Q2 2020 SharpSpring Inc Earnings Call
Thank you for holding ladies and gentlemen, your online for Sharpspring second quarter 2020 earnings Conference call. At this time, we are still gathering and just some participants and we'll get started momentarily we.
Yeah I see you. Please continue to hold we thank you for your patience.
[music].
Good afternoon, welcome to Sharpspring second quarter 2020 earnings conference call joining us today are Sharpsprings CEO, Rick Carlson and interim CFO Aaron Jackson.
Following their remarks, well open the call for your question.
And before we conclude I'll provide the necessary cautions regarding forward looking statements made by management during this call.
I would like to remind everyone. At this call will be recorded and made available for replay and be a link available and Investor Relations relations section of the company's website at investors that Sharpspring Dot com.
I would now like to turn the call over Sharpsprings CEO Rick Carlson. Please proceed sir.
Welcome everyone and thank you for joining us today after the market close we issued a press release announcing our results for the second quarter ended June Thirtyth 2020.
A copy of the press release is available at the Investor Relations section of our website.
In the second quarter 2020, we built on our strong started the year and continues to generate consistent results both in new customer wins and in many of our operating metrics financially we achieved our 13th straight period a record.
Demonstrating the resiliency of our operating model and the challenging marketing market environment. Additionally, thanks to our increasing operating leverage as well as our ongoing cost reduction measures implemented as part of our comprehensive Cobiz 18 response plan he drove healthy improvements in our margin margins in overall.
Profitability.
The 276, new customer wins, we secured during the period, representing approximately 2.2 million in annual recurring revenue.
This represents a healthy improvement over Q2 last year.
Well, the new customer count represents solid performance in the quarter marred by the onset of hope. It improves there are reflects the fact that we began to land larger customers during the period as well I'll explain more on that just a minute.
To date Sharpspring now accounts for approximately 2000 agency customers and over 500 direct customers and over 8500 total businesses using our platform.
As always we know a lot going on I'm excited to share more about <unk> and where we're headed however, before I do that is going to end the call over to a new voice, our interim CFO Eric Jackson.
Many of you on today's call will be aware that last month, we announced the departure former CFO Michael power.
On behalf of the Sharpspring leadership team I want to extend sincere. Thanks, Michael first service to our organization.
Although the time with US with limited Michael made an impact on many of US personally as well as professionally out of respect for his privacy Oh, just shared that Michael departure was for personal and family with the reason indirectly associated with the ongoing covenant and then.
While disappointing we recognize that were in middle of the wants to the generation health crisis, which has impacted us all in different ways. We wish him in his family continued wellness.
We all continued to adapt to the new normal.
That said, we're in very capable and stable has with Aaron taking over Michaels absence.
It's more than three years it Sharpspring heritage in a rising star organization and I look forward to see them step up to the didn't get the real.
Well I'm quite confident in their ability to take on his new position, we're making sure that we leave knows no started stone unturned and they're building their fiduciary obligations the shareholders to that end, we've actively engaged with an executive search firm to identify the right Internet who bodies, both a mix of operational skills in corporate finance experience.
To support our long term growth.
Well continue to keep you apprised of our decision making process in coming weeks and with that I'll turn it over to our interim CFO and actually Aaron.
Thanks for the introduction wreck and good afternoon, everyone, joining our call before I turn to our financial results I'd like to thank reckon, our board of directors for allowing me. This great opportunity. During this kind of transition I'm looking forward to continue helping wrecking the rest of the Sharpspring leadership team grew out of the company.
Turning now to our funding occur results for the second quarter ended June 30 2020.
Hi, total revenue in the second quarter increased 32% to a record 7.3 million up from 5.5 million in the second quarter last year.
Our margins for the second quarter of 2020 increased to 74% from 71% last year.
In dollar terms gross profit increased 39% to 5.4 million.
3.9 million.
Second quarter last year.
Turning to our operating expenses.
Okay. The second quarter of 2020 operating expenses increased 9% to 6.3 and 6.19 in Q2 of last year.
Modest increase was primarily due to increases in research and development general and administrative costs to support our future growth needs along with increased an intangible asset amortization related to our acquisition of perfect audience in November 2019.
Our GAAP net loss for the second quarter totaled 970000 or eight cents per share.
Which was a significant improvement compared to GAAP net loss of $4.2 million or 41 cents per share in Q2 2019.
