Q4 2019 Earnings Call
Yeah, Good afternoon, and welcome to Sharpsprings fourth quarter and full year 2019 earnings conference call. Joining us today are Sharpsprings CEO, Rick Carlson and CFO Michael power. Following their remarks, we will open the call for your question.
Then before we conclude all provide the necessary cautions regarding forward looking statements made by management during this call.
I would like Tomorrow and every one of this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website Busters Dot Sharpspring dot com.
I'd now like to turn the call over to Sharpsprings CEO, Rick Carlson Sir. Please proceed.
Welcome everyone and thank you for joining us for the call today. After the market closed we issued a press release announcing our results for the fourth quarter and full year ended December 31st 2019, a copy of the press releases available in the Investor Relations section of our website.
Looking back on the past year 2019 was another period of steady growth for our company as we continued to build on our leading position as the Premier agency focused marketing automation solution in the market today.
Financially, we generated EUR 11 consecutive quarter record revenue in Q4 and over 6 million. During the period. We finished the year at 22.7 million in total revenue.
In Q4, we also generated sequentially improved new customer wins and agency partner sales.
At the end of 2019, we counted approximately 2000 digital marketing agencies and over 500 direct customers as sharpspring customers.
Crossing the 2000 agency Mark might just be another number to some but to us its represents much more first it speaks to our ability to consistently drive new customer wins over an extended period as I. Just mentioned we are in agency first organization, our rapid rise on as one of the top solution providers.
And the agency vertical underlies this core focus.
Which makes us unique in the market defensible from competition and increasingly valuable to our core customers overtime.
Further to that last point, reaching 2000 agency. The 2000 agency milestone in just a few years clearly shows are immense value is being appreciated both in price and feature set by our customers agency and direct alike.
For agencies as they stay with us longer our lifetime values generated from this group will drive greater market, leading economics, ultimately, making us an irreplaceable part of their business.
All that said, we believe there's still plenty of room for us to improve in ours in several key areas meeting that challenge is what.
Ultimately allow us to generate significant returns over the multi year period ahead.
In recognition of our maturing business dynamics, we made a decision last year that 2019 would need to be time of serious investment investment in our processes in our technology and in our people to that end.
In the latter half of 2019, we made a number of key strategic moves with a focus on positioning our business for long term growth.
I plan on speaking more fully on the on three of these areas of focus later on in this call. However, before I do I'd like to formally introduce our new CFO Michael Tower.
Michael started with US in December and is already hit the ground running he and his team had been a hard at work strengthening the existing foundation of our financial processes.
He brings with him over three decades of financial and accounting experience in several senior leadership roles were very fortunate to have someone like Michael step into our CFO role. He is an experienced finance veteran and very well versed in the SAS industry, having previously come from a 1000 person team and leading a successful acquisition.
Oh, it's connects wise.
As we look to take Sharpspring forward in mature organization for long term growth and sustainability Michaels is exactly the guy we want on our team at this point I'll now turn it over to Michael who will run excuse me, who will walk us through our financial results for both the quarter Endear, Michael. Thank you rents I appreciate the time words good afternoon, everyone on.
The call before I begin I would like to take a moment and see how excited a him to be part of the Sharpspring team all right now, let's turn to the financial results for the fourth quarter in full year ended December 30, Onest 2019, or total revenue in Q4, 2019 increased 19% to a record 6.1 million from 5.2 million in Q4.
For 2018 for the full year 2019, or total revenue increased 22% to 22.7 million from 18.7 million in 2018, our gross margin for Q4 2019 decreased to 65% from 72% Q4 2018 in dollar terms gross profit in.
<unk>, 7% to 4.0 million from 33.7 million in Q4 2018 for the full year 2019 gross margins held steady at 69% those this year and in 2018 in dollar terms gross profit increased 21% to 15.6 million.
From 12.9 million in 2018.
As mentioned on previous calls over the past few years, we have invested significantly in resources in our hosting infrastructure account management teams and support organizations to reinforce the current and future growth or product as we continue to layer on revenues onto the platform, we will create greater operational leverage in our model.
