SharpSpring, Inc.
Q2 2019 Earnings Call Transcript

Published: 11 Aug 2019

[Operator:]

Good afternoon, and welcome to SharpSpring’s Second Quarter 2019 Earnings Conference Call. Joining us today are SharpSpring’s CEO, Rick Carlson; and CFO, Brad Stanczak.Following their remarks, we will open up 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 Web site at investors.sharpspring.com.Now, I would like to turn the call over to SharpSpring’s CEO, Rick Carlson. Sir, please proceed.

[Rick Carlson:]

Good morning, everyone, and thank you for joining us today. After the market closed, we issued a press release announcing our results for the second quarter ended June 30, 2019. A copy of the press release is available in the Investor Relations section of our Web site.Overall, the second quarter was another strong performance for SharpSpring. Financially, we achieved our ninth consecutive quarter of record revenue, which translated into a 24% top line increase to 5.5 million.Additionally, our gross margin held steady at 71% for the quarter, which is impressive when you consider the additional investments we’ve been making to support the long-term health of our platform and customer base. After adding another nearly 300 total customers in the quarter, we now have over 1,850 agency partners and over 8,000 businesses on our platform.New wins for Q2 were driven by continued strength within our agency partners, reflecting the consistent strategic focus of our business as this group represents our highest value customer segment over the long term.In alignment with our long-term thinking, this quarter, we also made strategic decisions to switch incoming direct customers to annual subscription, which had a minor impact on new customer wins in the near term, but should generate substantial improvements in retention and lifetime value within this group as we attract a higher quality of customer and are offering an improved on-boarding experience in conjunction with account management resources for new cohorts.Additionally, with the enhancements we’ve continued to make to our platform, including the first of our upcoming premium offerings, Sales Optimizer, we’ll have significant opportunities within new and existing customers to make our products more essential to their operations, while also generating meaningful expansion revenues over time.Now, before I speak further about these major initiatives, I’m going to turn the call over to our CFO, Brad Stanczak, who will walk us through our financial results for the quarter. Brad?

[Brad Stanczak:]

