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SMTP (NASDAQ:SHSP)
Q4 2020 Earnings Call
Mar 16, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon. Welcome to SharpSpring's fourth-quarter and full-year 2020 earnings conference call. Joining us today are SharpSpring's CEO, Rick Carlson; and 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.sharpspring.com. Now, I would like to turn the call over to SharpSpring's CEO, Rick Carlson. Sir, please proceed.

Rick Carlson -- Chief Executive Officer

Welcome, everyone, and thank you for joining us today. After the market close, we issued a press release announcing our results for the fourth quarter and full year ended December 31, 2020. A copy of the press release is available in the investor relations section of our website. I encourage all listeners to view our release for additional information on what we'll be discussing on our call today.

And with that, we'll get started. Looking back on 2020, I think it's fair to say that it was an eventful, and in many ways, trying time for us all. For SharpSpring, what I think we'll take away most is the strength of our platform and the value our customers see in it. Equally impressive has been the ability of our team to meet head on the many challenges and obstacles the pandemic created for us.

Despite those distractions, we were able to consistently grow our business, expand our platform and position ourselves effectively for long-term success. I'm grateful for the efforts of our collective SharpSpring team in making this happen. In the fourth quarter specifically, we also recorded a number of positive incremental data points that support our belief that our business is slowly but surely returning to normalized conditions. Within our customer base, we logged diminished attrition and also saw a net revenue retention return to pre coven levels with a second straight period of net positive agency client expansion.

We also had our 15th straight quarter of record revenue, marking nearly four years' worth of consistent top line improvement, which has us nearing a $30 million annualized run rate as we head into 2021. While we are still working to put COVID-19 in the rearview mirror, we believe these positive indicators are collectively pointing to an improved year ahead. Back in November, we held an update for our investors that outlined several forward-looking projections for our business, including a comprehensive discussion of our cohort maturation and customer base, as well as our long-term business profile, profitability metrics and growth trajectory. If you haven't reviewed the investor deck and letter connected with this update, I encourage you to do so.

The information contained in that presentation is intended to serve as a pretext for many of the items we'll be discussing today. To be clear, 2021 will be a period of major investment in our business. As the data shows, we have industry-leading SaaS metrics supporting our growth. And in a now more stabilized environment, we intend to capitalize more fully on this opportunity.

In November, we returned all of our employees to pre-pandemic salary levels. After our successful offering at the end of the year, we've also added additional resources to drive new sales, marketing and product initiatives that are designed to have a long-term positive impact on the business. I will discuss several of those initiatives on our call today. However, before we get any further, I'm going to hand the call over to our CFO, Aaron Jackson, to discuss our financial results for the quarter and year.

Aaron?

Aaron Jackson -- Chief Financial Officer

Thank you, Rick. Turning now to our financial results for the fourth quarter and full year ended December 31, 2020. Our total revenue in the fourth quarter increased 25% to a record $7.7 million, up from $6.1 million in the fourth quarter of last year. For the full year 2020, our total revenue increased 29% to a record 29.3 million from 22.7 million in 2019.

Our gross margin for the fourth quarter of 2020 increased to 75% from 65% last year. In dollar terms, gross profit increased 42% to a record 5.7 million, from 4.0 million in the fourth quarter of last year. For the full-year 2020, gross margin increased to 72% from 69% in 2019. In dollar terms, gross profit increased 36% to a record 21.2 million, from 15.6 million in 2019.

Turning to our operating expenses. For the fourth quarter of 2020, our operating expenses increased 20% to 8.1 million, from 6.7 million in the fourth quarter of last year. For the full-year 2020, our operating expenses increased 8% to 28.5 million, from 25.8 million in 2019. Our increases in operating expenses include a onetime non-cash impairment to goodwill of 710,000 during the fourth quarter of 2020.

The impairment is the result of a slower-than-expected growth from our Perfect Audience reporting unit since our acquisition of Perfect Audience November of 2019, which we believe was largely driven by the impact of the pandemic on advertising spend. Our GAAP net loss for the fourth quarter totaled 2.3 million or $0.20 per share, which was a significant improvement compared to GAAP net loss of 2.7 million or $0.24 per share in fourth quarter of 2019. For the full-year 2020 GAAP net loss totaled 5.8 million or $0.50 per share compared to a GAAP net loss of 12.4 million or $1.20 per share in 2019. On the balance sheet, we had 28.3 million in cash at the end of the year compared to 11.9 at December 31, 2019.