Nice job scaling and leveraging our infrastructure, which has allowed us to maintain gross margins of nearly 70% for the year and even in the face of some strong short term headwinds in more detail during the quarter. We did experience margin compression due to a few factors first of course, we had to deal with a few integration items related to.
Perfect audience acquisition second we made further investments in key areas that will support our growing customer base as we optimize our process for bringing on additional customers with special focus on customer support and Onboarding third it with our account management team fully staffed the additional costs associated with his head count also play.
A factor going forward, we plan on realizing significant benefits from these investments that will help generate positive long term margin expansion.
As it relates to perfect audience. We believe this business on its own will be higher margin products. After we finalize the integration process, which we expect to happen later this year in performing arts due diligence, we realized that the premiums.
Go to market strategy had actually created friction between the customer and re targeting AD buy in response, we have invalid any new buying process that includes a subscription feature that incentivized as continue usage.
On a more macro level, we also expect to benefit from our cross selling efforts into our current sharpspring customer and vice versa. As it relates to account management, we're seeing continued signs of progress.
Progress for this effort and we continue to maintain our long term pieces that understanding and helping our customers become more successful on our platform will ultimately translate into a greater lifetime value well it.
Well one the topic of gross margin. We continue believed that our long term gross margin could be in excess of 80% turning to our operation operating expenses for the Q4 2019, our operating expenses increased 11% to 6.7 million from 6.1 billion in Q4 2018 for the year.
2019, or operating expenses increased 19% to 25.8 million from 21.7 million in 2018.
Quarterly and annual increase due primary to investments in sales and marketing initiatives and decelerate or future growth additional investment in our R&D organization to accelerate road map items and increase to our DNA. We continue to bring on additional employees to support our future growth needs and increased regulatory costs on a GAAP NOI.
Loss basis for Q4, 2019 totaled 2.7 million or 24 cents per share compared to a GAAP net loss of $2 2.3 million or 26 cents per share in Q4 2018.
For the year full year 2019, or got GAAP net loss totaled 12.4 million or $1.20 cents per share compared to a net loss of 9.5 million or 111 per share in 2018.
On the balance sheet, we had 11.9 million in casualty ended the quarter compared to 13.8 million at the end of the prior quarter and 9.3 million.
Number 30 Onest 2018.
Looking at our non-GAAP measures on adjusted EBITDA loss for the quarter, which we reconcile our earnings release totaled 1.9 billion. This was an improvement over last quarter and as an increase from our additional EBITDA loss of 1.6 million in the same period a year ago.
For the your full year 2019, or adjusted EBITDA loss totaled 7.4 million compared to 6.2 million in 2018.
Our core net loss for the quarter, which is also reconciled in our earnings release totaled 2.1 million or 19 cents core net loss per share compared to our core net loss of 1.7 million or 19 cents core net loss per share in Q4 of last year.
For the full year 2019, our core net loss totaled 8.2 million or 79 cents core net loss per share compared to our core net loss of 7.0 million or 82 cents core net loss per share in 2018 for more details on adjusted EBITDA in a core net income metrics. Please see our reconciliation to GAAP.
Terms included.
In our supplemental tables of today's earnings release.
Moving to some of our other metrics during Q4 or cost to acquire customers was approximately $9900, which was impacted increased sales and marketing spend in prior quarters. As a reminder, we definitely customer acquisition costs as the some of our all in sales and marketing cost for Q3 2019 divided.
By new wins from Q4 2019.
It is important to mention that our tax calculation isn't perfect because it does not take into account the marketing spend in one quarter and has a long tail continue to impact deals that we win in future quarters.
As a cohort bases, we see lower tech and what was reported in these these numbers reflect.
So we do expect experienced fluctuations in this metric quarter to quarter. We're confident that we continue to consistently acquire customers at our historical track them all in rate that will deliver significant lifetime value for the business in the future or lifetime value calculation, which are long term and include estimates for future performance continue to indicate.
Our agency customers could be worth approximately 40 to 50001, a business one average the long term value reflects the benefits of the company on a fully discounted basis after reducing for estimate gross margins cost to support the customers on a platform based on these figures are expected lifetime value for customers acquisition.
