SHSP - Earnings call transcript Q2 2018

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Operator

Good afternoon. Welcome to SharpSpring's Second Quarter 2018 Earnings Conference Call.

Joining us today for today's call are SharpSpring's CEO, Rick Carlson; and CFO, Ed Lawton.

Following their remarks, we will open up the call for your questions. Then before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. the remind available this available for Investor section to recorded will in like investors.sharpspring.com. Relations made at and replay of would everyone call that be the I website company's via link

Now I call SharpSpring's Rick CEO, turn Sir, proceed. over please to Carlson. like would to the

Richard Carlson

us thanks today. the everyone, and on Welcome, for joining call

a on I started, I We've you of little a hear background here, get we want noise. know not going Before can control bit a got construction our building of do bit may outside that. to let zone of much you to

So quarter please After Relations sounds the if June copy A ending results press press hear today. as we website. closed, some our issued a XX, is Investor XXXX. bear random the with the available us in market release section of things second we're release our the discussing of announcing you for

able our period only to more record engine performance and was also with accomplish to quarter programs strong remain acquisition for consistent were of a second new record. XXX than we Not SharpSpring. platform, revenues, onto We customers yet which The leads our up increase is post we drive also can another did scale as new sales efficient we marketing prove to more this cost, continuing sales. customer and performance that a our added

these from base continue continues untapped make be we platform. using businesses beginning headway further quarter over numbers within of industry. as the of believe X,XXX largely believe we're business. we growth over both its to validate we agency X,XXX the acceleration the our and that bolster the now automation to last user this our programs, balance just our long-term automation Moreover, has and the decision seeing sheet With is supporting SharpSpring marketing purpose to reinforce for what marketing partners

financial and Lawton, other more the to positive I to going elaborate operational quarter's highlights turn lot the CFO, developments, year into I'll through progress the with as updates, on look rest you call the have Then of further who'll well. you for insights for We Ed quarter on for Ed? to before additional but we to outlook our I'm a the as results at quarter. share our over the regarding this our the back walk come provide

Edward Lawton

Thank you, Rick.

XXXX. financial our to the Turning for quarter XX, second June ended results

Our increased XX% revenue to million second total of QX year. the quarter million $X.X from last $X.X in in

by to to flagship SharpSpring million solution grew $X.X record Our marketing a last million XX% automation year. compared $X.X

quarter gross from second increased In QX XX% XX% dollar year. million XX% in last million to year. from the for XXXX of margin $X to of gross last terms, Our profit increased $X.X

hosting of Over the reinforce have past product. and support resources and to in our infrastructure we current invested significant few future years, growth our the organization

will call, to we half move XXXX. revenues the for more gradually expect to margins as continue mentioned our of specifically, we model in expansion over last approximately As the we we expect by platform, onto More I revenues margin continue year-over-year future, we platform. as second as generate in more layer the by evidenced and leverage create gross more operating more In the see our margins. to to improvement in to XXXX and XX% upward trend end our forward of

our to Turning expenses. operating

was additional lesser in in investments map and in XX% The QX extent, increase $X.X of due For to items. to to primarily sales of and initiatives accelerate marketing accelerate last our our year. million $X.X R&D expenses the organization investments to quarter our a from increased future road second operating to XXXX, growth million

loss a $X.XX $X.XX XXXX. per per in totaled $X.X quarter compared share loss net net GAAP QX share GAAP $X.X or Our second of or to for million the million

position compared quarter to invest million during for in in the $XX.X NOL net of cash growth received the initiatives. use the quarter, On at end prior related we carrybacks had tax offset in quarter. to refunds the $X balance sheet, our of increase million the The at end million cash as was in to operations we $XX.X cash due by of our the

at adjusted loss and to of loss EBITDA well the as growth EBITDA of we our platform. Looking to investment for perpetuate the which million. we The our marketing to release, reconcile the same our million quarter, higher continued our was adjusted launch sales in designed as new period. an our non-GAAP investment measures, continued in -- ago in adjusted the earnings on as compares $X.X features year development totaled loss EBITDA This team result new programs $X.X in

the We to being remaining during to in of remain quarters future revenue initiatives. EBITDA adjusted increases with expect by consistent offset growth relatively investments XXXX our

an quarter $X increase of loss net Our which is $X.XX from year. core in net our in earnings second core XXXX, last net of share $X.XX core was $X.X This core a million for share. loss loss, of also totaled reconciled net release, loss per or per or the QX million

and metrics, our the terms on please tables today's of supplementary adjusted the reconciliation income in details EBITDA core included release. earnings more net GAAP see For to