In December of 2020, we completed a public offering of 1 million shares of our common stock at $15 per share. After deducting the underwriting discount and estimated offering expenses, we received net proceeds of 13.9 million. Use of proceeds will be used to fund our ongoing operations, that we'll begin to see revenue impact in the second half of the year, including many 2021 growth initiatives that Rick will be discussing in just a little bit. 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 reconcile in our earnings release, totaled 869,000. This represented a significant improvement from the adjusted EBITDA loss of 1.9 million in the same period last year. For the full year 2020 adjusted EBITDA loss totaled 3.2 million compared to an adjusted EBITDA loss of 7.4 million in 2018.

Our core net loss for the fourth quarter, which was also reconciled in our earnings release, totaled $1 million or $0.09 core net loss per share, compared to core net loss of 2.1 million or $0.19 core net loss per share in Q4 of last year. For the full-year 2020, core net loss totaled 4.2 million or $0.36 per share compared to a core net loss of 8.2 million or $0.79 per share in 2019. 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 of today's earnings release. This completes my financial summary.

I'd now like to turn the call back over to Rick for additional insights into our operational progress during the quarter and provide an outlook for 2021. Rick?

Rick Carlson -- Chief Executive Officer

Thanks, Aaron. Today, I'd like to spend our time together by sharing a longer-term multiyear vision for the company. And I'd like to begin by talking to you about a new way to think about SharpSpring. As those of you who have been following our company for some time now, we've always considered ourselves a marketing automation company.

Indeed, this is the category that is most often used to describe us as well as HubSpot and ActiveCampaign. The two companies we find ourselves competing with most often. Yet as time has passed, and we have invested in our product, we've really grown beyond that description. Today, SharpSpring's platform includes email marketing and marketing automation, CRM, social media management, chatbots, sales automation, sales dialer, SharpSpring ads, SharpSpring meetings and a host of other features that fall outside the traditional definition of marketing automation.

In fact, when you consider what we've developed over the years, nearly every feature and sub feature has been built and integrated into the platform as a means of generating revenue for our customers. This common thread of revenue generation has permeated nearly every decision we've made about the product. And it is no coincidence that our ability to drive revenue for our customers is what protected our business from attrition as the pandemic took hold last year. Simply put, our customers use our product to generate more revenue more efficiently for themselves.

And we believe it is past time for us to start thinking and talking about our company in these terms. From a technology perspective, SharpSpring has nearly everything that a small business needs to grow their revenue. As we go forward and our platform and business continue to evolve, we want to make sure our message and our value proposition remains clear to our customers, investors and all our stakeholders, and we believe positioning SharpSpring as a revenue growth platform does just that. Let me now move on to the topic of pricing.

Here, I'll begin by telling you about some changes we've already made to our pricing model and touch on some mid-range and long-range initiatives that we feel will serve us well into the future. Needless to say, it's much easier to sell new customers on a month-to-month agreement as opposed to an annual one. Yet as we noted in our November outlook, we have a lot of data to support improved customer lifetime values once an agency passes their first year on our platform. We've used this data and other insights about our customers to inform our future pricing strategies and believe we've come up with a strategy that blends the benefits of both monthly and annual pricing models.

To that end, in January, we instituted annual client licenses for the first time, allowing our agency customers to sell annual licenses to their clients. Under this new annual license structure, agencies will pay discounted rate over 12 months compared to our historical monthly pricing when they sign one of their customers up to an annual commitment. In doing so, both the client and the agency commit to a year on the platform. To expand upon this point, as agencies add their subsequent customers to the platform using an annual license, they also commit their agency to that newest customer's annual license renewal date.

We believe this novel approach to pricing allows us the benefit of more easily signing up new agencies on month-to-month agreements, yet allowing them and giving them strong incentive via reduced cost and increased profits to later continually agree to annual commitments as they add their clients to the platform. Coinciding with the introduction of annual client licenses. In January, we instituted a modest increase to the price of our monthly license. The price increase to our monthly license widens the gap between the monthly and annual license prices and further incentivizes agencies and their clients to choose an annual license.