Thanks, Rick. Good afternoon to everyone on the call today. Let’s turn to our financial results for the second quarter ended June 30, 2019.As Rick just mentioned, our total revenue in the second quarter increased 24% to a record 5.5 million from 4.4 million in Q2 of last year. SharpSpring Marketing Automation revenue grew 26% to a record 5.5 million compared to 4.3 million last year.Our gross margin for the second quarter of 2019 increased to 71% from 66% last year. In dollar terms, gross profit increased to 33% to 3.9 million from 2.9 million in Q2 of last year.As we’ve mentioned on previous calls, over the past few years, we’ve invested significant resources in our hosting infrastructure and support organization to reinforce the current and future growth of our product.As we continue to layer more revenues under the platform, we will create more and more operating leverage in our model as evidenced by the year-over-year improvement in gross margin. We’ve done a nice job scaling and leveraging our infrastructure, which has allowed us to maintain gross margin over 70% this year.That said, we continue to build our account management group during Q2 and do expect a slight decline to gross margin in Q3 as we realize a full quarter of team’s expense with a return to near-current levels in Q4.While I’m on the topic of gross margin, I think it’s insightful to put out that over the last 12 months, we have been able to capture 86% of our incremental revenue at gross margin, and we think that this is an indication of long-term gross margin that could be in excess of 80%.Turning to our operating expenses. For the second quarter of 2019, our operating expenses increased 25% to 6.1 million from 4.9 million in Q2 of last year. The quarterly increase was due primarily to ongoing investments in sales and marketing initiatives to accelerate our future growth; additional investments in our R&D organization to accelerate roadmap items; and increases for our G&A expenses, mainly due to additional personnel to support the future growth of our business, our new office space and increased depreciation.Our GAAP net loss for the second quarter totaled 4.2 million or $0.41 per share compared to a GAAP net loss of 2.5 million or $0.29 per share in Q2 2018. The current year net loss includes a 2.2 million non-cash charge related to the settlement of our convertible debt. On the balance sheet, we ended the quarter with $16 million of cash compared to $9.3 million at December 31, 2018, and we have retired all debt.Looking to our non-GAAP measures, our adjusted EBITDA loss for the quarter, which we reconcile in our earnings release, totaled 1.7 million, which is an increase from an adjusted EBITDA loss of 1.5 million in the same year ago period. The higher adjusted EBITDA loss was the result of our continued investment in new sales and marketing programs as well as our account management and development teams. Going forward, we expect our adjusted EBITDA to decline slightly from recent levels and then improve sequentially.Our core net loss for the second quarter, which is also reconciled in our earnings release, totaled 1.9 million or $0.19 core net loss per share compared to a core net loss of 1.7 million or $0.21 core net loss per share in Q2 of last year. For more details on our adjusted EBITDA and core net income metrics, please see the reconciliation to GAAP terms included in the supplementary table of today’s earnings release.Moving to some of our other metrics. During Q2, our cost to acquire new customers [ph] was approximately 9,800 which was impacted by lower sales activity during the period. As a reminder, we calculate customer acquisition costs as a sum of our all-in sales and marketing costs from Q1 2019, divided by the new wins from Q2 2019.While this is an increase on tax from Q1, it is primarily due to certain occurrences in our sales process, which Rick will speak to in a minute. This tax calculation is imperfect because it doesn’t take into account that marketing spend in one quarter had a long tail and impact deals we win in future quarters. So on a cohort basis, we see lower tax.Although we do experience fluctuations in this metric quarter-to-quarter, we’re confident that we can continue to consistently acquire customers that are historically attractive all-in rates that will deliver significant lifetime value for the business in the future.Our lifetime value calculations, which are long-term and include estimates for future performance, continue to indicate that agency customers contribute approximately $40,000 to $50,000 to the business on average.This long-term value reflects the benefit for the company on a fully discounted basis, after reducing for estimated gross margin costs to support the customers on the platform. Based on these figures, our expected lifetime value to customer acquisition cost ratio continues to be compelling.I’ll now take a minute to discuss some recent events related to the company’s capital market activities. As many of you are aware, during our last earnings call in May, we announced the subsequent events to the quarter end, whereby we entered into an agreement with existing institutional investors for the conversion or retirement of an $8 million unsecured convertible promissory note and was previously issued and announced in March of 2018.Under the terms of that agreement, total share to be issued to those investors were 1,241,635. Our decision to take this action was twofold. First, we saw an opportunity to reduce future dilution. Second, we’re able to clean up our balance sheet for maximum future flexibility. We are confident that the final negotiated terms were of great benefit for the company in this transaction.As a result of the note conversion, we incurred a one-time non-cash charge of approximately 2.2 million, which is reflected in this quarter’s income statement. Based on the second quarter, as most of you have likely seen, we issued a press release announcing that same shareholder’s intention to sell these newly issued shares through a resell offering.In addition to the shares issued upon retirement of the note, the offering also included additional shares that the investors acquired through the open market at a significant discount to the current and offer share price. While we are unable to speak to their sales specifics, while we remain aware of their intentions, our response was to make a best effort attempt to ensure a smooth transition for the benefit of our remaining shareholders.As we have previously stated, the selling stockholders received all net proceeds from the offering. SharpSpring did not sell any shares nor were any new shares issued. Going forward, we feel we are in a solid financial position with adequate cash reserves to fund our long-term growth initiative, with a clean balance sheet that provides us maximum flexibility.Before turning the call back over to Rick, I’d like to make one final comment regarding future press releases and additional financial disclosures. Historically, the company has released an update prior to reporting quarterly and annual financial results that highlights the number of new customers added during a given quarter.This press release doesn’t provide full context. So we’re going to consolidate that information into our earnings release. Additionally and especially given the increased analyst coverage that we’ve gained recently, starting with next quarter’s call, we’re planning to provide additional financial disclosures, including annual revenue estimates.This completes my financial summary. I’d now like to turn the call back over to Rick for additional insights into our operational progress in Q2 as well as our outlook for the rest of 2019. Rick?