On the balance sheet, we had 15.3 million in cash at the end of the quarter Pega 11.9 at December 31st 2018.
In June we also renewed our existing 2.5 million dollar line of credit.
Going forward, we remain confident in our cash position to support our got needs for the foreseeable future.
Looking at our non-GAAP measures.
Our adjusted EBITDA loss for the quarter, which we reconcile <unk> earnings release totaled $122000. This represented a significant improvement from an adjusted EBITDA loss of 1.7 million in the same period last year.
Our core net loss for the second quarter, which is also reconciled in our earnings release totaled $381000, what three cents core net loss per share compared to corn that loss of 1.9 million.
Or 19 cents core net loss per share in Q2 of last year.
For more details on our adjusted EBITDA in core net income metrics. Please see the reconciliation to GAAP terms included in the supplementary tables of today's earnings release.
Moving to some of our other metrics.
During Q2, our cost to acquire customer was approximately $10900, which was a sequential increase from 9800 recorded during the first quarter of 2000 and Tony.
We calculate customer acquisition cost as the some of our all in sales and marketing costs from the prior quarter. In this case Q1 divided by the dollar value new wins recorded in the subsequent period in this case Q2.
It bears mentioning that this quarter's CAC calculation artificially reflects a pre cobot, 19th sales and marketing spend as the numerator and they covert 19, adjusted new deal closing at the denominator.
In the current quarter, we're already seeing reduction in our cap estimate as our spend is reflective of the current economic environment.
But that's in mind, we remain confident in our ability to consistently acquire customers that are historically attractive all in rate.
That will deliver significantly life significant lifetime value of.
For the business in the future.
Turning to our financial outlook for fiscal year, ending December 31st 2020, the company expects total revenues between 29.5 30.5 million.
Which would represent an increase of approximately 32% compared to the prior year.
This range of total revenue was driven in large part are perfect audience revenue through the second half of a year.
The company's guidance is based on recurring revenue from its current customer base and performance results track through July of this year.
These expectations also include an anticipated impact from the Cobot 19 global endemic based on information available as up to date at this report.
This completes my financial summary, I'd like to turn the call back over to record for additional sites to be operational progress and Kikuyu, there's all the outlook for there I mean, that's 2020.
Rick.
Thanks, Aaron well done.
We continue to mention quite frequently since the initial onset of the pandemic earlier. This year. We believe strongly that sharpspring is strategically positioned that number ways that will allow us to be resilient in the pace of a challenging economic environment, but plainly our performance in Q2 as borne that thesis out.
Our our platform provides tremendous value in terms of its category and value proposition. We are an essential tool eating sales and marketing teams at a time when execution than those functions is needed most.
And more difficult financial climates businesses are depending on their sales and marketing more than ever and where are the solution. They used to operate more efficiently and effectively.
Finally, as the low cost provider in the space. We're also insulated from companies seeking to lower cost by switching the more cost effective solutions.
With that backdrop I'd like to speak briefly on some of our key performance indicators and how our results were impacted during the quarter.
Beginning first with net revenue retention on a year over year basis, Q2, 2020, net revenue retention was 91.6% on a monthly basis second quarter 2020 average net revenue retention is 97.6%.
The first point I'd like to make here is that our revenue retention has always been consider considerably better than our logo attrition.
And this is because we are very good at keeping our larger agencies that have figured out how to sell in support their customers.
Second I consider these numbers to be relatively steady when considering the current market and economic environment.
Well cold, but it's certainly impacted our business in the short term we firmly believe that we'll see if we are relatively near future, where we it's 100% revenue retention.
As a proactive measure last quarter, we deliberately reduce our expense budget. They faced by nearly 20%, which is expected to create significant cost savings for the remainder of 2020 and should also allows to meet our target cash usage for the year of approximately $4.8 million.
As the economy in our sales and marketing environment. They seem to show signs of recovery will continue to evaluate our approach to spending here. We feel is are we taking appropriate actions to support our business right now.
During the first half of the year, we spent approximately 3.5 million over 4.8 million 2020 full year projection during the second half of the year will continue we continue to expect to move towards group either.
As a highlight worth noting in Q2, we also experienced and continued gross margin rose to a record 74%.
This operating leverage was largely driven by our expense reductions and increased efficiencies within our support organization and hosting arrangements, particularly within perfect audience.