With these changes in place, SharpSpring will benefit as customers will either pay a higher price for a monthly license or we will see reduced attrition from customers that choose to purchase or move to the lower cost annual license. Regardless of which path our future customers choose, we remain committed to providing a premium quality product at a fraction of the price of our competitors. Over the medium-term, we intend to offer multi-tiered pricing to allow smaller customers or customers with less need of advanced features to benefit from lower prices while allowing SharpSpring to capture more value from larger customers and customers that take advantage of more features. We know that our customers' needs are not uniform, and that's why we believe a multi-tier pricing strategy will allow us to maximize revenue and retention for these different use cases.

As we roll out multi-tiered pricing, we will, of course, offer each year in both monthly and annual license terms. We'll spend more time talking about our multi-tier pricing as we begin to roll these changes out in future quarters. Over the longer term, we believe another pricing opportunity for us is to implement a freemium customer acquisition strategy. SharpSpring's premium strategy will be to offer individual products that are already incorporated into our revenue growth platform, such as social media management, CRM or chatbots as stand-alone full-featured products, and offer them entirely for free.

We intend for these products to be powerful, best-in-class products, and for each to serve as feeders or on-ramps to the full revenue growth platform because each product integrates so well with the full revenue growth platform, there are strong incentives for customers to adopt the full platform as their needs grow. Speaking frankly, our goal here is to be highly disruptive in markets where we don't currently have meaningful revenues. As mentioned, freemium feeders could eventually include free CRM, email, SharpSpring ads, chatbots and other long-tail features that we offer. Given the variety of options we'll have here, it will take us a couple of years to fully implement this concept, but we believe it will provide a long-term sustainable customer acquisition model for years to come.

We plan to increase our R&D spend through 2021 to build out these products with initial return occurring in 2022. Before I speak further on our 2021 outlook, I'd like to take a moment and revisit the past. Specifically, I'd like to discuss the circumstances we found ourselves in almost exactly 1 year ago, as I spoke to you about our Q4 2019 results and how it influenced our thinking and approach to 2020. I'm doing this, both as a reminder of how the pandemic uniquely impacted SharpSpring, the company, in just its sixth full year to market and as a means of illustrating the stark contrast with which we intend to approach 2021 and beyond.

Like many others, as March 2020 unfolded, we began to learn about and come to grips with the idea that we were at the beginning of a global pandemic. Like all of you, we were concerned about the health of our friends and family and what this would mean for society at large. To be frank, these were scary times for our company as well. As a young company with nearly a decade less time in market as our competitors, we had never before had to deal with an uncertain economy.

Yet we seemed poised to be in the worst economy that anyone of us had ever seen. Businesses were sending employees to work from home or were shutting down altogether, and economists were projecting 20% or greater unemployment. Between March 9 and March 16, 2020, the Dow lost nearly 24% of its value and the NASDAQ lost 15%. The losses of that week exceeded the crash of 2000 and 2008 as well as one that kicked off the Great Depression.

As I spoke to you on March 12 of last year, we were within days of holding an emergency meeting to plan for sending all of our 250 employees home, where incidentally, they continue to work from to this day. As a company, we had just acquired Perfect Audience and completed a year where we had burned through $9.4 million in cash, and we had just $11 million on the balance sheet as we entered the pandemic. As we learned about COVID and began to see the effects on the economy, it was clear that capital markets were going to be under pressure for some time. So we made the decision to view the cash on our balance sheet as the last cash we might ever see.

Making matters worse for SharpSpring, nearly every one of our agency customers and every one of their customers were on month-to-month contracts with us. Each was free to leave at just about any moment, and it wasn't at all clear how many would remain open or choose to stay with us. Speaking, frankly, we were not at all certain of SharpSpring's future. With this bleak backdrop to work with, we decided to aggressively manage the situation with a fiscally conservative approach.

We implemented a small lay off and asked each of our remaining employees to take what amounted to a 20% pay cut. Executives took deeper cuts. We looked across our operations and cut spending where we could. Despite the pain, we cut our sales and marketing spend, removing channels that we felt would not perform in uncertain times.