<unk> cost ratio continues to be compelling and we we are working to make it even better.
Moving to the capital markets activities.
Perfect audience financing as rig celebrate certainly in December we announced the acquisition of perfect audience from Marin software for a net consideration of 4.6 million at the same time, we entered into.
Definitive agreement to sell 555506 shares of our common stock in a private placement exiting and existing institution shareholders for a company for an aggregate purchase price of 5 million as reasonable these transaction our net cash positive.
Dick test position was largely unaffected.
As a bit of a commentary we feel that the leveraging inside participation to fund. This acquisition was multi level outcome for the company. Most obviously a long term outlook with respect to cash usage can remain unchanged.
We also believe that continue support for the major holders in the Companys speaks to the compelling opportunity the price point.
Couple of my acquisition provides.
2020 guidance.
Turning to our financial outlook, the financial year, ending December 30, Onest 2020, we expect total revenue to range between $30 million to $31 million with we respect represents approximately 32 to 36.
Percent, respectively compared to the prior year. The company's guys is based on recurring revenue from our current customers based on early performance, resulting we're recording in the first quarter and the material positive impact from the recent price increase we.
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[noise] Corona virus situation developing quickly we believe it's important to be transparent about how sharpspring is responding to your outbreak.
Our philosophy as a business is to approach the situation with empathy, an urgency that's a top priority or the health and safety of our employees and all of our community, we serve including our customers partners prospects intended.
Given the rapid outbreak is evolving we expect that we are prepared to.
Reevaluate our approach on a regular basis to ensure the health and seats of our employees and communities.
We will be proactive and make necessary changes to our activities and spend to ensure we meet our critical objectives for 2020, we will update our plans around the virus accordingly in respect of fundamental changes to our situation.
This completes our financial summary.
I'd now like to turn the call back to over to Rick for additional insights on the operating progress in Q4 as well as the outlook for 2020.
Thanks, Michael as I mentioned in my opening remarks, 2019 was a year of investment that we expect to translate into benefits for us over a multiyear period, while our efforts remain ongoing we've seen strong signals that the choices. We've made over the last year, where the right ones to recap 2019 was about.
Investment in processes technology and people.
I'll tackle those items in in the order just listed starting with our processes one of the most important metrics, we track internally to gauge our successes lifetime value.
Hand in hand with that metric is net revenue retention.
While reducing our logo attrition is something we're always trying to improve but ultimately drives greater lifetime value for us is net revenue retention put another way retaining a top customer and helping them significant significantly grow their customer base on our platform far outweighs the benefit of maintaining logo reach.
Mentioned with smaller contributing customers that do not expand.
It's this philosophy that informs our agency go to market approach and it's the same thinking that led us to switch direct customers to an annual billing model earlier this year.
As we've discussed in the past, we know that as customers get older. They generally become stickier and by creating a forced function within the direct customer group that has historically yielded higher attrition rates, we feel good about the long term value the long term prospects once we get them in the door.
[noise] further to that point in the fourth quarter, we signed 60, new direct customers, which was up 40% from the 43 direct customers we signed in Q3.
Which is an encouraging sign that our direct sales teams have begun to adjust to the selling of annual contracts.
Another area, where we've seen late where we've been laser focused is in our effort to reduce customer acquisition costs.
Through the reprogrammed effort of our BD our team.
As I as.
As a reminder, this is the mid funnel team that creates demos for our sales team to close the leads that our marketing team brings to the top of the funnel.
As I mentioned on our last call. The difficulties. We previously sonar BDR team were both structural and leadership focus regarding the latter I'll speak I'll speak to it.
To that in a minute regarding the former during the second half of the year, we added new managers adjusted BDR compensation and revisited the BDR teams processes by working to optimize their activities using our that are then new feature sales optimizer that automatically schedules and enforce.
This is an optimized process designed to maximize sales productivity in conversion.
Throughout this process our logic is remain the same more demos means more sales overall.
For this reason I'm happy to report that as a result of these efforts and changes in Q4, we saw record demo scheduled for our sales team.
Value.
