Q3 2020 SharpSpring Inc Earnings Call

Good afternoon, welcome to Sharpsprings third quarter 2020 earnings conference call joining us today are Sharpsprings CEO, Rick Carlson and interim CFO Aaron Jackson.

Following their remarks, we will open the call for your questions.

Then before we conclude I'll provide the necessary cautions regarding the forward looking statements made by management during this call.

I would like to remind everyone that this call will be recorded and made available for replay via a link available in the Investor Relations section of the company's website at investors Dot Sharpspring Dot com now I would like to turn the call over to Sharpsprings CEO, Rick Carlson Sir. Please proceed.

[music].

Welcome everyone and thank you for joining us today after the market closed we issued a press release announcing our results for the third quarter ended September Thirtyth 2020.

Copy of the press release is available on the Investor Relations section of our website.

Q3 was an extremely strong quarter from an operations perspective.

Nearly every meaningful way, we saw strong performance in a very strong recovery from what was a cobot impacted second quarter to begin with our sales team landed over 20% more new M.R.R. in Q3 than it did in the same year ago period.

And at night, and 9% more versus the sales performance, we saw just last quarter.

Specifically, we landed 176000.

Dollars up new MSR this quarter compared with 146000 in Q3.

2019, and 162000 last quarter.

This measure sales of completely rebounded from the pressure we saw earlier this year.

Well, we continue to see some pressure on unit sales the strong new M. Our performance is largely the result of our ability to land larger deals as we build our brand and increase the quality and functionality of our platform.

And we achieved these results while lowering our customer acquisition costs to just $7900, a 29% decrease over last quarter.

Building upon this momentum we saw our agencies begin to expand as well by adding more of their clients to the platform on a net basis. This was a welcome sight. After a Q2, where we saw agency clients contract a bit at the onset of the pandemic.

Finally, we saw a logo attrition returned to pre tokens levels as well after that market Spike we saw in March and April timeframe as the economy contracted rapidly. The bottom line is that our core business bounced back very well from the onset of cobot and return to the growth patterns, we've come to expect.

One area, where we did not perform as well as with our perfect audience digital advertising business speaking frankly, we're still getting to know this business a bit having completed the purchase less than a year ago and experiencing the effects of the pandemic just a few months later.

Like a lot of advertising business is perfect audience has been under pressure as advertisers cut back on their AD spend in an effort to preserve cash very uncertain economic conditions.

Our hope entering Q3 was that the improvements we're making to the platform specifically the improved the introduction of improved lookalike audience targeting would allow this business to expand even during these tough times. However, the economic environment proved to be the stronger factor during the period and perfect audience contracted a bit during the quarter.

Her instead.

Well disappointing perfect audience remains noncore and we believe these headwinds to the only temporary.

We continue to add new customers to the perfect audience platform and believe we'll do well position when the economy improves and AD spending recovers.

There were completing the last step in our integration of perfect audience into the Sharpspring platform and this should allow us to realize the benefits of cross selling into our user base in a meaningful way over the long term.

Operationally, we remain focused on driving new sales marketing and product initiatives that are designed to have a long term positive impact on the business.

Our agency acceleration series led by the top digital marketing experts, including Neil Patel, Seth Godin and Schama high there has been effective in driving inbound leads in the short term and we believe it is helping us build our overall brand recognition over the long term as well.

We've also made significant improvements to our on boarding program reduced the turnaround time on platform integration.

And introduce NR and introducing new tools, such as our upcoming INAP engagement tool springboard.

I find to discuss all of these items in more detail shortly but before I do I have a few announcements.

First I would like to make everyone. On this call aware that we will be holding an additional call. This coming Monday November 16. The point of this call is to provide for the first time, a comprehensive overview of our business, including a series of updates on our operations and outlook include.

Included in this call will be a deep dive into sharpsprings cohort maturation profitability metrics and growth trajectory as part of that call will also be unveiling a brand new investor presentation.

I'm excited about both this call and our new Investor deck. We've spent a lot of time to still winning the business to help investors understand.

And analysts really see Sharpspring the way, we do internally and this event will be the culmination of those efforts.

Without bearing the Lee let me just say that my hope is that our new debt well clearly illustrate why with very few leaps of faith. We know we're building both the high growth and high margin business.