And our core Sharpspring <unk> business margins were 76% you too.
Which represents a significant improvement Q2 last year.
Since the end of March perfect audience margins also increased following the expiration of a shared services contract that was previously in place as we transition the business from Iran.
ER and integrated into our operations.
Yeah. The scale that were now achieving we remain confident in our ability to achieve Martin north of 80%.
Long term operating model.
And the uncertain environment, we find ourselves.
Our goal is.
Even more deliberate with our spend and more directly with our approach to sales and marketing.
So that and we've been focusing our efforts in recent quarters on making sharpspring, a primarily sales oriented business.
She has already led to a more efficient and effective lead conversion process.
As part of this process, we've eliminated the number of cost in our marketing channels that were marginally performing prior to that and that we knew would not performed well during <unk> and <unk>.
No we expect to save hundreds of thousands of dollars a month in every place that spend with more cost effective outbound sales processes that allows us to do you want a few companies hiring in this market.
As Aaron mentioned earlier, our marketing spend went down considerably in Q2.
We're still expecting to see similar sales levels going forward, which should lead to significantly lower back next quarter and beyond.
Also related to sales in Q2, we introduced a new pricing option for larger agencies that allows new customers to buy more like a run at a nominal discount and exchange for an annual commitments.
During the period, we saw strong interest in this new lochee from larger agencies and sold a so a total of 10 Bogo 1500 dollar 10 pack licenses.
One of which was actually a 40.
Sales units were largely in line with last year. Despite the Coca desire further our new agency customers were actually up year over year, the second quarter.
The larger deals resulted in a 10% increase in a our our from two point <unk> Q2, 2090 to 2.2 million in Q2 2020.
Separately, we've also continued to improve our sales and Andy.
So the annual contracts Sci direct customers, there's another positive sign.
Longer term, we're doing everything in our power get quality long term customers that can really get value from our platform.
We see the heaviest attrition taking place in your line and are focusing on executing within that timeframe.
Become a more sticky platform.
We also want.
[noise] sign up a customer that is committed to us committed to working on the platform.
Degrading it into their systems, we have a mindset.
Holding your business around Sharpspring, and our incentivizing new customers commit the time resources in effort in the learning how to implement the platform and sell it to their customers.
Which brings me to the subject to a new features coming soon one of our newest releases that I'm excited to introduce will be our new engagement platform, which we're calling springboard.
As a bit of in exposition pretty much every major software tool in the market suffers from the same core challenge, which is that they are under utilized by our customers.
Got it said becomes so powerful that most customers only use 20 or 25% of the entire tool set.
If you come back this industry wide problem, we are proactively building in in after engagement tool called springboard that is designed to provide a customized play into it user enabling an agency where their clients and know precisely what to do why to do it and when should do it.
We view springboard is a match up between expert system and on boarding what is a long term and a long term engagement tool.
We think it's going to be something every business can leverage for the entire time that they're using the platform to get those values.
Feature set that's included in Sharpspring.
Springboards unique value proposition that it doesn't just TJ user how would you use the platform acts as a business its own strategy could.
Advising you on how would you extract the most value platform.
And he's will receive customized stats to show a promised land you will have full implementation and will also receive concrete <unk> guidance, yes there.
Gamified the process to try to progress and unlock certification and merchandise rewards which show.
Also create further customer loyalty.
We have very high hopes for this and it's something that we really hurt we think we're really encouraged adoption of a great yourself features on average and therefore lead to lower attrition higher customer lifetime values and then the case of our agencies more expansion revenues over time.
As we continue to build out our platform. We're also beginning to see greater industry recognition for the quality and value of our product offering.
To maximize efforts in this area and others in June we announced the sad industry veteran chip house would be joining sharpspring as our new Chief marketing Officer Chip brings a wealth of marketing experience to Sharpspring and it's good and his credentials at high groups that operations, making a perfect that Ferrari.
Nation.
Chip was the first marketing executive Exacttarget, an early satisfied here, where he held several key leadership roles in marketing services through sales forces acquisition of Exacttarget target for 2.5 billion in 2013.
Early earlier in this Careered should also led marketing efforts for E Commerce provide provider digital river prior to its 2000 1998 public offering.
We're excited to have chip on board and believe you'll be able to really take our marketing brand awareness to the mess up.