Moving metrics. to some our other of

when between between we acquisition the are spent are During QX, our due and the QX decreased -- customers dollars sales primarily customer dollars to from and sales differences acquired. when marketing cost and timing marketing

sales experience. QX. cost to the acquisition quarter of the a as customer cycle estimate provides This new $X,XXX average acquisition costs XXXX. customer for calculate the a we costs we of from wins by sum Using cost marketing the and of a our customer all-in marketing XXXX in better prior resulted QX for QX and acquisition As divided costs reminder, from account sales our

is impacts because marketing the spend one deals many win future measurement quarter imperfect, we in still this in However, quarters.

future. fluctuations While historically the that rates in we acquire we consistently metric do are this will confident lifetime continue all-in quarter-to-quarter, customers significant for that value experience the are business deliver we can attractive to that in

calculations, to after the worth platform. approximately business are basis customer gross to be estimated could the agency support estimates these to for value reflects margin average. we future indicate long-term of -- This value to ratio $XX,XXX on long benefit include for that and cost continue on the term customers lifetime a figures, -- the to be which Our acquisition reducing to compelling. value customers company cost discounted lifetime Based on continues the expected our performance, on

Rick. Finally, before call I item housekeeping one turn to back over the

on This quarter, we derivatives recognized convertible the to notes. revaluation embedded a $XXX,XXX expense related noncash of our

of embedded these do we not for can accounting can imagine, backed insights and results. charge my as turn the Rick? out QX had noncash on have our of the progress as in accounting to This terms, depending revalue over outlook this reasons. for these additional get The to now XXXX. financial like you our this Rick our for quarter change, and notes to rest As operational the the into for of back of core well complex pretty completes derivatives economics few a summary. the we I'd call instruments

Richard Carlson

Ed. Thanks,

marketing a As the ways, strong a thing our lower record as this we're great I means numbers gross in that customer more quarter means to need know continue because more grow highlighted from quarter. line more rivals. business that of to In and same, had and be we're our sales customer are we many make and well larger But that margins also acquisition in continue funnel effectively which execute. finding to continuing wins, we improving new that's develop constantly second we really earlier, costs. is not as our top constant competitive but for growing at change To reflected overall. winning We of and order us, improvement. With and to to represented the same and efficiently, ways SharpSpring point, only efficient

been providing can sales existing those with solid process we're convert with many this a new to assess come performance new our we variety This attends web-based significantly to to quarters. to in important and a much and more demo but to We per initiatives lead This us our spent of growth, past our most tinkering our that of demo. our lead are constantly process the different point as While and one look of metrics our is SharpSpring of strategies drive metric leads over customers. area, in into progress the really decreased attended product. at few how as funnel marketing generate our the money where measures ones to through has a has business the marketing leads that obviously cost up lead

best the world's we're headed data this bold during digital overall for better feedback telling specifically period, in of the optimized initiative supported While significantly, as same partners. us X evaluation the potential one that's now. a on and right loops comprised particular SharpSpring be is that calling our that is allows we've been result as increased initiative list, us begun what has agencies of like in decision-making performance continuous this we're the One on direction, demos process, our quarters part by working of like this. We've positive of to which we've in number identified agency the are working attended agency

our As no thousands grow of ways. represents we new can of utilize right it novel with, a of data. potential we now, of yet an that large not customers we've will net expect refine in of database is, contact such been list the as we tens and asset agencies doubt, Having a in number

-- and into converting to the Going key business a forward, development we development list plan into adding to business database asset. key continue this

to further Beyond is constant our area where making product. in another strategy, our refinements we're improvement

business. benefit e-mail individual we e-mail their improved the added accounts capabilities. Mails them Sales their and of turn, now and for accounts. This one-off During sync who will smart e-mails sending recognize Smart have optimum the personal messages in increases through Google more helps -- our SMTP quarter, delivery, these people allows customers for capture our ISPs response like to as Microsoft which

syncing to add inbox Once connect tool you also to to you e-mail our We send that your the is through e-mail be data that syncing recorded to inbox will any that the and lead. a enhance enabled, functionality. will E-mail improved allows record powerful for lead SharpSpring.

me, we by be to XX, to also of compliance assisted development we SharpSpring excuse manage company our and as sure GDPR were focused team, to leads GDPR efforts also compliance date. May regulations on during May go-to-live a In via our these the that handle XX own these thousands Thanks enhancements, a addition use making of enhancements. of we tireless the future quarter, the to prepared marketing -- businesses product that to compliant the manage number their

some that I so and value the explain minute open important your effective. marketing results remind think about but a you now, consistently a our has generating and lot, to strategy. core it's we've our with to the propositions I'd customers step can back like for to been our our talk to sales provides revisit questions, been We time this better we Before take I call to engine SharpSpring so why of

said set it past, functionality, including dollar we've engine would As that to, inform analytics, automation advance features, to identification, landing have untapped social tracking barriers web industry the to visitor rules shopping or incredibly e-mail web is opportunity, with and the wishes extremely CRM limited any with is in not to an management, They'd an but features begin build artificial of just a marketing pages market in visitor one automation it and multibillion an media to large marketing, name intelligence. few. forms anonymous while business broad cart compete with enter and At also cover point, to this marketing have to entry. an industry the and