With a model that supports an 80% plus gross margin and total revenues in excess of 100 million that scale I'll stop there for now as I [noise].

As a further heads up we plan on issuing a press release Tomorrow morning, with important information called details included so stay tuned for that as well.

I'd now like to turn the call over to Aaron to discuss the financial results for the quarter parents.

Thanks, Rick and good afternoon to everyone joining our call.

Turning now to our financial results for the third quarter ended September Thirtyth 2020 are tiny revenue in the quarter increased 28% to a record $7.3 million up from 5.7 million in Q3 of last year.

Our gross margins for the third quarter of 2020 increased to 74% from 68% last year.

In dollar terms gross profit increased 40% to $5.4 million and $3.9 million during the third quarter.

In the third quarter of last year.

Turning to our operating expenses for the third quarter of 2020, our operating expenses increased 5% to 6.7 million from $6.4 million in Q3 of last year.

Our GAAP net loss for the third quarter totaled $1.5 million or 13 cents per share, which was a significant improvement compared to a GAAP net loss of 2.5 million <unk> point to 30.

Sorry, 23 cents per share in Q3 of 2019.

On the balance sheet, we had 15 million in cash at the end of the quarter compared to $11.9 million at the end of December 20.

Nike going.

Going forward, we remain confident in our cash position to support our growth needs for the foreseeable future.

Looking at our non-GAAP measures, our adjusted EBITDA loss for the quarter, which we reconciled in our earnings release totaled 468000.

This represented a significant improvement from an adjusted EBITDA loss of $2 million in the same period last year.

Our core net loss for the third quarter, which is also reconciled in our earnings release totaled $735000 or six cents core net loss per share compared to core net loss of $2.1 million or 20 cents core net loss per share in Q3 of last year.

During the period, we also recorded a onetime expense of $256000 related to contingent sales tax liability accruals spanning over a multiple year multiple years.

In nine different states.

We're in the process of rolling out sales tax to be tarnish our partners on a go forward basis, while we are proactively accruing for that we feel this may ultimately need to be paid.

Building on the results or any future sales tax examination in any event, we expect this.

Expect discharged to be a onetime in nature.

As a result this item has been excluded from our adjusted EBITDA as well as our core net loss calculations.

Again for more details on our adjusted EBITDA and core net loss metrics. Please see the full reconciliation to GAAP terms included in the supplementary tables in today's earnings release.

Moving some to some of our other core metrics during Q3, our cost to acquire customers was approximately $7900, which was sequentially decreased 29% from $11100 recorded during.

Second quarter of 2020.

In a 26% decrease compared to the third quarter of 2018.

Historically, we have calculated customer acquisition cost at the sum of all in sales and marketing cost from the prior quarter and this case Q2 divided by the new wins recorded in the subsequent period in this case Q3.

An important distinction for this period and going forward, you're now classify new customers as those that had been activated meaning their sharpspring accounted fully set up and they pay their onboarding c.. We feel this updated definition more conservatively classify as our new customer cohorts.

Additionally, this new method did not materially impact activation of our new customer results or related they are customer acquisition cost the third quarter.

It bears mentioning that this quarters CAC represent the material improvement over just last quarter as well as a return to the performance we demonstrated pre COVID-19.

CAC has declined substantially as a result of our changes in Q2 to improve the efficiencies of our marketing campaigns as well as our plan to redirect resources to an outbound sales program going.

Going forward, while this metric may fluctuate on a quarterly basis, we expect to keep CAC under the 10000 dollar range during coated with a return to historical averages near $7500 as the economy improves.

With this in mind, we remain confident in our ability to consistently acquire customers that are historically attractive all in rate.

That will drive significant lifetime value for the business in the future.

Turning to our financial outlook for the fiscal year ending December 31st 2020, we now expect total revenues to range between approximately 29 million and 29.4 million, which would represent an increase of 28% to 30% compared to the prior year as a reminder, our guidance based on several factors including recurring.

Revenue from our current customer base and performance results tractors September of this year.

The performance of our core business remains strong you updated guidance range, primarily reflects the uncertainty had been digital advertising revenues from perfect audience in the fourth quarter of this year.

Rick explained well explained in more detail shortly.

Perfect audience and the online advertising industry at large continues to be particularly impacted by the pandemic, which we expect to continue to the rest of this year.