A prime example of this new emphasis is our agency acceleration series, which was just launched last week.
14 part of program.
We will feature a episodic content from top digital marketing experts and superstar industry Influencers, let Neil Patel, Shanghai their brand, Michigan and handling the et cetera.
Series includes a mix of like 45 minute eat.
You in a recession.
Quick getting strategy sessions, followed by a lie to you in a very broad range of topics to accelerate agency group and client satisfaction.
Well pandemic this change the calculus for how to do B to B marketing how did you have PDP marketing that.
Response, we decided to focus on getting very high quality speakers and and industry experts in digital marketing note our webinar series.
We focus our entire business around agencies and constantly see a need for content with actionable takeaways agencies, who used to ignite and manage their.
We're excited to be able to give marketing agencies access to some of the preeminent needs and digital marketing.
The Speaker series is just one of the ways. We believe we can include not only our brand awareness with agencies across the world, but also show our credibility and offers the most advanced cost is that an intimate innovative marketing.
Automation platform available.
Oh finished with a brief node on perfect audience. As a reminder, we acquired perfect audience back in November from there and software.
As a business.
Hi, early on re targeting and digital advertising, we believe perfect audience is a great complement to our core sharpspring marketing automation solution.
First half of the year, our focus has really been about making significant changes to the customer acquisition process and working to increase lifetime value by helping customers better send their budget look like audiences. So far perfect audience is performed well in the face of strong economic headwinds.
Yes.
And we remain well within our range of initial expectations, while we've seen advertising budget compressor business second quarter recorded a 38% increasing the number of eight advertisers compared to the first quarter of 2020.
AD impressions are increasingly significant or.
Excuse me AD impressions are increasing significantly and you lose the single highest revenue since the acquisition. This improving performance is something we're quite proud of given how many other players in the space are experiencing major jobs and advertising revenue.
We believe that much of our stability can be attributed to the improvements that we've been making onto the platform as the economic conditions and as the economic conditions improve we'll see a greater acceleration in the business.
As I mentioned in our last fall perfect audience experiences a much quicker ash churn in our core Sharpspring business.
Processing higher volume lower feed transactions were able to expedite the learning curve as well as we continue to align our two businesses.
Right now we estimate that the lifetime value of a perfect audience customer could be around $1500 and because of the improvements we've made to the funnel we believe.
We are acquiring customers or about.
$475 importantly, the payback period on those dollars is just a couple of months, which allows us to recycle was invested dollars at very high velocity.
Well continue to re target we continue to be re targeting as the low hanging fruit on the internet and are encouraged by our initial progress to date.
Our integration remains largely on track and we look forward to bringing business closed business. Its closer together doing the rest of the year entered into 2021.
Heading into the back half of the year, we remain confident in our ability to drive incrementally improve performance are well positioned to benefit from the ongoing shift to more digital remote work.
In the first half of the years, despite the pad that pandemic, an economic headwinds you taking huge steps forward in terms of our revenue retention EBITDA Ashburn and gross margins and we've done this well only beginning to scale the business benefited from the operational leverage that was built into our business model of course.
It's still a growth business and as we continue to improve acquisition costs will continue to that support that broke.
With that you hope you and your families are being safe and healthy during this challenging time.
We are ready to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you ladies and gentlemen, if you have a question or comment it is star one on your telephone keypad at this time using a speaker phone, we ask that you pick up your handset to provide the best sound quality.
Again star one for any questions or comments at this time.
Well take our first question from Chad Bennett at Craig Hallum. Please proceed.
Great. Thanks for taking my questions nice job guys executing in a challenging environment to say the least.
Thank you.
Yes, so so Rick you know, we <unk> it sounds like you kind of things Progressive Lee improved by month throughout the quarter ended June can you just give us an update you know for July and if you have data midway through August year kind of from a net retention.
[noise] churn net add standpoint kind of where we are at least tracking to date.
So the question was about a churn during those periods were really seeing a pattern that that looks like the second half of Q. A Q2, so I'm sort of more of the same here, we do not see the logo attrition that we expect.
Did that we didnt.
Certainly we were affected but we did we did not see you know the heavy logo attrition that everyone feared look as a as a company that's been six and a half years. The market. We Didnt know would you expect like a lot of companies when.
Well when the the virus struck and had been pleasantly surprise fire performance and so I look at.