Turning to our value proposition, we've continued to make substantial improvements in add additional features to our platform such that today, our customers are increasingly benefiting from a more premium experience put simply the differences between our platform and much more expensive platforms offered by Hubspot and Marketo.
So for example are almost nonexistent.
And just the past few months alone. We've added several valuable features including direct billing chat, but functionality custom reporting and the aforementioned sales automation.
And we've also added our meetings feature which has been widely adopted by our customers.
Our new chat, but functionality for example, which launched in beta couple of weeks ago, and which will go into general release next week gives our marketing agencies, yet another strong lead generation and nurturing tool that they can bring to their clients similar chat bots.
From point solution companies like drift and Entercom cost between tens and hundreds of dollars per month and do not have the benefit of being tightly integrated into the technology stack like sharpsprings fully ought to greater.
Fully integrated chat, but.
We've chosen to include this powerful feature without additional charge with every standard license of Sharpspring and our agencies can't wait to get their hands on it.
Shifting gears the value we've added to the platform over the last two years and our continued focus on driving investor value, let us to a significant pricing decision at the beginning of the year in January we instituted a modest price increase which apply to a targeted segment of our agency customers and which will be.
Incrementally rolled out across the entire agency base over the next year.
Under our updated pricing agency customers, who have been with Sharpspring for over a year at the time of the price increase are now being build an additional $75 per month per active license.
Going forward all agencies, who are currently within a year of sign up will be transition to the new pricing at their one year anniversary date, we feel this timeframe allows enough.
Time for agencies, and even our direct customers to become fully onboarded onto the platform and begin experiencing the benefits that marketing automation brings to their sales and marketing processes.
We have strong data to support the stickiness within our mature agency user base as they made sharpspring an integral part of their business early signs are positive at this price increases not had a meaningful impact impact on our attrition rates within the group.
We believe this is a direct reflection of the value we've added to the platform as well as the fact that we remain significantly below the price points. So the other industry players with whom we compete.
Because of this price increase because this price increase was instituted early in the new year. Its effects will only partially be felt in Q1 and did not impact and did not impact results for the end of the year in Q4 in Q4 quarterly net revenue retention across the entire customer base was approximately 97.
Per cent compared to 96% last quarter.
We've said publicly that we believe we can get to 100 plus percent net dollar retention with our total customer base as our customers age and we're left with a larger base of dedicated customers.
For clarity quarterly net dollar retention compares Q4 revenue to Q3 lab revenue from cohorts that were at least three months old in Q3.
Moving to technology I'll now spend some time talking about our biggest event from the quarter our acquisition of perfect audience from Marin software.
In November we announced that we would be acquiring.
The digital advertising platform perfect audience for a net cash consideration of $4.6 million.
As a bit of product background perfect audience is a cloud based platform that enables multichannel re targeting to known leads plus targeted advertising to new prospects via look alike audience functionality.
It empowers marketers to create manage and optimize their AD campaigns across thousands of sites using Google Facebook Instagram.
And all the leading AD exchanges and partner networks.
Simultaneously now that perfect audience is a part of Sharpspring, we intend to extend its functionality beyond re targeting and into a more broadly focused digital ad platform.
Sharpspring user base of digital marketing agencies and our clients.
And their clients offers an exciting strategic fit between the SMB focused perfect audience platform.
Perfect audience ads powerful lead generation functionality that fuels the top of the funnel lead generation efforts plus additional lead nurturing capabilities to maximize middle of the funnel conversion. These features compliment sharpsprings core feature set designed to track nurture and convert leads into sales.
From a strategic viewpoint this new offering pairs perfectly with our brand promise to help our agency partners grow their businesses and deliver better results to their clients. We believe nearly every business should be leveraging re targeting because it enhances the effectiveness of all their other marketing efforts the acquisition.
And also introduces an entirely new suite of tools and revenue stream for Sharpspring Agency partners and is therefore, a highly complimentary transaction for our company. We now have another related product to sell into our existing roughly 2000 agency customer base to that.
The extent we are successful this represents an opportunity to for us to expand within each agency, increasing both revenue and margin and increasing the average lifetime value of each agency relationship.
Put simply combining a powerful SMB focused digital AD platform with marketing up automation creates a combined product offering unlike anything on the market.