As a result, we conservatively modeled our updated guidance to reflect these headwinds.

We remain extremely bullish on the marketing automation and digital advertising industry over the long term and we'll provide updated projections for subsequent periods. When we can confidently and reliably forecast performance.

This completes my financial summary, I now like to turn the call back over to Rex for additional insights into our operational progress in Q3 as well as our outlook for the remainder of 2020 Rick.

Thanks, Aaron as I've already mentioned Q3 was a very strong quarter in terms of our operational performance in many ways. This quarter is provided a lens into the resiliency of our core business on a general level a lot of the uphill battles, we face during the second quarter as the pandemic took hold.

Particularly the blip, we saw in logo attrition and agency expansion in early Q2, ultimately had a lagging impact on our results in Q3 and while those events occurred in the prior quarter with the way our business works, we actually experience most of the impact from these issues in subsequent quarters as morar losses now.

Fully realized until the following period.

As discussed earlier, our perfect audience and the digital AD industry as a whole continues to be challenged by a weaker economic environment.

These hurdles we produced another quarter of record record results in our core business rebounded slowly in Q3, we recorded a net positive number of agency client ads for the first time since cobot hit a year over year net revenue retention remains above 90% well logo churn decreased significantly in Q3.

All of which are positive early indicators for favorable Q4 and beyond.

During the quarter. We also saw very promising increased usage and adoption of our platform features for example, the usage of our CRM as measured by visits to our contact manager are up nearly 20% since April we saw near Fivex increase in the usage of our meetings feature which we launched last year.

Perhaps most impressive our customers built over 3700 chat bots since we launched this feature in March of this year.

Switching to sale in Q3, we activated 265, new Sharpspring customers together. They represented approximately 160 excuse me 176000 in EMR or 2.1 million and they are.

Well the customer count is nominal nominally in line with the prior period, the total contract value substantially surpassed the additions in Q3 of last year by 21% and last quarter by 9%.

Said, another way with the introduction of new and larger price points. The raw new deal number no longer adequately reflects our sales performance on a quarterly basis.

Recognition of these dynamics excuse me in recognition of these dynamically changing factors as well as the fact that we intend to offer a greater selection of price points in the future. We have decided to discontinue the practice of announcing the quarterly new customer unit sales in favor.

Communicating new EMR land during the quarter, which is inclusive of both the new units landed as well as the contract size the beach.

Our intention is to provide investors with the most accurate representation of our business performance and at this time, we believe monthly recurring revenue to be more acceptable industry. The more acceptable industry standard and also the best way to convey that information as a true north for our performance.

I'd now like to take some time talking about to talk about perfect audience.

While our core business continues to perform according to plan, we did experienced difficulties in our perfect audience Retarget Retargeting business turned in Q3.

Well, we believe marketing automation to be core.

[laughter].

Excuse me.

Well, we believe.

The marketing marketing automation to be core and central to our partners businesses. The online advertising business tends to be more susceptible to fluctuations to put it bluntly. When the economy is bad many customers are going to spend less on ads.

Our hope was that with the improvements we've been making to the platform.

We'd be able to outstrip those pressures but remain.

An ongoing headwind during the quarter, specifically, we introduced a new smart audience look alike excuse me a smart audio lookalike audience features that help us.

Hope more than a thousand advertisers more effectively spend their advertising dollars. However, the good work our team is doing on the backend still being blunted by macroeconomic forces as Aaron noted earlier, we've made additional refinements.

[laughter] to our annual guidance target, which is reflective of the muted advertising market. We're seeing this expectation implies an essentially flat quarter from perfect audience in Q4.

Which we clearly do not to lead as the long term indicator for the trajectory trajectory of the business.

In the meantime, we're continuing to make updates and improvements to our platform.

We expect to attract even more customers an AD spend what is the update is sharpspring ads, which will be introducing late next quarter and in time to help us with 2021.

Sharpspring adds brings the perfect audience interface directly into the Sharpspring platform. So that our customers can take advantage of digital advertising and re targeting alongside their current marketing processes in a much more seamless fashion. This full integration has been one of the main directive since the <unk>.

Acquisition, and we believe it will pay dividends in the future by more easily facilitating the cross selling of advertising as a super seamless a natural extension of Sharpsprings other lead nurturing capabilities.