If anything.
We feel like maybe we washed out some.
Some weaker customers internally, we grade our agency partners by the way based on their usage, we sort of give them a a score and what we saw was not surprisingly the customers that were word.
Getting value out of the platform weren't using it were the ones that sort of washed out. So look I was just tell you that.
What we're seeing so far this quarter looks like like more of the say, where we're I think affected most we've seen.
Agency client expansion slowed down and so that's a factor that's affecting net revenue attrition. We think that's obvious we're not seeing agency clients.
The really great thing that we're seeing is we're not seeing agency clients leave agencies very much at all those dynamics have not been.
Markedly different than before the.
The pandemic, but we're seeing agencies that maybe we're adding a client every month or every other month or whatever the pace would be that has slowed down you know people are in hiring brand new agencies right now so there's a little bit of pressure and net revenue retention in the short term, but that seems.
Just to be what.
The largest effect of and a little bit of pressure on new sales you didn't ask about that in terms of units but.
That seems to be the effects, where we're experiencing as far as code is concerned.
Got it I appreciate the color and then maybe a follow up.
Possibly for air and so the gross margin improvement is remarkable sequentially. It was roughly 800 bips sequentially I guess in it you know I know all the reasons are you gave all the reasons for that that improvement, but considering where we are are in June is is this level now.
Scannable and do we have the potential to improve on that 74% in the back half of the year.
I think.
Going going forward, we can we can definitely sustain it.
Along as there's no nothing crazy happening with Covance <unk>, a resurgence there or anything like that.
But I think we can we can sustain this going forward I know, our our long term.
<unk> to get get up into the 80%, we're obviously not there yet, but I think for the rest here. We can we can certainly sustain this level.
Got it I and then I want to add to that answer that we put some austerity measures for lack of a better term in place.
As a pandemic hit most of the changes that we put in place we believed to be permanent changes, we talked a lot about you know sort of lucky for us I guess getting a little bit smarter about our sales and marketing process is just as the pandemic hit that allowed us to perform pretty well.
ER and and so we're clearly happy about that so most of those changes are what we what we would think of as permanent or semi permanent changes that we did do a salary reduction and in Q4.
Our hope is that we feel sufficiently confident about not only our operations, but also the economy that we can unwind. Some will we get we asked people to take a 10% reduction in salary.
As an example, and we'd like to get our staff back to full compensation.
In Q4 as long as we're maintaining our sales levels and forecast and obviously attrition dynamics in the rest and as long as we feel like the economy is is holding together as well. So there's several several benchmarks we feel like we've got a meat.
That would maybe give us a couple of percentage points off in Q4 from you know the the 76% we did on the core business.
Just to be thorough without answer.
Got it and then maybe one final one for me so that the new pricing and packaging and in the 15 packs in that impact on a our our which I think he said was up 11% year over year I assume it's still fairly early to know that kind of long term lift there, but I I mean do we think this could be.
A pretty meaningful net new a our tailwind you know 10% plus for at least the next few quarters.
Well I would so first off those customers that we signed up in addition to signing up at a much higher initial.
M.R.R. point from you know typically what is the $600 sign up starting out at $1500. In addition to that they are on an annual contracts. So these are customers that are not only paying us.
More EMR better more stable customers are more committed to putting a lot of clients on the platform. Those customers. These are larger customers that believe that though that that they're 10 back is just the just the start we will look forward to that being true will <unk>, but what we're taking a wait and see approach with how they.
Your expansion takes off after that or what I can tell you as we can we plan on continuing to offer. This 10 pack is an option and we see you know sort of we'd like to think we can get better at selling it actually but you know right now we're forecasting sort of more of the same so with each month, but you know a few customers that we sell take.
Ill take the 10 pack and so.
We think will that that 10% to 11%.
Our increase that you get from the same number of units that we think is a permanent feature.
Got it alright, thanks, much nice job.
Hey, Thanks, a bunch great great great hearing yet.
Just yet.
Well go next it Darren Aftahi at Roth Capital Partners.
Finnair guys.
Hey, Rick how are you. Thanks, taking my questions are because well nice job on that.
On the on the quarter can I follow up on the on the landing in the large customers. So I'm kind of curious on that.
2.2 million dollar number so a couple kind of questions embedded in this first but what is the mix.