Since the acquisition, we've completed both single sign on and unified billing between Sharpspring and perfect audience for our agency partners, providing a seamless experience to our agency partners and their clients.
In Q2, we're intending to add automatic campaign attribution and other integrated marketing automation features that are only possible with this combined product offering.
Also notable the acquisition allows sharpspring to become an official Facebook marketing partner, which allows us to pursue adding Instagram to our existing social media management tool, which will fulfill and popular customer request.
Moving to our final area of 2019 investment during the fourth quarter, we made a few strategic hires which we believe.
We will collectively have a major impact on the health efficacy and growth prospects for Sharpspring.
First as I mentioned in my opening remarks, we've now got Michael power onboard as our new see FFO. He brings an impeccable and directly applicable track record with them. Furthermore, he has the exact experience leading companies at scale that we need as we continue to mature as an organization.
Also as I alluded to earlier in December we hired 25 year sales veteran Olivier Colby on to head are up that division.
In the short time Olivier has been with US. He has already made incredible progress on the hiring side has been instrumental in identifying and bringing strong talent and he is also developed improved processes for mentoring and existing.
The existing team to drive better performance on the operational side I mentioned earlier that.
The efforts Olivier has made to drastically improve the efficiency and effectiveness within all steps of our sales funnel.
We've also reconfigured our compensation for the sales and business development team focusing on both inbound and outbound our goal is to create a culture of performance and were reorganizing our teams processes and even our compensation models to ensure this happens.
Looking at our current quarter, we're seeing improved sales growth through our first two months of the year, which continues to validate our efforts to improve all areas of our sales and marketing funnel.
As I mentioned in my opening remarks, 2019 was a year of investment for our organization. This year was about.
Laying the groundwork for something bigger of course, we're focused on consistent growth, but we also have a long term mindset. We believe we are at the beginning of the adoption of marketing automation and our success was as well as our success within that market and we're making decisions based on that outlook.
With a number of newly optimized internal processes, a continued focus on improving our technology and aggressively built out leadership team, we're expecting health healthy new customer group growth further improvement to our net revenue retention and continued cementing of our position as the leading affordable marketing.
One provider in the market.
As Michael shifting gears as Michael mentioned earlier, the Corona virus situation is developing quickly and we believe it's important to be transparent about how sharpspring is responding to the outbreak.
From a business perspective, we believe we have several factors going in our favor should we have to whether a core corona in virus induced economic storm.
For one our technology is critical to the success of our customers put simply it is more of a must have technology, rather than a nice to have or optional technology. The fact is we allow businesses to operate more efficiently and this only becomes more essential during tough tough economic times.
Second we are the low cost alternative and represent a huge value to customers here, we expect that customers looking to save costs associated with far more expensive solutions will continue to turn to sharpspring.
Finally, our customer base is highly diversified we have approximately 2000 agencies, we counted as customers and none represent more than a single percentage of our revenues.
Most only fractions of a percentage point further to that each of these agencies has their own customers using sharpspring underneath them, adding a second lever.
Layer of revenue diversification for us in short like all companies were paying close attention to the developing corona by virus issues and while we feel confident.
Confident we are well positioned well take the necessary steps to continue to grow.
Our value the value of our product and our business for the benefit of our investors employees and customers and with that we're ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you the foreign thought open for question. If you do you have a question. Please press star one on your telephone keypad at this time using a speaker phone, we ask that well posing a question you pick up your handset to provide the best sound quality again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
We'll go first today or not he at Roth capital partners.
Hi, guys. Thanks for taking my question.
If I may so just on your 2020 guidance.
Can you kind of give us a little bit of understanding.
What is contemplated sort of.
One, adding new customers and the price increase.
Versus maybe any cannot do traction product some of the stuff huge huge auction that lasted three to six months.
Second second question.
Great just get understanding of a baby strategically with account management fully up and running now what your initiatives are for kind of gaining wallet share within some of these more mature agencies and our last question I appreciate the commentary around the corner Lars.
So this maybe a little bit difficult.
Question answered but.
If this was again to a point, where you know sort of the U.S. was was shut down.