[Rick Carlson:]

Thanks, Brad. As I mentioned in my opening remarks, in Q2, we put together another record revenue performance and continued to make considerable progress on our product roadmap and our long-term customer success initiatives.In our prior call, I mentioned that going back to the latter half of 2018 and into the first half of this year, we’ve been focused on two different initiatives that we feel collectively will drive long-term success of our business; the first, bringing on new customers; the second, improving our net revenue attrition through an increased focus on customer success as we expand revenue opportunities.I’m going to start with some updates on our progress in winning new customers. During the quarter, we added 290 new SharpSpring Marketing Automation customers. Given the consistent meaningful growth we’ve been able to generate for some time now as well as the outperformance we showed in the comparable year ago Q2 period, this quarter’s new wins in total fell slightly short of our expectations in terms of units.That said, I’d like to dissect the makeup of this new winnings number because I think it speaks quite strongly to our long-term focus and shows how we’re thinking about growing our company, which to be clear is not on a quarter-to-quarter basis.First, in terms of new agency customer wins signed on during Q2, that metric was actually up year-over-year. As we’ve said before, we believe this customer segment is the highest value target for our business, both in the near term and definitely in the long term, as this group functions essentially as a built-in reseller of our platform.When looking for where the shortfall in the quarter came from, we found lower contributions with two specific groups; our international partner channel and our direct customers. Let me address our country partners first. While our country partners have historically been a reliable source of new business for us, we did experience softness in sales activity, specifically in Brazil, which makes up most of our international partner channel.In Q2 2018, this group was one of our better-performing sub-segments. In Q2 2019, this group underperformed compared to its average historical levels. Contributing further to the foreign exchange rate pressure between the U.S. and Brazil, because we charge in U.S. dollars, the current exchange rate has been unfavorable for Brazilian customers.What this means for us is that our software is more expensive for potential customers this year versus last year. I want to reiterate that this group has historically represented our least valuable segment due to higher than average attrition and much lower monthly recurring revenue.When thinking about the softness with customers in Brazil, the key takeaways that these customers are historically and effectively only one-fourth as valuable as the average U.S. customer. So while unit sales may have been softer in this last quarter for the aforementioned reasons, the impact on long-term revenues from these customers is inconsequential.The other group I want to talk about is our direct customers. As we discussed in our earnings calls, in Q2, we updated contract terms from a monthly to an annual subscription for new direct customers with the goal of addressing the typical early attrition that we’ve observed from this segment.Annual contract terms ensure that direct customers initially commit to a timeframe with us that allows them to realize the full benefit of our platform, which we believe will drive lower long-term attrition. While this change has impact – has had an impact in the near-term sales in this segment, it should lead to higher long-term value for each of the direct customers that we do sell. In other words, the customers who are signing to the new deal terms are higher quality and therefore should provide higher long-term value for our business.We think being more deliberate in our intentions and requiring longer terms for new direct customers is going to catalyze a strong upward trajectory on the retention within this group. Additionally, with our newest group of account managers now onboard, which I’ll speak to in a minute, we’re also dedicating additional resources to ensuring greater direct customer success for our legacy monthly accounts as well.Overall, our unit sales were slightly lower for the quarter due to these changes, but the quality of sales during the quarter has improved. And we, therefore, expect long-term revenues from this quarter sales to be largely in line with previous quarters.With that overview now complete, I’d like to move on to some of our ongoing initiatives centered around customer retention, success, and expansion. As many of you know, over the past few quarters, we’ve been working on making internal improvement that help our existing and new customers to maximize the value of their platform.One of the areas we found to be suboptimal was our on-boarding processes. However, we’re now focusing on making this an area of strength by enhancing the on-boarding experience with the assignment and introduction of an account manager at the start of the customer relationship. Account managers function as the main point of contact per customer through their entire lifecycle with SharpSpring, starting from on-boarding.I’m pleased to report that we have now fully staffed our agency account manager team, and we’ve begun adding account managers for direct customers as well. Agency account management was the first priority for us in the rollout of this program, and so we’ve already been working on getting those dedicated account managers fully up to speed, which has translated into a few positive early indicators.These indicators show both an uptick in terms of expansion licenses that we see from agencies as well as a modestly lower monthly attrition from customers that have had an account manager assigned. While these are obviously positive signals, I’d like to reiterate that these are very early results, and most account managers are only just now beginning to build the solid relationships with their accounts that we’d like them to have. Needless to say, we plan to continue to monitor and expand as we receive additional feedback and data.Our last update for today will be on platform enhancements, specifically our new premium offering strategy. On the whole, we’re always adding significant improvements through our already fully featured Marketing Automation platform. Early in July, we announced the official release of our first premium offering, Sales Optimizer.Sales Optimizer is a set of tools that allows