In total, we put a plan in place to reduce our expenses by over $6.5 million as we pushed the company toward breakeven in an effort to preserve cash. Thankfully, things worked out well. While our ability to sell new customers was challenged through all of 2020, we were heartened by the value that our current customers saw in the platform. Indeed, as I wrote about my investor letter last year and reiterated when describing our revenue growth positioning, our customers depend on SharpSpring to help them generate revenue.

For this reason, as the year progressed, we did not see the worst-case scenario of deep customer attrition that we had feared might occur at the outset. And on the strength of our customer loyalty, we managed to grow by nearly 30% in 2020. Fast forward to you today, and I'm pleased to announce we are on the cusp of reinvestment and reacceleration. In December, we successfully raised a net $13.9 million and brought our balance sheet up to $28.3 million.

In tandem with our new revenue growth platform positioning, we intend to significantly increase our sales and marketing spend to take advantage of the waning pandemic and improving economy to acquire more customers. Put simply, in 2021, we intend to invest heavily in our long-term growth. As we put a close to a challenging 2020 and begin 2021, we're incredibly well set up for growth over the long term. Our product continues to win award after award.

Our brand is becoming known in the world beyond digital marketing agencies, and we believe we have strong opportunities and new ways to acquire customers over the short, medium and long term. At the same time, we want to be cognizant about what this means for our operations in the next couple of quarters. Many of the changes we've discussed today will have varying impacts and timelines. On one hand, the immediate net result of our platform development and multi-year freemium ecosystem build will be to increase our R&D spend.

Additionally, as I just noted, we'll be relatedly increasing our overall sales and digital marketing initiatives to accelerate our new customer acquisition. Our December capital raise has us in a very comfortable position to go after the long-term market opportunity, but that does mean we'll be spending for growth going forward. And there will be a lag of a quarter or 2 before we see the results fully materialize. With our annual license strategy rolling out in January, we do expect to see a lag in terms of revenue recognition before offsetting this with a reduction in attrition over the long term.

For 2021, we're providing revenue guidance range of between 34 million and 36 million. Where we ultimately land will depend on-ramp times and adoption rates related to a number of the initiatives we've covered on this call and others we've discussed in previous communications. The revenue impact from the introduction of our new annual licenses and corresponding price increase to our monthly licenses will vary greatly on the adoption of annual license by the existing user base. Our hope is that large numbers of customers adopt the annual licenses as over the mid-range and long-term periods, we'll see reduced attrition and longer-term sustainable growth.

However, in the short term, MMR may be slightly reduced based on the lower price point of the annual license if adoption of the annual license is robust. Another factor affecting our 2021 revenue forecast is the unknown adoption of SharpSpring ads. As of just a few weeks ago, we've successfully implemented Perfect Audience in the SharpSpring revenue growth platform in the form of SharpSpring ads. Here, we're uncertain of both the pace of adoption of this new feature within the user base and how quickly this form of advertising will recover as the economy improves.

Finally, we're excited to be unwinding many of the sales and marketing cutbacks that we felt were necessary for our business as we work through the pandemic and corresponding economic conditions. As we ramp spend, we will see increased sales in Q2 and beyond. We're confident that the pace of sales will ramp substantially as the year progresses. With all this said, it should be clear by now that we're operating this business on a multiyear time frame.

And so we're willing to endure temporary transition periods for the long-term benefit we expect to get. We fully expect to grow in Q1, and our results should begin to show more clearly in Q2 with sequential improved performance throughout the course of 2021. In summary, our performance in the fourth quarter was an encouraging indicator that we're on the road to recovery post pandemic. Looking ahead, our investments in sales, marketing and platform development over the next few quarters have us well positioned to accelerate our revenue growth later this year as well as providing a multiyear runway going forward.

As a leading provider of revenue growth tools for small to medium businesses and digital marketing agencies, we are reducing the barriers to entry for all businesses to participate in the ongoing digital transformation. We look forward to helping current and new customers as they provide the backbone to our global economic recovery. And with that, we're ready to open the call for your questions. Operator, please provide the appropriate instructions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question today is coming from Scott Berg at Needham. Your line is live.

