss
(229,620 ) (231,053 )
Accumulated deficit
(24,484,741 ) (17,352,706 )
Treasury stock
(84,000 ) (84,000 )
Total shareholders’ equity
28,424,486 12,787,718
Total liabilities and shareholders’ equity
$ 36,510,187 $ 24,007,276

SharpSpring, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Net loss
$ (4,238,190 ) $ (2,466,233 ) $ (7,132,035 ) $ (4,518,176 )
Adjustments to reconcile loss from operations:
Depreciation and amortization
244,265 200,733 471,518 391,716
Amortization of costs to acquire contracts
228,812 185,701 431,757 363,239
Non-cash stock compensation
262,074 238,806 565,592 476,221
Deferred income taxes
(129,061 ) (108,265 )
(Gain)/Loss on disposal of property and equipment
(617 ) (617 )
Non-cash interest
43,373 100,000 139,372 104,301
Amortization of debt issuance costs and embedded derivative
903 6,359 2,903 6,632
(Gain)/loss on embedded derivative
(189,776 ) 453,449 (214,350 ) 453,449
Loss on induced conversion
2,162,696 2,162,696
Unrealized foreign currency gain/loss
6,387 217,308 17,126 167,912
Changes in assets and liabilities:
Accounts receivable
(39,742 ) 55,046 (25,294 ) 41,504
Unbilled receivables
(45,047 ) (22,942 ) (138,819 ) (94,297 )
Right-of-use assets
107,718 213,933
Other assets
(497,165 ) (242,053 ) (540,019 ) (452,582 )
Income taxes, net
(30,901 ) 1,734,309 (28,562 ) 1,838,379
Accounts payable
195,807 (186,807 ) (78,830 ) 564,696
Lease liabilities
(93,540 ) (185,575 ) (31,587 )
Other liabilities
(18,019 ) 30,250 (87,300 )
Deferred revenue
26,027 20,287 65,612 40,910
Net cash (used in) provided by operating activities
(1,874,935 ) 195,152 (4,360,892 ) (755,948 )
Cash flows from investing activities
Purchases of property and equipment
(264,929 ) (115,298 ) (612,104 ) (188,118 )
Proceeds from the sale of property and equipment
617 617
Net cash used in investing activities
(264,312 ) (115,298 ) (611,487 ) (188,118 )
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
428,118 233,249 1,031,983 241,805
Proceeds (cost) from issuance of common stock, net
(23,439 ) 10,649,005
Net cash provided by financing activities
404,679 233,249 11,680,988 8,100,148
Effect of exchange rate on cash
(20,523 ) (35,765 ) (31,808 ) (19,322 )
Change in cash and cash equivalents
$ (1,755,091 ) $ 277,338 $ 6,676,801 $ 7,136,760
Cash and cash equivalents, beginning of period
$ 17,752,758 $ 12,259,169 $ 9,320,866 $ 5,399,747
Cash and cash equivalents, end of period
$ 15,997,667 $ 12,536,507 $ 15,997,667 $ 12,536,507

SharpSpring, Inc.
RECONCILIATION TO ADJUSTED EBITDA

(Unaudited, in Thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Net loss
$ (4,238 ) $ (2,466 ) $ (7,132 ) $ (4,518 )
Provision (benefit) for income taxes
1 (295 ) 3 (253 )
Other expense, net
42 338 146 270
Non-cash gain on embedded derivative
(190 ) 453 (214 ) 453
Non-cash loss on induced conversion
2,163 2,163
Depreciation & amortization
244 201 472 392
Non-cash stock compensation
262 239 566 476
Franchise tax settlement
318
Restructuring
133
Adjusted EBITDA
(1,716) (1,530) (3,545) (3,180)

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,
2019 2018 2019 2018
Net loss
$ (4,238 ) $ (2,466 ) $ (7,132 ) $ (4,518 )
Amortization of intangible assets
95 115 191 230
Non-cash stock compensation
262 239 566 476
Non-cash gain on embedded derivative
(190 ) 453 (214 ) 453
Non-cash loss on induced conversion
2,163 2,163
Franchise tax settlement
318
Restructuring
133
Tax adjustment
(86 ) 1 (79 )
Core net loss
$ (1,908) $ (1,745) $ (3,974) $ (3,438)
Core net loss per share
$ (0.19) $ (0.21) $ (0.42) $ (0.41)
Weighted average common shares outstanding
10,296 8,475 9,568 8,459

SOURCE: SharpSpring, Inc.

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