a business to control both the cadence and the quality of the entire sales process. Put plainly, Sales Optimizer is as revolutionary to the sales process as Marketing Automation has been to the marketing funnel. It is fully integrated within the SharpSpring platform and provides the same systematic structure to generating sales that marketing teams use to generate and nurture leads.For some color, by the time the sales person receives a hot lead, a lot of time, effort and dollars have already gone into making that lead sales ready. Too often, sales-ready leads are mishandled and fall out of the sales funnel, leading to a suboptimal process and lower sales and revenues.Sales Optimizer ensures that every salesperson follows best practices for conversion by automatically creating tasks and actions that move their yields through the pipeline. And coupled with content creation tools in SharpSpring, businesses can provide sales teams with exactly the right messaging and materials they need to complete those tasks in a high-converting and impactful way.With the addition of Sales Optimizer, automation can now be used at every stage of the customer journey. Sales teams can send the right message at the right time by leveraging the same kind of powerful tools marketing teams have used for years.Another added benefit of new products like Sales Optimizer coming online is that we’re able to eat our own dog food, as the saying goes. We’re personally using Sales Optimizer in our everyday operations and see it as a key tool that will enable us to refine our own sales processes.Initial reception for this product has been strong. The Sales Optimizer product release webinar was our highest attended webinar ever, and we’re already seeing paid adoption in the – of the feature in the first few weeks after release. Going forward, our plan is to continue rolling out additional features, such as customer reporting and sales dialer in the coming quarters that will incentivize adoption of the full feature set.To be clear, existing customers can opt to continue using our service exactly as it is or they will have the option to pricing for these new features should they choose to. We’re looking forward to sharing additional updates when we can.Before concluding the call, I’d like to take a few minutes to discuss the dynamics of logo attrition versus net revenue attrition, as it relates to SharpSpring. Understanding these dynamics is key to understanding our business.In many SaaS businesses, especially SMB-focused SaaS businesses, net revenue attrition far exceeds logo attrition. The reason for this is that cash businesses often lose their larger customers to more robust or enterprise solutions as they struggle to keep up with the demands of their very best customers.SharpSpring actually has the opposite dynamic. Our net revenue attrition is always considerably less than our logo attrition, and this is because, generally speaking, we only ever lose low-value agencies, agencies that fail to add licenses to their initial path and therefore, never reach expansion revenue with us. In some sense, our agencies act as resellers with us so it makes sense that agencies that fail to sell our platform to their clients are the ones that leave.Conversely, agencies that reach expansion revenue with SharpSpring do not attrit at nearly the same rate because they are happy in making money with our platform and they’re delivering results for their clients. For this reason, our net revenue attrition has steadily dropped as more and more of our agencies that we add with each passing month are able to mature and reach expansion.For context, while our monthly logo attrition during recent quarters has hovered around 3%, our net dollar retention for the quarter was 94%. That number is even more impressive than first impressions for several reasons. First, it seems to already be right in line with our largest competitor. HubSpot did not disclose their net revenue retention. But when asked during their last earnings call, their CFO stated it was in the high 90s and that they have not yet, but hopes it hits 1% retention in the future.We are a much newer company than HubSpot. HubSpot began its business nearly a decade before we launched our platform in 2014. So today, the average age of our agency partners is less than 19 months. Because of our accelerating year-over-year new sales, we’ve been layering on new customers that drive that average age down, while they simultaneously go through their high attrition and low expansion period with us.Secondly, as a company, we are only just beginning to work on adding both account management to incur license expansions and additional products to encourage the value of each of those licenses. Both of these efforts directly impact net revenue retention.So in short, the right way to view our business is with an eye towards net revenue retention because we retain customers that expand with us and generally only lose customers that do not. This means that our net revenue retention is far greater than our logo retention, and the gap between those two numbers will increase with time.Moreover, we are already in the same ballpark of more mature companies on this key metric. And as our customer base matures and expands, we’ll continue to see further improvement. Eventually, we believe we can get to 100% plus net dollar retention and we believe we’re already well on our way.Going forward, we have to continue growing our business at recent levels and believe that the quality of our customers we bring on will continue to improve, thanks to heightened focus in this area. Taking a step back, SharpSpring remains in its strongest position in the company’s history.We’ve been recognized with three major industry awards in the last month alone, which speaks to the quality of our offering and the services we provide. Additionally, with the new premium offerings we’ve recently begun rolling out, we have additional investors for growth beyond our current business.We’re confident that the measures that we’re taking to ensure greater customer success on our platform will ultimately lead to significantly higher revenue retention and lifetime value as a result.Overall, we believe that we’re in the early innings of a long-term growth plan with a long runway to add new customers to drive greater penetration within our existing customer base, and we have future opportunities to take advantage of our industry low pricing structure.And with that, we’re ready to open the call for your questions. Operator, please provide the appropriate instructions.