It is your own business able to function completely virtually meaning that the work from home sales.
This development et cetera would that have any kind of hick up to your business really kind of risk points would be insightful to hear from thank you.
That's great.
I invite you to put me back on track, if I don't answer or Youre, all three parts to your all three of your questions with regard to the revenue the 2020 guidance.
[music].
The.
The plan that we have.
Have set forth.
Is not dependent on a large revenue streams or adoption or unproven adoption of new products.
This is a.
A plan that includes the effects of our price increase and sales levels that we believe that we can achieve handily and so we feel very good about.
About the guidance that we're providing them with the simplest way to say that we do we don't see very large and I would also add the maturity of our of our agency customer base and them, adding adding clients to the platform.
And so they're not large leaps.
Or a of faith, there that aren't based on at least trends that we've seen historically and here I have corona virus and in the front in my mind as I as I say these words.
[music].
The second question could you mind, Oh, you were asking about expansion revenue within the within the agencies and account management and so forth. Yeah. We continue to work on that are as you know 2019, we invested in account management. Our account managers that were hired on us staggered basis throughout the year.
Began began to build relationships with their agency.
With the agencies that they managed we have a number of tools start materials and so forth to begin helping our agency sell.
To their clients many of our agencies.
You know their marketing agencies not software.
Sellers of software and so we.
Recognize that and have worked on programs to help them sell.
And of course, we continue to add value to the platform when the when the platform is continues to be powerful I'm sure everyone. On this call regularly in or interacts with chat bots.
That is now a on websites that is now critical functionality that is included in our platform all of these things increase.
The option and so.
Really it's a multi pronged approach to try to get expansion revenue from our.
From our agency partners.
With regard to Corona virus.
Interestingly, we as a company had made a call a couple of months ago to work.
Based on a performance based what we referred to as a performance based work week.
Here a lot of that ground work.
Is is has prepared us well for.
The potential to have people working from home if needed.
I could talk a long long time, but theres a number of questions behind yours.
But what I would tell you is that everything our entire service.
And every technology that we use as cloud based so there is zero.
In short of problems within the global Internet structure, and let US all just hope that the that's not what we're talking about sort of things like that we are 100% insulated.
In terms of our infrastructure and our ability to keep doing business.
And so we feel well positioned to and we we are actually looking at what we might do for employees here without decisions having been made in that regard. So hopefully I got all your questions. Thanks for for them I appreciate it turn.
Okay. Thanks.
Well go next to Eric Martinuzzi at Lake Street capital.
Hey, Congrats on the 2000 agency milestone that's a nice accomplishment for the team.
Thanks, Eric.
No wonder tease apart the guidance and 2020 I understand we're talking about 30 to 31 million, but I also understand you guys. Just picked up perfect audience I think at the time you acquire them you said that they were doing about 3 million and if I back that 3 million off of the 2020 guide I'm coming up with.
Roughly a 27 and a half million midpoint for about 21% for organic growth can you help.
Either confirm that or.
LP do the math.
Well we've included the we've included the perfect audience revenue in the guidance and.
While we feel.
Very very bullish on the guidance that we've.
We've given.
We felt it made sense I think the guidance that we are providing is.
With the unfolding Corona virus situation.
Taking into consideration.
And so we did not feel it made sense to throw a.
Much higher number out there with everything that is literally happening today in real time.
So there was much discussion internally about that but I think you know your numbers are right I do feel confident that a you know we're closer to the 30 31 range and we feel we've given ourselves quite.
A hair cut given everything that's unfolding.
As I was asking the question I realize there were some perfect audience in Q4 can you quantify that dollar amount Michael.
300000 approximately.
Gotcha Okay.
Okay.
Now the price increase rolling that out you talked about hey, we're not seeing any negative impact from the price increase we've got a robust platform still.
Substantial discount versus peers is there.
If there if you weren't to see impact would you would you see it.
Would you see it first on the direct sale side would you see it first on the agency side when would you see it as far as the impact to the retention or the sales cycle.
Well I think a huge huge.
I mentioned, the multi layers of I would I would think that people have already digested in large part the price increase and passed it onto their customers or absorbed it and so I don't.