Put simply customers will be able to individually at Leeds and even entire list of prospects to re targeting campaigns as easily as they currently add them to email drip campaigns in automation workflows within the Sharpspring platform.

In addition, [noise] excuse me in short we remain encouraged by the progress we've made thus far integrating sharpspring in perfect audience and believe quite strongly in the relationship between these two businesses and especially as the economic conditions improve.

Moving to product I spoke to you last quarter about an exciting upgrade which is scheduled to launch in Q4 Cold Spring Board.

Trimboard isn't INAP engagement tool designed to help users learn how to maximize the value they get from our platform.

And while springboard will be helpful to all sharpspring customers the real value add is going to be in the onboarding process.

What we've learned over the years is that when you implement marketing automation you need to have a strong onboarding process.

How many customers data uploaded and until the import their leads and other information platform doesn't provide a ton of value.

Springboard, we're hoping to create a more repeatable process to get new customers seem to platforms value as early as they can thereby reducing the potential for attrition down the road.

Our launch a springboard also comes with another major and related update and that is the introduction of free trials into our sales process, which will begin to be [laughter].

We'll begin to begin offering at the beginning of the year.

[laughter].

We believe offering free trials to prospective customers will allow us to land more leads and reduce friction in our customer acquisition process up until now a prospective customer has been required to engage with our sales team and get a demo to learn more about our product.

The reasons for this have been many for a long time, we were playing catch up with our features and functionality that today, we have one of the most well regarded award winning platforms on the market.

Another challenge has been that these platforms require customer data and a level of commitment engagement with the platform and guidance in order to get the most out of it.

As such we felt that marketing automation platform forms haven't played well.

They haven't been well suited to perform well in a limited trial setting.

However, we've seen more of our competitors begin to offer trials as we've seen a shift in the marketplace. We think there are many potential leads that we may be missing by not offering trials.

From the customer perspective, if you're not going to give me a free trial, but your competitors do then I may just cross you off the list in favor of beginning a trial with one of your competitors and I may ultimately stay with them after having gone through the trouble of getting set up already.

But as we introduce our new Enap engagement tool springboard, we feel we are well positioned to overcome engagement during trial hurdle as well springboard tells both a new customer and even a trial user exactly what to do when to do it and why they should do it to get the results thereafter in short.

Good riddance with the introduction of springboard in Q4, we believe now is the right time for us to begin offering trials as a way to land new customers in 2021 and beyond and we're excited about what this means for our future growth.

From a people perspective I'd like to provide you with two important updates first given the continued strong performance in our core business, we've been able to meet a previously stated year end goal of ours, which was to restore employee salaries and bonus plans to pre coded levels. The.

The restoration became effective this month.

And will remain in place unless.

Or until there is another material change in our business or the global economic outlook.

Well this was a mild impact on a short term profitability. We're focused on doing the right. We're doing right by all of our stakeholders, especially our employees, who continue to work tirelessly and execute through it truly challenging time.

Second earlier in the quarter, we announced in addition to our board of directors through your appointment of sudden need saying so.

No need is an award winning software investor and currently the CEO of par technology, a New York Stock Exchange listed public company simply put we are energized to have someone of his caliber intelligence.

Added to our leadership team. So he has direct operating experience in managing the public company [noise] public emerging growth technology business and building it for scale, which is directly aligned with our mission at Sharpspring.

Well, we look forward to leveraging his many talents to execute on our near term operating objectives and more effectively communicate our value proposition.

To the investment community.

As we look to close out the year, we believe the strong performance. We saw in Q3 should continue in Q4.

We saw nearly every metric return to or even exceed pro Keith [noise] pre coded levels, New EMR logo attrition and agency expansion all improved considerably even as customer acquisition costs improved to just $7900.

From here, we're excited about the introduction of springboard and free trials to both our on boarding and customer acquisition processes and we're excited about the inclusion of perfect audience into the Sharpspring platform in the form of Sharpspring ads.

As well as what we hope will be improving economic conditions as the year winds down we begin 2021.

With all of these improvements in place.

Finally, before I turn the call over to the operator I'd like to again invite you to join US next Monday for our Investor presentation on dialing in long term business outlook I assure you will be a very helpful and informative update you won't want to Miss and with that we're ready to open the call for questions. Operator, please provide the appropriate instructions.