[Operator:]

Thank you. The floor is now open for your questions. [Operator Instructions]. Our first question comes from Darren Aftahi with ROTH Capital.

[Darren Aftahi:]

Hi, guys. Thanks for taking my questions.

[Rick Carlson:]

Hi, Darren. How are you doing?

[Darren Aftahi:]

Good. How are you? Just a few, if I may. First on the account management, thanks for all that detail, I’m just kind of curious. Beyond the obvious of trying to stem attrition, strategically kind of from where you guys sit, what are the other kinds of key priorities? Is it gaining wallet share, is it up-selling, like Sales Optimizer, is that more of a sales function? I’m trying to understand kind of near term and longer term what are the goals of account management?Two, I know it’s not a big needle mover but I guess three weeks into the third quarter, how has that international business trended vis-à-vis Q2? And then just with Sales Optimizer, I know you gave a little bit of color on that, but I’m just kind of curious on go-to-market strategy and kind of when your full suite of agency customers will probably be exposed to this new product set? Thanks.

[Rick Carlson:]

Sure. I think you asked three questions there, which is really taxing my intellect. So I’ll do my best to keep track of them all. With regards to account management, some of the others just work on really – clearly they’re attempting to fight attrition, but we’re really working on expansion revenue. And at this point, we’re uncertain which factor they’ll be more successful at or they’ll be more impactful with. So it could be that the agencies that are trending for their own reasons, their businesses are unstable and so forth and account managers have very little impact in that area, but they’re better able to teach more stable agencies how to sell our platform and implement it and deliver results for their clients, so they’re more impactful on that expansion revenue.The lesser goals for them are to make sure that all of their agencies are aware of the new features in the platform, both paid and unpaid, and encourage adoption as what we refer to as anchor clients. We know that even an agency with one client that is fully utilizing the platform is less likely to leave if they’ve got what we refer to as an anchor client rather than an agency that’s just got one client using it for maybe email or something along those lines. So they work on all kinds of things. They work on understanding share of wallet, getting our agency certified, making sure new employees are trained up at the agency. So there’s a lot of sort of sub-bullets that lead to that expansion revenue focus. And so I think that sort of covers that question. Feel free to ask a follow-up.With regard to Sales Optimizer, I think I’m going slightly out of order here. Sales Optimizer, the adoption of that product has been pretty solid. We’re excited about it. We’ve got more than a couple dozen customers who picked that up in the last while. And we launched it I think, I’m losing track of time, three or four weeks ago. That feels like three weeks ago. And so we’ve got some folks on it. As I mentioned, we’re excited about using it ourselves. We’ve implemented more than 19 different processes into Sales Optimizer. And I can now go to sleep at night realizing that my sales team is actually doing the tasks that we think are required to get deals closed.And then with regard to the country partners, I really don’t want to – their monthly numbers bounce around so much that it sort of evens out a quarter. But it’s difficult for me to tell you on this call that they’re over-performing or underperforming compared to last quarter, simply because of the monthly volatility that we see with these customers. The takeaway and you said it, so I know you heard the message here, is that these customers represent units, but not that much revenue and we want them to be successful. But I don’t want to give you a number and sort of tell you that those guys are back on track or not simply because there just hasn’t been enough time in the quarter. I don’t want to steer you in the wrong direction.