Scott Berg -- Needham & Company -- Analyst

Hi, Rick and Aaron, congrats on the good quarter. Thanks for taking my question. I guess, I got a couple here. First of all, Rick, can you talk about the accelerating in pace of investments, especially on the sales and marketing side you're going to make this year? Can you help us understand maybe what that magnitude looks like? And how do you -- I guess, how do you evaluate their successes.

It's obviously customer acquisition. But are there some intermediate term goals that can help us judge how you're progressing on those?

Rick Carlson -- Chief Executive Officer

Yes. Hey, Scott. Thanks so much, and welcome to these calls. I appreciate you being here.

So I think the question -- you were a bit garbled or at least I was unable to hear you at the beginning of the question, but it sounded like you were asking about the scope of the marketing -- sales and marketing spend? Did I get that right, the first part?

Scott Berg -- Needham & Company -- Analyst

Yeah. Help us understand the magnitude of some of the incremental investments you're looking to make.

Rick Carlson -- Chief Executive Officer

Yeah. Well, the first thing I would say is that we're -- we -- as I mentioned in our comments, we cut back on some sales and marketing based on our balance sheet at the time of the pandemic and so forth. And so, if I compare our spend, our anticipated spend, compared to what we were doing last year, I mean, just to be frank about it, it's about double. We intend to double our marketing spend year over year.

That is to say we intend to double our marketing spend on programs that initiate leads into the top of our funnel. I don't mean to imply we intend to double our overall sales and marketing line item within our budget, but rather doubling the program spend. In terms of how we measure things, well, at the core of our business is we're a marketing automation company and a revenue growth company, and a big part of that is analytics. So what we do is we buy channel and buy tactically, we are measuring.

We've got complete funnel views from the dollars that we spend in any given, say, monthly cohort, just as an example, on down through to final number of sales that are produced. So we understand the leads that are generated. And the things that -- the key thing that we always pay attention to is the number of attended demos. We know that, generally speaking, demos equals sales over a longer period of time.

There's a pretty good relationship between those two things. So in any given channel, we try to generate more leads, turn those leads into demo requests and turn those -- and now, demo requests and even free trials. So lead engagement in one of those two forms, and then ultimately converting those into sales. Am I sort of touching on what you were getting after?

Scott Berg -- Needham & Company -- Analyst

Very much so. Helpful. And then from a follow-up question, just maybe help clarify the pricing increases that you talked about a little bit. I'm more interested in the existing customer base to get you an increase in monthly pricing given discount for annual terms.

That's not necessarily a huge surprise there. But if I'm an active or current customer on the SharpSpring platform, will I see that price increase on day 1 here this year? Or is that more about new customers coming into the platform? Yes. So this is going to drive everybody a little bit nuts who's trying to model this. Apologies to all of you analysts out there.

But let me do my best to explain what's going on. We -- if we think about last year, in an agency, a typical agency -- of course, we have customers and agencies around the world. But in U.S. pricing terms, if they were going to add an incremental license, it would be about $275.

What we've done, and we've done a lot of math behind this, a lot of modeling, and feel like this is an interesting proposition for folks, is we've now broken that out into two different alternatives. An agency can sign up a new client on a month-to-month agreement with a new price of 325, OK? So that went up from 275. But they could sign that next customer up on an annual license for $200 a month, so it's actually less than the license and license costs from last year. And in doing so, as I mentioned in my comments, both the agency and the client -- I should have said that in reverse.

Not only is the client committed to an annual license, but the agency is committed to an annual license. So we're protecting that minimum $600 revenue stream from the agency as well. And that maybe a little confusing, but that is the way the math makes sense for us. As I mentioned in my comments, we sort of benefit either way.

We benefit from a higher license price when agencies choose to put their clients on monthly plans versus last year, it's $50 incremental. Or we think we'll make it with an extended life of an agency client and an extended life of an agency through reduced attrition to the extent that they adopt annual licenses. So what we don't know, and apologies for the long answer here, what we don't know, because we implemented this in January, is the long-term take rate and how quickly. We know already about 12% of agencies have at least one client -- in just a short period of time, at least one client on an annual license.