Thank you the floor is now open for questions. If you do have a question. Please press Star then one on your telephone keypad to join the queue. If youre using a speakerphone. Please 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 then one on your telephone keypad at this time.

And our first question will come from David Hynes with Canaccord. Please proceed.

Hey, good evening, guys. So Rick <unk>, we're clearly seeing a slowdown in the number of new customer acquisition, right now and I realize.

No you're adding some larger agency customers, but if there was a slowdown in that it's one or two things right. It is a deterioration in the number of demos that are coming into the business or the conversion of those so I guess I'm curious kind of what you're seeing on that front and then I guess another case, you know what the remedy might be.

Yeah. So I think that what we're seeing is that's when making sure I'm not on mute [laughter] I think what we're saying is that smaller agent first off it's 100% not a tam issue, we have oh worked very hard to identify.

Hey, a digital marketing agencies and depending on how you classify those digital marketing agencies. There between 60000 and 100000 English speaking digital marketing agencies in North America in Europe, and Australia. So.

If you combine our couple of thousand agencies, and Hubspots couple of thousand and everybody else Who's got a few hundred there's plenty of addressable market.

Out there. So we don't we don't see that what we see is that the smaller agencies remain very very optimistic, but also very cautious right now with the with purchasing new technologies and and so forth. So.

We're seeing our pipeline continue to grow and we're seeing smaller agencies that are you know more hesitant to pull the trigger right now and hopefully as things settle with the election and as the economy improves we'll see those guys start to pull.

The trigger so again, what we're seeing from a deal flow perspective, we rate every demo the salespeople actually give us a couple of different ratings about the demos that they provide they measure whether it'll close.

And and in what timeframe than what we're seeing is the demo qualities saw.

Solid but that people again are you know cautiously or are the smaller agencies are more cautious about pulling the trigger but remain in the pipeline. So with any luck there'll be some pent up demand as the economy improves again I think the stronger point you know the dollars are where it's at and we.

We outperformed Q3 last year by over 21% because the larger agencies are stepping up and and are becoming aware of sharpspring and are are buying our product.

Yeah Okay.

And then the free trials no how long will it be trial run it and then I guess the follow up to that would be how long does it typically take.

Takes a one of your agency customers to get.

Their end users up and running.

Yeah. So let me be clear are those.

Those two questions are not related let me explain.

The free trials that were offering we have given our agency partners the ability to start any one of their licenses with free trials, what we've not done ourselves.

And and they can do that inside of the platform and the the net result is that they're not able to charge their clients nor do we charge them when they offer their clients three trial, which is 30 days.

So some of the agencies take advantage of that and some of them don't because they want to charge their customers more quickly. We're introducing here at the end of Q4 with our free trials is the ability for a customer that is not working with sharpspring in any form meeting a new agency or even a new.

New direct to customer to straight from the web site began a trial of sharpspring without necessarily having to schedule a time when a you know an hour or their time to talk to a sales person and increasingly you know customers don't want to talk to salespeople right off the bat and they want to try try out.

Software. So that's what we're implementing we have the flexibility to offer.

Trials and different lengths, we think we're going to settle in between 15 and 30 day trials it tends to be the norm. There and you know were excited about it as I commented on in the in the <unk> and the <unk> My.

My comments the when we feel like we may be missing out at this point on leads that might otherwise give sharpspring is shot when they come to our website and don't see a free trial offer and so we're excited about that.

Yeah that makes sense one more quick one if I can maybe for Aaron Kinney.

Can you quantify the size of perfect audience today, and maybe what that looked like a year ago.

Yes so.

It's more more or less.

Flat throughout throughout the year and so it's doing you know in the ballpark of about 600, K. a quarter across the board a little up and down here, there, but really since we brought it on its been been mostly flat yeah. We brought it in it on at the end of Q.

For last year, but really getting our feet under us during the you know the transition from Moran and then Q1 got started and right right. There at the end of Q1, we got hit with Colgate and really just haven't been able to to grow it from there and as I commented yet that's really been the reason for our.

Just meant to our our projected revenues for the year.

Sure. Okay. Thanks, guys.

Sure one more comment on under the Hood, we've been doing some pretty good work in terms of adding new customers to the platform.