they'd Finally, functionality scale. to reliably hundreds all with and and other that provide of ancillary at platforms of software integrate have

is spend SharpSpring to than price. more positioned For customer. this Marketo, to passed SMB the really get and feature alone solution has for sacrifice budget or affordable players for need. solution on uniquely being access comprehensive a that long their set translated reasonably incumbent want, an functionality Act-Xn have Pardot, or the agency in HubSpot, to The space, marketing automation the either historically for works run. is in a to Neither resulting important they is this problem they'd higher and to astronomically to cost address in more out providing order

is partners years, guys out that the this competitor the SMBs last is a face. point, agency just water built know it other any straight value when and not This At just X necessary a our we've can you our front long have HubSpot from the mind, just this that a in we shouldn't us. both say it. very We're not this near solid frankly, not these term, the they performance to company very a year or position of But to the comes this a serve. that our XXXX the is the this feel with and put surprise -- in the for out we'll blow the incredibly and we're powerful is plan. up something of they and For in something firmly position ground half to that road of finish of we see to it and -- platform that and yet We the done into year be affordable results we both In against great second a have the our execute and feel in position strong start strong. things opportunity go future. in only in tremendous long-term of cash now

pipeline competitors. sustainable incumbent competitive part We and to to we Our new Operator, our the to investments call for sales work and sales also in the with over the convert months that, instructions. diligently provide due the ready but plan coming enjoy pipeline your questions. to levels remains the thanks the we're And open to advantage this marketing appropriate at ahead. please record in

Operator

[Operator Instructions].

Eric first Street question Capital comes Martinuzzi Our Lake Markets. with from

Eric Martinuzzi

lot XXX customers well It's million SharpSpring as a you're the question great focused to new and do I have is customers. installed That's have see of Obviously, good there. business. side the of in a -- $X.X ARR. the we the At that incremental hanging business though. up new sure to be retention make signing that see existing those as other your of base though, of

negative of price at a that you the in the retention some How at expected through the and year, think I beginning increase have time put was the quarter? impact. have second the to You

Richard Carlson

logo creep no and in we the was -- saw suffered anything as positive, we And well, we with increase due monetary do net and attrition was believe attrition which price it because noticeable expanding about to see sure. revenues, not fact, and Oh, increase. it any not attrition something last actually Well, see overall quarter did revenue last certainly, increase we attrition attrition no or we said didn't because -- noticeable is well. increase noticeable any in logo involved X% say there price essentially I to attrition the in in. quarter,

So -- don't than everybody point yes, been We're the markedly that we're at has we for a price it issue us to space. is date, be. that not in just believe an different just and will else

there while a not X% impact partners. increase, huge is our in so agency it resulted for And

Eric Martinuzzi

was Okay. talked EBITDA, And then remarks. in looking at the adjusted Ed's you -- I think it

is and offset incremental million You to talked $X.X not growing going be about that the your in Or that growth you've to in safe that the QX, other assume marketing spend? by in then you had adjusted equivalent an Obviously, and QX. expecting it got EBITDA that will business. in QX your a much you're sales Is revenue minus there amount places? spend to change

Edward Lawton

consistently adding of mean, sales constantly and and to kind team as we've well. I our predominantly been marketing. It's R&D

to think expense as group as a But over out we term, near look few as growth next to in that marketing. the most sales business, the add grow of time. and I over to that so would try we'll And quarters, be we

Eric Martinuzzi

then And last question Okay. me. for

that, guys talked kind you flow? about people to that getting levels but of leads. What you you're doing in does anything business, filling You channel that exactly new for you of Rick? the lead engine doing an now other increase scale with different your the make Obviously, to are are

Richard Carlson

Well, no.

-- and of -- performance new are channel. alluded every things we're to, the we as always measuring those tactics measuring Our trying

spend there's But kind channels -- no kind think going would thing new more subchannels to but more or call, of we being is it new, out. of trying on are really in -- largely to So can of a the same the know. And that're constantly or same. kind those each that we of continue we're in I that. I Tactically, channels would what there's outlets of tactics we channels the say, do our able

not our whole each expanding looking just new much not reliable are opening -- and in at certainly and spend gears grounds we're we those. we're shifting of as up channels So untested as

Operator

[Operator Instructions].