While over Q1, I think is where you would see any additional attrition and I'm, giving you sort of up to the minute information and telling you we've not seen significant attrition.
I think setting aside you know corona viruses and the like.
We've already passed through that period by enlarge.
Okay. So they people pretty much they got the latter they digested this in the first half of January.
We've got we've got some history under our belt is it fair.
Yeah, I think that's I think thats, mostly fair that's correct, we as we spoke about.
There are agencies that we are with us for less than a year that we did not feel.
It made sense to give them a price increase having been with us for such a short period of time and that would happen for them on the anniversary of there.
They are joining sharpspring and so there will be trickling affects of both the price increase and potentially any associated attrition again, we've seen very little.
Okay and last question for me I look at the cash flow statement for 2019, you guys had a.
Cash used in operation was about 8 million.
We see given the price increase given the incremental revenue for perfect audience.
What's the expectation as far as cash usage.
Tony.
No less than.
For Q4 2020, we believe we will be.
Less than setting aside or.
Issues I would say between five and six.
Okay potential potentially closer to five.
Okay. Thanks for taking my questions and congrats thanks.
Just a reminder, at West Star One if you had a question or comment well move next to David Hynes that Canaccord.
Hey, Thanks, guys, Congrats and results I'm, saying I just want to make sure.
Understanding the price increase right you said 75 dollar increase on a $200 client.
And use our client license is that right.
Well the $75 is correct as a point of fact, depending on when you joined US you may be paying $200 that was the latest pricing that we had prior to the price increase.
Early agencies might have been paying less but everybody got a 75.5 dollars a price increase to their license on active licenses.
And so long as the agency was older than a year.
So I mean, it's a significant rates at 37, 38% price increase and just kind of reconciling that with low 20%.
Organic growth guidance for next year. It tells me Hey, you guys are just being super conservative or be maybe factoring in some heightened attrition I mean any.
Obviously, the price increase takes some time to kind of flow through the base, but.
Anything to help kind of reconcile that.
Yeah, I think in light of and in light of what's going on today, we opted to be very very conservative.
Yeah, I think you should look at this as a corona virus adjusted forecast.
Which is makes sense to do in this environment.
I wanted to follow up on the cost of acquisition I mean, obviously, we've seen a step up you addressed that with some of the changes in the BDR team it sounds like you're seeing some.
You know decent results moving forward I know Q4 was a good quarter.
Should we use Q4 sales and marketing spending is kind of a decent run rate for 2020.
Just help us think about.
Kind of how that from a plays out from.
Sure from a tax perspective.
Well just wanted to buy I was thinking more like sales and marketing spend right you spend to eight yeah in the quarter. It was down from what you signed in Q3.
However, you want to comment on that yeah, I'll tackle it spend just any kind of yeah framework for 20 would be helpful.
Sure.
I I.
Listen I'll give you an honest answer I don't mean to be cagey about it we've got a number of things pointing us in the direction of improved efficiency. So we're executing better in the middle of the funnel, we're executing better closing.
As you saw we identified some things in Q3 that we felt like we're we're not working and we eliminated those things and Q4, we think those are our permanent changes so I think Q4.
At the same time, you know potentially the board has changed here for for US in every other company and so.
If I, maybe the easiest way to answer that.
Prior to the last couple of weeks, we were quite confident that we could lower CAC.
Significantly down into the you know 7500 a range.
We still hope to be able to do that one of the things that but you know where we still hope to be able to do that but clearly if people are taking a step back is it we could benefit from this as we discussed in our remarks at the low cost leader, but what I can say with clarity as prior to.
To the board shifting as it has underneath US we were quite confident that we can get back to 7500 CAC.
Okay.
Have you seen demo activity materially slow over the last couple of weeks.
Not at all not no not at all thankfully, Okay, we have not.
And then one one last quick one if I can just on perfect audience is that revenue variable or is that contractually committed right I think if some of these AD spend models. We can be seen some swings just help me understand kind of business model there.
Yes sure. It is it is variable that is variable yeah, that's right so agencies and their customers.
Decide on an edge AD budget and spend on what we're excited about with that business is broadening its functionality to a to being more of a digital a full digital marketing automation Vicki.