And so whats been happening at the same time as customer you know.

Budgets have been shrinking during again. These these economic times. These are small businesses that are that are advertising on the perfect audience platform.

So once that dynamic changes I think it'll become apparent all the good work that we're doing to add more clients on a monthly basis to that platform. Then that's separate from the comments I was making about integrating sharpspring excuse me perfect audience into Sharpspring I'm in the form of Sharpspring ads, which we think.

We'll we'll further open up the ability for us to cross sell to our existing customer base of you know whatever it is 8500 clients. There. So we're excited about that for next year.

Understood. Thank you to appreciate the questions.

Next we go to the line of Chad Bennett with Craig Hallum. Please go ahead.

Great. Thanks for taking my questions. Good afternoon, guys HM So.

So just trying to kind of connect the dots between you know the.

Kinda keep you guys you gave on the rebound to the core business, but net retention, which I think you indicated in the press release was around 90% it actually looks like it ticked down a bit but it's still far off you know the high Ninetys that you were quarters ago kind of how do.

I read into that.

Yeah, I, hopefully no no reading or reading it necessary, let me let me explain in Q2, we saw.

At the beginning of a.

The kobin.

Hmm scenario, we saw a.

A blip.

And.

And the logo attrition in April we saw a significant bump in April in logo attrition and then it sort of returned and to a it was still higher in may and.

In June, but it returned to sort of reasonable levels, but in April we saw significant sort of bouncing logo attrition at the beginning of Q2, we similarly saw agency's stop adding new clients to the platform. We were pleased frankly that we didnt see a bunch of age.

And see clients, leaving the platform, but what we what we normally see as expansion quarter after quarter month after month, and we saw that stopped during the quarter. So those two things happened at the beginning of Q2 as I just got to done discussing everything sort of.

Return to normal in Q3, which is pretty fantastic how quickly it recovered, but but those customers that we lost in April are gone and so when we look at Q3.

Come and we look at year over year net revenue retention, we're comparing that to the to the customers that are where around in Q3 of 2019 and those customers. We lost in April are still gone and you know as we look at 2000.

As we look at Q3 2020, and so that has led us to I think a 90.5% revenue retention.

In Q3 versus Q2, but the results would have been higher needless to say I'd cope and not happened.

Hopefully that's a pretty clear explanation of what what took place there and.

And I guess, what what's implied in the current quarter guidance in terms of of net retention and in your mind Rick.

Well into so just as in Q.

So the effects of it since were looking at a year over year revenue retention metric the effects will last of what happened in April and will last a year and from April they won't they won't wash the room, so I would expect similar rather.

New retention next quarter.

And then as we get to April 2021, or beyond April 2021, all other things being equal I would expect revenue retention through to recover.

If that makes sense. That's funny, we almost included a month over month revenue retention, where we to sort of show. The current mugs. The retention is back in a good place, but we thought it might confuse the issue more so we didn't include that.

Alright, thanks for the color.

Yes, absolutely thanks for the color.

Fantastic. Thank you.

Again, ladies and gentlemen, if you do have a question or comment. Please signal by pressing Star then one and next we go to the line of Eric Martinuzzi with Lake Street. Please go ahead.

Yeah fair dive into the <unk>, Hey, Rick wanted to dive into the Q4 outlook.

Just based on the midpoint of the full year revenue guide, we're looking at roughly 7.6 million for Q4 and I wanted to just parse that out based on the color you gave on perfect audience.

Assuming perfect audience flat Q4 versus your come color that you gave earlier and that yeah.

We are where were just you know there's there's the potential that you that that perfect audience does a little better with that we see usually.

Historically the add back.

Miss again, I want to remind everybody. We've had this business for less than a year. So.

So there's not much history as part of Sharpspring, but what we see is that Q4 with the holidays, sometimes Ken can have an uptick and some AD spend but needless to say this holiday season is like no other and we didn't want to we didn't want to count on that so we took a.

Perfect audience and sort of forecasted as completely flat with Q3.

Okay, and I wanted to March down the piano here, if I could assuming.

Assuming that revenue number or is there any reason the gross margin changes much here in Q4.

Well the one factor there is some slight.

Well I'm going to let Eric talk about this but the one factor there is that we've returned to our employees beginning this November.