Group. next Our comes from with Capital Lauriers Craig-Hallum Eric Des question

Eric Des Lauriers

This is for Malouf. Mike on Eric

product. their marketing recent feel there's overall to So to that of addition remain competitive. as needs anything was your automation of add And offering wondering matures, thinking if you Social SharpSpring I to to

Richard Carlson

more Well, all I years platforms. It's so has of now SharpSpring features in would fairly I'll that of one before come. more in sense, a I added that many, project being subfeatures I our the evolving. never incumbent across between to The the relegated that kind and would started a Having say is the what say yes. answer place, platform, always industry years the us, is many to say functionality platform had evolve acknowledged is that ones of been differences new that players, for that competitive complete call question would the never many fact, will and to and continue inconsequential to these features. There's

of In all at today we than the all in point. any got that AI-powered -- we've platform. looking to platform is hindering coming our been say, so more be of at this to adding marketing have holes but major and tools don't the we've competitive set, we'll parts automation And -- are we we've a more never which are years, the sales

So really are. about feeling good we where

Eric Des Lauriers

obviously, and the price competitive us years. unique you the medium couple small in and an your if of kind of a of on All prepared right. Obviously, some hear. guys That's the in very kind backing could I you next on kind in you position are businesses remarks. off point. of was to comments of that over wondering great piggy the outlook And touching made and then give landscape that low

envious industry given the competitive in the you So now. I'm pretty see just right your wondering position changing, landscape how

Richard Carlson

despair but complicated I for we Yes. I work to we'll to or same complacence, side technology analysis into want problem. new overly the the certainly, way. looking that dose things entry they're complicated -- paranoia pursue I behind my doing, harder more we're a deal really that Well, Having those us trend, address you, entrants, because the isn't the and a what option of with -- piecemeal fact, mistake and continues competitors of world I businesses generally We've built the the these more -- potential of and that, don't objection on make done of, I tell with think a have every actually all larger that that it's our make pick. nice understand just GDPR sales on getting general in we seeing we lose. a single what in want confident. And lose company but to to try just name you, particular looking together And brand a don't the to SharpSpring. folks. stack. to we like day do bump call at actually say technologies in to about healthy We've don't high and what because a a how harder the some that more -- where comprehensive internally the being to said business bunch we're working that got competitive really deals, the we same It's identified hard competitor mean occasion, to they've a -- have barriers so which made is at and lose -- before to And when is we environment, on we please we're when up competing are. that folks We're started the people comments that. a competitive the into

SharpSpring. familiar we're really the deal like heavy competitive-wise, of the our proposition that competition we from #X better seeing so say to value are that competition competitors And platform aren't we from integrated -- is And with out with the not or automation marketing of a challenge way to probably able getting just that people there. view

because -- don't see years. of lot things they'd changing We do. a couple the over laundry a of So we incumbents of lot of next come of to excuse list the have see new me, entrants that don't

come Now and that getting compete our competitors longer, with we down at -- to point. us only see and the list is our that price able and don't

Eric Des Lauriers

Okay. That makes sense.

Richard Carlson

that and happening, both that we're going two paranoid of All edge. said, keep are so these things be we'll our

Eric Des Lauriers

for give end for question hear. just to good housekeeping customer us could number I the That's wondering was I if me. at a have quarter. Last Ed. the you direct the of

Edward Lawton

around right XXX was it customers. Yes, direct

Operator

concludes closing like call and remarks. Instructions]. at his Carlson Ladies Thank session. Mr. to question-and-answer over the this time, gentleman, for back you. [Operator to now I'd turn this our

Richard Carlson

for the Thanks joining call today. much everyone Very appreciated.

so. the want care. partners, I another always, Appreciated. analyst our Take investors our As employees, XX Thank see Operator? you so you community. much. and days to our thank We'll in or

Operator

Thank you, sir.

call. I Before forward-looking like provide cautions we statement safe made would SharpSpring's conclude includes that harbor statements today's important regarding this call, to during

Risk During statements income loss press events loss forward-looking net from may in and forward-looking release financial Factors including make non-GAAP reference EBITDA, The future net or reflect available is company measures and company's of materially share, website. or made performance your core discussed to in we there conference that future company's circumstances. income undertake by the A net not elsewhere revise different income current or this may loss measures known latest does quarterly included on reference statements. reconciliation as or involve adjusted or or and and Also factors, the annual to anticipated which made earnings company's cause Form for Financials including the uncertainties are to to the statements risks, per financial views future to measures section non-GAAP core today's performances results, any during statements implied any were on events. These any the SharpSpring's presented results, the performance. supplemental be under These those performance. or of other company's on reflect these note achievements statements of the responsibility call, call, that XX-K forward-looking actual regarding and future reports unknown future Form with events, respect achievements report XX-Q, and forward-looking heading to

remind Finally, recording for be a Second made I in XXXX for of section would Earnings everyone available available call that like joining us via website. for today will the Thank Quarter replay the link Call. Investors to company's SharpSpring's of you Conference today's

disconnect. now may You

SharpSpring (SHSP) 5 Aug 182018 Q2 Earnings call transcript