[Darren Aftahi:]

That’s helpful. Thank you.

[Rick Carlson:]

Okay. Thank you. I appreciate it, Darren.

[Brad Stanczak:]

Thanks, Darren.

[Operator:]

Our next question comes from David Hynes with Canaccord. Please go ahead.

[David Hynes:]

Hi. Thanks, guys. So, Rick, first, I understand the contract changes on the direct side. But I just want to be clear. So you have no plans to change the agency business to annual commitments, correct?

[Rick Carlson:]

That is correct. That’s right. None.

[David Hynes:]

Good. Okay. Just want to be clear there. Sales Optimizer, what can you share in terms of pricing and what you’ve been able to realize from those early adopters? How should we think about it I guess in terms of wallet expansion compared to what an agency customer would spend on the marketing side?

[Rick Carlson:]

Yes. Sure. So I can tell you because it’s public. We’re charging $250 a month for Sales Optimizer, which is actually more money than we collect on the base license, which we allow our agency partners to mark up. But our base license of Marketing Automation, which includes our CRM, I’ll just call it our sales and marketing platform, than the wholesale price that we’re getting from an agency. So for the customers that adopt Sales Optimizer, we’re effectively getting more than double the license fee from that particular customer. That does not at all to suggest that we’re somehow going to be doubling the license fees. We expect this to be something that a smaller subset eventually building to hopefully a couple hundred clients or what have you over time using it.We’ve got more than a couple dozen right now. And we think as time goes on and people – the way we’ve implemented that the features in – the options are available within the platform, and so people can see that that option is available, but they’ll have to upgrade in order to use it. And so we think there’s sort of a gradual up-sell opportunity as people realize they want to implement a feature that’s included in Sales Optimizer and some subset of those will decide to pony up and pay for that feature. And we think it’s a really powerful platform and feature, and we’re excited about using it ourselves as well. It’s been well received so far from the customers that are using it.

[David Hynes:]

Yes. That’s great. And then, Brad, maybe one for you. I’m going to give you a shot at revenue guidance, maybe a quarter before you’re ready. But just how are you thinking about the back half of the year on the top line, just given kind of the ARR shortfall in Q2? I think you gave us some good color to get us in the right spot in terms of gross margins and EBITDA, but I’m curious how you’re thinking about growth?

[Brad Stanczak:]

You put me on the spot a quarter early. Yes, I would say that I would expect the quarter-to-quarter growth to probably be similar to what we’ve seen earlier this year.

[David Hynes:]

Are you talking sequential?

[Brad Stanczak:]

Sequentially. That said, if the early indicators of what account managers can do in the adoption of some of these tools are stronger, maybe improves, but we’ll also probably have a slight haircut because we did have fewer customers in Q2 and that manifests itself as slightly lower on-boarding revenues in the following quarter. So I would say that sequentially it’s probably similar-ish to how it has been performing.

[David Hynes:]

Okay, that’s helpful color. I’ll see you guys in Boston in a couple of days.

[Brad Stanczak:]

Look forward to it.

[Rick Carlson:]

Thank you, David.

[Operator:]

Next, we’ll go to Mike Malouf with Craig-Hallum. Please go ahead.

[Michael Malouf:]

Great. Thanks for taking my questions. I’m wondering if you could talk a little bit more about some of the new products, Rick, that you have coming out and in particular I think you were talking about the sales dollar earlier. Is that another option to just enhance the product or are you going to break that one out like you are with the Optimizer with regards to maybe adding to the average revenue per user?