A full digital advertising platform.
And so that gives more opportunities for customers to spend dollars.
As well.
Okay, Great I'll pass the line. Thank you.
Thank you so much.
Well move next to Mike Malouf at Craig Hallum [noise].
Great. Thanks for taking my questions how you don't.
I just want to maybe drill a little bit more into this price increase can you give us a sense of how much say we look at Q2 for example, how much of that price increase you take that you'll end up realizing in Q2. After you sort of a you ramp in Q1, and then I know that there's obviously a pretty large percentage there's still.
Under that one year can you give us a sense of how that plays out over the next.
12 to 15 month.
Yeah, we will get most of the impact in Q1 of the price increase.
The.
That we got for customers.
That were more than a year olds. We started this close enough to the beginning of the of the quarter to call. It a full quarter I know or comments. It we were being more factual, but it was it had customers a few days late in January.
I think we're going to be adding about another.
I'm going to say, 10% or so of customers in each subsequent quarter, we'll sort of be eligible for the price increase as sort of rough math.
So you'll be seeing that.
The those layering on with each passing quarter another.
Ah if 70% of our customers affected were affected by the price increase then you'll get the other 30% throughout the year.
So in effect and the second quarter, we probably have close to 80%.
Your clients getting that 37.5% price increase.
Yeah, that's what that's that's.
Rough math, but that's about right.
And so I just minus the attrition that's a that's the impact on the revenue.
Correct.
Okay and then just another question with regards to you guys have instituted a M. A partner program fee reimbursement fraud spot Im just kind of wonder how that's going up and they just get an update on that.
Yeah I didn't expect that question you you're paying close attention. Yeah. We did something that was pretty I think novel.
Weve offered to pay for those on the on the call that aren't familiar with Mike's question, we offered to pay hubspot partner pricing fees for anybody who is thinking about joining hubspots partner program, which there literally charging people for the right to a joined their partner program. We thought that was a little.
Aggressive and so we've offered to pay for those fees.
We have had a a healthy number of customers.
Somewhere between 50, and 100 as I said customers prospects.
I would say that have responded to that campaign and our somewhere in our in our funnel at this point.
Just a few prospects and you know, it's our belief that when people see what we have to offer they sign up with us and so the name of the game is to get their attention and that is why we ran that that little program.
So, yes somewhere between 50 and 100 prospects Oh.
Responded.
Okay, great. Thanks for the helped push it.
Thanks, a bunch appreciate it.
Well no other questions holding I'll turn the conference back to Mr. Carlson for his closing remark.
Well I want to thank everybody for joining the ER. The call today, we clearly are living an interesting times I wish you all the very best with your health and investments and the rest. Thank you guys were supporting Sharpspring, we will continue to do what is necessary to.
Create value for each of you and our company in our employees and our.
Most of all our customers and partners. Thank you all appreciate it be safe.
Thank you Mr. Carlson before we conclude today's call I would like to provide Sharpspring safe Harbor statement that includes important cautions regarding forward looking statements made during this call.
During today's call there were a forward looking statements made regarding future events, including Sharpspring future financial performance.
These statements reflect the company's current views with no respect to feature event.
These forward looking statements involve known and unknown risks uncertainties and other factors, including those discussed under the heading risk factors and elsewhere in the company's latest annual report on form 10-K, and quarterly reports on form 10-Q.
That may cause actual results performance or achievements to be materially different from any future results performances or achievements anticipated or implied by these forward looking statement.
The company does not undertake any responsibility to revise any forward looking statements to reflect future events or circumstances.
Also note that during this conference call, we may make reference to adjusted EBITDA core net income or loss, our core net income or loss per share, which are non-GAAP financial measures presented a supplemental measures at the company's performance.
A reconciliation of net income or loss of non-GAAP measures is included for your reference in the financial section of the earnings press release and made available on the company's website.
Finally, I would like to remind everyone that according of today's call will be available for replay via link available in the Investor section of the company's website.
Thank you for joining us today for Sharpsprings fourth quarter and full year 2019 earnings Conference call. You may disconnect and please have a great day.
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