Those customers as a percentage of that a 2.2 million in a quarter.
When you when you say mix are you talking agency versus direct.
Yes, okay.
Okay.
You threw me a softball, there I wanted to point this out when we may have we've had mentioned it in the comments.
Look we were within <unk>.
As a company we're pretty proud of the fact that we were within a few units of last years unit number in the <unk>.
In the quarter that obviously was a crazy quarter for everybody right.
And yet we actually sold I want to say the number is two two or three more agency partners than we did last year, we've been focusing.
On our our.
We've been focusing on our.
Our our marketing on landing our core customers, which are agencies and so we actually sold a couple more agencies. This year in Q2 than we did last year that exact percentages north of 80% I don't I don't have the exact percentage.
But I believe is about 80% of the businesses that we sold in Q2, where agencies and then that of course is where the 10 pacts came from.
We're seeing our brand improve a little bit in terms of brand awareness.
You know and anybody who's interested in sort of learning about sharpspring could go to any one of these software review sites, which are effectively the the analyst for Smbs right Smbs don't really go to Gartner, where they do go to Capterra, which is a gartner site and look for reviews that are our ratings there.
And the number of ratings and the brand awareness has really started to pick up a little bit who were included in more bake offs, and where we're attracting a little bit larger agency, which is sort of exciting for us.
Great.
Then on on the larger customers so they take the initial.
Call whatever their their 10 pack or multiples of that is.
If you go in for wallet share expansion is our your contracts written such that the additional business is all annual in nature, meaning it's it's sort of Master service agreement, but it's all annual.
I'm not quite sure I'm understanding the question Darren.
<unk>, meaning if you if you sell into a one of these larger clients that takes a 10 pack and you're getting the $1500 kind of.
As it is if they expand over time is that additional business and you own nature or month to month.
Gotcha licenses or it's a good point.
I understand you know the additional licenses would would.
Can be turned on and turned off without an annual contract. So where we would then be charging for expansion licenses I believe that I believe it's to 75 for an additional license. After the 10 pack and you know that that particular.
Customer could stay on the platform or leave you know in a month or two.
Got it and then just last one for me in in terms of your commentary about spend and I think last quarter you talked about some measures you are taking which as you call as in may kind of in the midst of.
Maybe to divorce parts of coal that in terms of when People's businesses were impacted as you normalize out I'm curious.
I appreciate the comments about spending in a quarter and then seen the benefit of the customers in the in the next quarter, but is your efficiency on the LTV to CAC actually improving meeting said another way how sustainable even if you want to step up.
Turning to a more normalized rate fourth quarter it sounds like your marketing.
Savings or efficiencies sorta here to stay is is that correct statement.
Well so I. So you multipart question that you asked there and there are arrows pointing in different directions, so I'm going to try to not be long winded, but I'll give you an answer.
As best I can first on the cap side, yet we think the the number the 10 nine was obviously a pre code that marketing spend against you know uncoated quarter results actually if you do you view if you take into account the 11%.
There are inflation, it's almost like dividing about you know 300, and some odd sales.
Composite sales if you take my point, so the CAC even for this period was pretty pretty good but yeah, we were spending less on marketing and put a new sales process in place and we definitely believe.
That we are.
Going to have lower cap next quarter significantly lower CAC.
The next quarter, then we reported this quarter and we think that that's a permanent.
Feature the business, we've been talking about this and we took a prior to coded in Q1, we took a step down I think it was 80 80.
8800, something like that but we think will be below that now if we accelerate our sales.
You can sometimes get me as different channels.
So nothing is permanent but we think it largely as a permanent fee is semi permanent feature the business for the next to several quarters anyway.
With regard to LTV, we've got arrows pointing you know we did a price increase at the beginning of the year, we didnt see expansion excuse me, we didnt see a a lot of logo attrition as a result of that price increase that as a significant upward.
You know influence on the lifetime value. So we're excited about that on the less positive side during cold that we've seen the most significant pressure on our business with agencies not being able to add new clients. So if you were looking at our customer counts, we didn't we didn't add enough a lot.
That new customers.
Just to just to deal with that issue you know squarely obviously, we think that's a temporary feature of the economy and we're looking forward to you know a vaccine and everybody getting back to work and the economy rare in back up again.
But right now that's where we've seen the most pressure of our business so that would bring lifetime value down at least.