[Rick Carlson:]

Yes, so specifically the sales dollar, that will be an add-on feature and we’re going to price that a little bit differently. There’s some real cost that we realized. With Sales Optimizer sort of 100% development on our side, with sales dialer, there are some real costs associated with a VoIP provider that we’re using and so forth in that. Those are sort of per minute charges that we incur and we, therefore, are going to charge that on a per fee basis ourselves, but it definitely will be an additional cost. And we still think of solid margin product offering to be clear. But just giving you some color into how we incur cost with that product. That will be in the tens of dollars per month per user. And we will have an option for transcription as well associated with that. It’s going to be a neat product when it comes out, and it will enable a sales manager to understand whether sales teams are making the outbound calls that they like and then be able to really hone right in with the recordings and the transcription on how they’re overcoming specific objections and so forth.So again, we feel like it’s something that a subset of our customers are really going to like, the ones that have mature sales teams that are on the larger side and are willing to pay for these premium features, but for those customers it’s going to add a lot of value. We’re also adding a bunch of features to the platform that do not – maybe less sexy on these calls because they don’t incur additional costs, but they do add to the value of the platform. So we’re about to upgrade all of our analytics within our platform here coming next month. We’re very excited about that. We just launched a Meetings feature, which enables the – back to the analytics for a second, it includes dashboarding and all kinds of really interesting stuff. And then we just launched a Meetings feature for those of you who use tools like Calendly or Acuity, you may be familiar with those. These are features that we’re continuing to add value to the platform as well which obviously translates into hopefully more sales and less attrition. So we’re sort of across the board with paid products, and additional value that’s included in the license.

[Michael Malouf:]

And then as you sort of look into the value that you’re sort of adding to the product, it’s been about a year and a half I think since you’ve had any kind of price increase. Is there any plan to do that in the sort of near to intermediate future? And I imagine your price is still quite below some of the competitors out there.

[Rick Carlson:]

Yes. We’re still a tiny fraction of the cost of our competitors. And we feel – I think the way I would say that on this call is that that option is always available to us. We really like the idea and feel like the larger lever is to work on more share of wallet, which is to say more agency clients per agency. You get an extra client per agency and that dwarfs any price increase, and those things are not mutually exclusive and it may very well be if we decide to do a price increase, but we really like the idea of expanding with our agency partners and offering new products and services that will increase the average revenue we’re getting per license. And then after we do those things successfully, we’ll take a look at potential price increases as well. I don’t see that coming this year, but it’s something that we can look – we might look at next year potentially.

[Michael Malouf:]

Okay, great. Thanks.

[Rick Carlson:]

Thank you.

[Brad Stanczak:]

Thanks, Mike.

[Operator:]

Our next question comes from Ilya Grozovsky with National Securities. Please go ahead.

[Ilya Grozovsky:]

Thanks. Just a question about the new pricing. So to clarify, the 290 customers that you added in the quarter, they’re all on annual contracts?

[Rick Carlson:]

No. The two – the vast majority of those customers are our agency partners and those are on month-to-month contracts. We changed the contract terms for direct clients. So the way that works, we’re an agency-first business. We focus on branding, digital marketing agencies that bring our platform to their customers, but we get direct customers that have heard of SharpSpring and want to sign up with us. And, of course, we’re willing to sell those customers our platform. What we’ve done there is we’ve moved those customers to an annual contract as well as putting more pressure on the account management of these customers. And so I would say, I don’t have the number directly in front of me, but call it 15% or so of those customers are direct customers that would be – maybe 20% of those customers would be on an annual contract, so that 290.

[Brad Stanczak:]

Closer to 20%.

[Ilya Grozovsky:]

So 20% of the 290?

[Rick Carlson:]

That’s correct, on an annual contract.

[Ilya Grozovsky:]

Okay. Are you going to be making an effort to go back to your plethora of month-to-month direct customers and kind of incentivizing them to switch over to annual?