First back to have full compensation as you know we took some austerity measures that the the virus hit and we're pleased that our performance allowed us to bring this folks back so air and you want to.

Add to that answer.

I mean, I think that that's exactly right. The big change there will be on the salary side of things thought we were going to be layering on more revenue. There. So I hope there is that to keep it in the same ballpark.

Okay, and then as I said margin down the piano here, we I've got the operating expenses of 7 million here, including the four different buckets, which includes a 53000 of intangibles amortization, but given the increases and.

Two two thirds of a quarters worth of higher salaries for the sales marketing R&D and GSK, where do you expect opex to be for Q4.

But I I think the you know it's going to be a an incremental increase on the on the salaries. As we said you know we took the 10% pay cut.

Mostly across the board there so that that will kind of apply through on the Opex side, and then but that's only two thirds of a quarter I think when we brought it back starting in November.

So that that's going to be the big driver there. The other thing there and I kind of mentioned it in my section of the call was that we do have that 256, K. <unk> head of sales tax one time number it is in that and not Opex section, but it got taken out of the EBITDA section.

So that that would be the other thing I would point out there.

I think the salaries just to put a number on it I think the salaries or roughly 300 then.

300 350 K.

For the partial quarter.

Or as far as an effect on Q4, if that helps Eric.

Yeah, that's perfect.

And then lastly, the the recovery in the net positive agency client adds just I know you you're working with hundreds of agencies here and.

I just.

What are you hearing from them anecdotally, maybe a window into Q4 here anything October versus Q3.

Yeah, I mean listen here's what we think that the [laughter] setting aside <unk>, but.

Let us all just pretend that I made all the obvious caveats about not understanding.

Ah Ah you know, what's going to happen with Covidien. The rest we believe that that by all indications the worst are behind us, but you know it really and they were behind us in based on our Q3 performance for the most part they were behind US in Q2, we saw everyone.

Take a pause for several months in Q2, especially in April when we saw agencies have a tough time landing clients are getting them to adopt new technologies and so forth again.

We were very pleased to see that our customer our agencies on a net basis did not lose a lot of clients we didn't shrink at all.

During that time, when when the way our platform works, there's certainly every bit the flexibility for them to do so but what we what we missed was the.

The agency expansion that we've grown accustomed to seeing in each quarter that returned in Q3, and we have no reason to think that we're going to be going backwards.

So long as you know the depending on the the economic conditions are the pandemic or or the combination there or does it get worse.

What we're saying is that people love acclimated that our platform is just as we described very core to their businesses and and in fact, maybe there's even a greater emphasis on on the operating efficiently and effectively and.

So we were pleased to see that on a net basis agencies begin to add clients back to the platform in a positive way we short answer we see no reason that doesn't continue.

Okay that covers it for me I look forward to the the deep dive in the 16.

Thanks look forward to having you there it'll be fun.

At this time. This concludes our question and answer session I'd now like to turn the call back over to Mr. Carlson for his closing remarks.

All right. Thank you once again I want to remind everybody. We think that this event that we're going to have next next week as an important one were excited about giving all of you some real visibility into our cohort performance. So I encourage you all and what that means for our business over the long term.

As well as cost structures gross margin on the rest it should be a a great event simply show up for that with that final plug in place for that call I want to thank you all for joining us today, and I, especially want to thank our employees partners and investors for their continued support and look forward to updating you on our next call in just a few days.

Operator.

Before we conclude today's call I'd like to provide Sharpsprings safe Harbor statement that includes important cautions regarding forward looking statements made during this call.

During today's call there were forward looking statements made regarding future events, including Sharpsprings future financial performance. These statements reflect the company's current views with respect to future events. These forward looking statements involve known and unknown risks uncertainties and other factors include.

And those discussed under the heading risk factors and elsewhere in the Companys 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 cheap.

Its 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 make reference to adjusted EBITDA core net income or loss and core net income or loss per share, which are non-GAAP financial measures presented as supplemental measures of the company's performance.

Reconciliation of net income or loss to 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'd like to remind everyone that a recording of today's call will be available for replay via a link available in the investors section of the company's website.

Thank you for joining us today for Sharpspring Springs third quarter 2020 earnings Conference call you may now disconnect.

[music].

Yeah.