In the short term as I described so where we'll end up yeah, I believe that we've probably seen some expansion in the LTV to CAC ratio when all things considered but as you know LTB isn't an estimate and where.
You know, we're not we're not thinking that way internally, we're trying to remain disciplined on our on our cat.
So hopefully that sheds some light on our thinking.
No that's very helpful. Thanks again.
Hey, thanks for the questions there appreciate it.
Once again, ladies and gentlemen, it with star one for any questions or comments, we'll go next to Aaron Martin Newsy I like country. Please proceed.
Hey, there.
Hey.
Yeah and Aaron.
I first wanted to understand the delta in the Guy just the half million dollar midpoint. So the old range with the midpoint was 30.5 midpoint is 30, even if that entirely related to perfect audience that a mix of.
Both sides I.
I think it's mostly related to perfect audience, where you know we've got some we've been doing well with perfect audience, thus far and to describe our expectations for the business in the second half of the years hockey stick would be an over overstatement, but we did <unk> from a budget perspective, we are.
Mostly showed a two month over month gross and were sort of looking around at the at the cobot environment I know everybody on this call understands that the AD tech.
Businesses have been hit pretty hard with shrinking budgets and so forth and so we wanted to be conservative.
There with our assumptions about how per wild perfect audience is doing pretty well versus you know budgets to date, we wanted to be hopefully sufficiently conservative.
Given the environment on how it might perform the future as I already alluded to the area, where we're really seeing.
The most pressure on the core Sharpspring business is just with agency client adds you know.
As you guys saw we added 276 I believe.
Customers than 880% of those are so our agencies, but the agency themselves I think are having a tough time, adding that next customer they're doing a great job keeping the customers. So we haven't seen a bunch of people drop out there, which is super encouraging, but you know you add those things up but we felt.
Like it made sense to as you put at lower the midpoint to the bottom up our of our you know former guidance.
Okay.
Actually went to where I was has next which is the new customers historically.
Hi, guys run about 90 to 100, new customers per month.
All right outside.
Given we had 264 Q3.
So.
You are tending towards or at least in the most recent tended towards finding a bigger customers. So how should we think about new customer sign ups.
Our versus Q2.
Sure you thinking about a smaller than a year ago, but they are equal to or better.
You know I've had been and maybe I should have but I haven't compare the ER our expectations. We we think the current sales levels or what you should expect or.
The rest of the year and you know where were you know we're hoping for higher we've built in expectations that.
The sales levels you saw in Q2, we just it.
I mean, everybody on the call understands what we're facing we don't know with winter is going to look like and.
At all but we're pretty comfortable thinking that with our with our processes that we've had in place. We can perform similarly in Q3, and four and hopefully better compared to <unk> as we Didnt Q2. So.
That's what we're thinking and I think that's true and both units as well as as well as the you know the percentage of larger customers or or customers that have taken the 10 pack and so forth. So.
With what we've done we feel in terms of our sales and marketing process when things get back to normal we really feel like we can.
Light light light sum things up here, but we're we're being cautious with our or expectations given given everything that's going on and it's difficult to tell whether you know the this is going to going to.
Settle in deeper in terms of the economy or not so.
Yeah, I certainly want to recognize the Q2 results.
I think people have to do in any environment.
New customer it certainly.
Cobot.
April lot of people were still figuring out how to work from home. So the fact that you guys.
And as many as it did in the second quarter is terrific.
Thank you.
Last question for me is on the Opex side, we had operating expenses were 6.3 million in Q2.
Were there any either one off in Q2 or things that we should be anticipating.
Three.
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No I don't think theres any any gotcha than there is anything like that I think.
As Rick mentioned earlier as we go into Q4, we're going to be looking at bringing or salaries back.
It's a full salary I think that's that's a big one on the horizon.
That we might see some adjustments in the and the Opex against how we did in Q2.
Yes.
Okay. Thanks for taking my question.
Hey, Thanks always gray haired Premier Eric.
Well take our next question from Alex Silverman ADW M. investments. Please proceed.
Hey, good evening.
So most of my questions have been asked and answered I would like to ask though.
The 10 packs and the 40 pack.
Are you using a different approach to selling these clients and therefore have a subset of your sales group targeting larger agencies are you know walk me through how this came about.
Well the first thing we did as we started offering it [laughter] I you know, we realize hey, there are customers that come in and have.