[Rick Carlson:]

Right, understood the question. Yes. We may take a look at that. But what we’re trying to do with this annual contract is take the – give a new customer enough time to work with us and work with the platform in order to save off that sort of first year or even first six months of attrition. After that, if we’ve gotten them engaged with the platform, then they built it into their Web site, they built automation, they’re probably using our CRM and have all their deals in there and really the software itself fights attrition. And so I don’t know how much value there is in going back to those roughly 500 direct clients that we have and putting them on annual contracts because the majority of those guys are after that period of time, that six-month period of time, call it, where they’re at the highest risk of attrition. So there may be something we’re doing, but we do not – we have no any specific plans.

[Ilya Grozovsky:]

Okay, great. Thank you.

[Operator:]

[Operator Instructions]. Our next question comes from Tim Klein with Lake Street Capital. Please go ahead.

[Tim Klein:]

Hi, guys. Just helping out Eric, because it’s a little bit of an earnings tsunami today.

[Rick Carlson:]

Hi, Tim.

[Tim Klein:]

Hi. Thanks for taking the call. So you talked a lot about account managers. Could you just give us an update on how that hiring has come along? I think you guys started out with four. I think you’ve doubled that. Where is that at? How do you see that progressing? You kind of alluded to some of the impacts, but just a little more specifics on the hiring program?

[Rick Carlson:]

Yes. Sure. At this point, we’re essentially done – every agency partner of ours has an account manager. Obviously, people leave the company from time to time, so I’m sure that’s not the last account manager we’ll ever hire. But right now, everybody’s got an account manager and that’s really sort of late in the quarter that we got to that state. And so some of our agencies have had an account manager for three, four or five months, many of our agency partners just got their account manager.As I think Brad alluded to, we’re adding account managers on the direct side of the business and we’ve got a couple of those folks hired. And we need to hire probably three more I believe, give or take, to have all of our directs have account managers as well. And we’re pretty excited about the early results that we’ve seen on both sides of the business, frankly, but it’s a little bit too early to tell whether these are a string of decent numbers that have been put together by happenstance whether there’s a trend. So we’ll tell you more about that on the next call.

[Tim Klein:]

Okay, great. That was going to be my next question, but yes, we’ll look. So maybe next quarter, we’re going to see some of that progress. So another metric you guys have talked about and it sounds like it’s too early for the account manager kind of to have an impact on it, but just an update on the ROI metric? I know historically it’s better around 7.2 with some of the movements. Where is that at? And kind of any updated thoughts on where you see that trending?

[Rick Carlson:]

Yes, sure. So, look, before leaving the account management discussion, I did want to just reiterate in my comments and I’m hoping that we can get folks to realize that with the information that we’ve been providing, we’ve really only allowed our analysts to solve for logo attrition. And I want to be – we’re going to be providing information on our net revenue attrition/retention here moving forward. And we really believe that’s the way to think about the business for the reasons I mentioned. We lose the low-value agencies and the rest continue to stay with us and expand. And essentially, attrition and expansion revenue are tightly correlated. So anyway, we’ll work on that.Account managers should only help that metric. So we continue to think that our customers all-in are worth between $40,000 and $50,000 of lifetime value. And we sold less units again in Brazil and because of the move to direct clients and so you see that our CAC has gone up this quarter. But it’s actually sort of overstated because, again, the money that we spend in any given quarter actually really affects sales in several future quarters.So we think that our LTV-to-CAC ratio is well north of 5, and we think that the work that we’re putting in to add account managers, have them work on share of wallet, we’re only just coming online with any significant up-sell opportunities and so forth. So we think there’s plenty of room to increase LTV. And we also think that we can settle some things down on the CAC side as well. So I’d say north of 5 LTV to CAC right now and plenty of reasons to think that that number can be increased.

[Tim Klein:]

Great. Thanks for the added color. I appreciate it.

[Rick Carlson:]

I appreciate it, Tim.

[Brad Stanczak:]

Thanks, Tim.

[Operator:]

That does conclude our Q&A session for today. I’ll turn it back over to Rick Carlson for any closing remarks.

[Rick Carlson:]

Just thank you all for joining us on the call today, especially our old and new analysts covering us, so appreciate it. And I want to, of course, thank all of our investors, employees and partners as well for the continued support. We’ll look forward to updating you in another 90 days or so. Thanks, everyone.