Aspirations and right out of the gate a lot of those guys. Nothing comes you know that nothing comes of it they they buy up a a three fact for $600 and they you know they get the four and five right and so it's difficult to tell but we've had enough of those customers over the years that we.
Hey.
And it seemed like maybe an increase was happening in terms of frequency that we said hey, let's offer this.
Lets offer this pack and and so you know as we said thankfully those those we've got some folks.
That are taken us up on it we are in terms of changing processes and all we have a a page on our web site that is a enterprise focused and we've taken those people that are filling out those and we get businesses of all shapes and sizes that that fill out a form.
On that site and we have.
Historically run those through a separate are the same sales process. We have started internally we've separated out a team that works just with those opportunities and so we have been so and covering some some larger deals.
And you know those are really the two steps that that we've taken a parsing out to separate group to deal with a larger opportunities, which we have as we build our Brendan.
We think will only increase I don't know how quickly.
In frequency it'll increase but I might afford everybody on the call, but we've talked a little bit about some of the stuff we're doing with our with these key influencers those names might not mean anything to folks on the call, but it's a big deal from a company perspective, and so we're hoping that to increase the adequacy of those larger customer sign up with us and.
So we're offering it and we're running its receptor gene.
Okay and then in.
Okay well.
We are any of them a current hubspot users and looking to save money, but keep the same feature set or are these folks new or you know what.
Yes, if you got.
Yes, sure I'm going to answer the question more generally not related to just the larger customers because I don't think there was anything related to the larger customers. That's different from you know what normally goes on look and ever in any given month or quarter. It feels like about 50% of the folks that we sell where.
Are there where their first.
Entry point or the first offering of marketing automation. So you know these are guys that are before marketing automation trying to cobbled together point solutions and Oh, losing battle <unk> two to.
Too long and discussion to talk about why but they're turning to marketing automation in the attorney to us and their first vendor.
The other half, though is coming from another vendor and you know at the top of that list is hubspot. So there we sign up hubspot agencies, all the time.
Those agencies, our goal is not to get them to switch clients.
These platforms Hubspots Sharpsprings all the rest of the marketing automation platforms are they are sticky and we you know we we've talked a lot about that on our comments.
They are.
You integrate them with a web sites chat bots and automation to that some landing pages and forms all your deal and contact records or isn't the CRM or you've integrated it was something else and so the name of the game for US is to sign up a competitive agency and really we get the rest of their business.
This moving forward our goal is not to get them to switch their customers to their current customers. The hubspot, because it's probably not serving that customer very well you know making them switch over although there is an incentive it's a lot of work financial incentive Theres a lot of work for both the agency in the client, but what happens as we get all the new.
Business from that agency because the math on the next customer is always the same do I want to pay Sharpspring a few hundred bucks for a license per month or do I want to pay a competitor thousands of dollars that eats into my agencies margin on my agencies retainer.
And that answers always the same I want I I want him to be on Sharpspring. So.
Oh, well Alex [laughter].
Got it that's not that's really helpful. Thanks, that's all I got.
All right.
In test it thanks, Alex.
At this time. This concludes our question and answer session I now like to turn the conference back over to Mr. Carlson for his closing remark.
Yeah, I just want to thank everybody a appreciate the kind words on the call today, what I really think our team for a fantastic quarter.
For their continued.
Support of our company in our goals and our investors Needless to say I want to thank all of you.
Following sharpspring and especially our investors and I want to thank our new interim CFO area, who survived his first earnings call. Thanks, everyone stay safe and healthy.
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Before we conclude today's call I would like to provide chartering 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 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 and the company's latest annual report on form 10-K in quarterly reports on form 10-Q that may cause actual results performance or achievements to be materially different from any future results performance or achievements anticipated or implied by these forward looking statements.
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 referenced to adjusted EBITDA <unk> core net income or loss in core net income or loss per share, which are non-GAAP financial measures presented as a supplemental measures of the company's performance.
Reconciliation of net income or loss to non-GAAP measures is included when your reference in the financial section of the earnings press release.
Made available on the company's website.
Finally, I would like to remind everyone that a recording of today's call will be available for replay of the enlink available in investor section of the company's website.
Thank you for joining us today for Sharpspring second quarter 2020 earnings Conference call you may now disconnect.
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