So we're excited about that. And as agencies add more clients, they're putting a number of clients on annual licenses as well. So as time passes, we'll get more and more agencies with clients on annual licenses and we think that will benefit the company over the long term.

Excellent. Super helpful. Thank you for taking my question, guys. Congrats again.

Rick Carlson -- Chief Executive Officer

Thanks a bunch. Appreciate you being here.

Operator

Thank you. Our next question today is coming from David Hynes at Canaccord. Your line is live.

Luke Morison -- Canaccord Genuity -- Analyst

Hey, guys. This is Luke on for DJ. How's it going, Rick?

Rick Carlson -- Chief Executive Officer

Good. Surprised. Yeah, Luke, how are you?

Luke Morison -- Canaccord Genuity -- Analyst

Good. How are you? Quick question for you. You're coming off a quarter where gross new MRR sort of took a little bit of a step back versus last year and last quarter. Could you just expand on that a little bit? And then what sort of gives you confidence in next year's performance? Is it more based on what you're seeing quarter-to-date in Q1 so far? Or is it more based on that increased spend that you mentioned driving additional yield as the year goes on?

Rick Carlson -- Chief Executive Officer

So I would say -- first off, I would let -- you're exactly right. We were not excited about Q4's MRR performance. So we knew MRR performance, I should say, and just about every other area, we did very, very well. But Q4 was tough for us.

And I think with -- through this lens, the pandemic now finally seems to be settling down. If we recall, Q4, it was just getting worse and worse than the election, and it was just seemingly very difficult this quarter to get the attention of folks and get people to the finish line on sales. So it was not where we wanted to be in terms of adding new MRR in Q4. But I believe wholeheartedly that that is a temporary circumstance.

We're seeing now, as the pandemic improves, more pipeline being built as we already signaled. We think that Q1 will be similar. It's going to take us a little bit to -- if you think of us -- my comments in 2020, because of the steps that we took, if you think about us being in sort of first or second gear, we think we can get into third, fourth and fifth gear here pretty quickly with improved marketing. Well, with more dollars being spent and an improving economy and people really sort of getting back into gear.

Boy, I've beaten this car transmission metaphor to death. I apologize to everyone on the call for that. But no, we're seeing it both in the the pipeline beginning to build up again and the dollars that we're putting to work. Again, we did this raise here in the middle of -- just right before the year-end, and we're just starting to put those dollars to work in a meaningful way when we're seeing some of those results.

Luke Morison -- Canaccord Genuity -- Analyst

Great. That's good to hear. And then just real quick on your free trial motion. Do you see that being a bigger driver of your agency business or direct business over the long term? And how do you sort of think about that impacting the unit economics of the business?

Aaron Jackson -- Chief Financial Officer

Yeah. So free trials for us. This is -- we view free trials as helping us with lead generation across the board, both direct and agency. So we view it as a stronger call to action to those of you who've got a marketing background.

Look, the way the world works these days, people are hesitant to get on an hour-long demo with a sales team. And if that's all we're offering folks when they're looking at our, say, they hit a landing page with -- from a Google Ad and -- or pay-per-click ad. And we say, hey, would you like to get on a demo with our sales team? That's going to give you one conversion rate. And a few percentage of people might say, yeah, sure, and signed up.

But if you offer them a chance to get started for free, we believe and see in our data that a few percentage points more of those folks, of those visitors will will become leads with us, new leads that we can work over time. So we view the free trial as simply a better call to action. And historically, all we've ever done and said, "Hey, if you want to talk to us, you've got to get on a demo. Now once somebody signs up with that call to action, our goal is to help them with their free trial, get them on a demo, potentially guide them through that process.

And it's a hands-on approach from our perspective to try to bring that customer ultimately or bring that lead ultimately to a sale and turn them into a long-term customer.

Rick Carlson -- Chief Executive Officer

Just a comment. Just following that logic, we would expect this is removing a friction point within our funnel that we've identified, and therefore, you'd like to think that it would make us more efficient and would have a modestly lower CAC as a result.

Luke Morison -- Canaccord Genuity -- Analyst

That's very helpful. Thanks.

Rick Carlson -- Chief Executive Officer

Thanks, Luke. Appreciate it.

Operator

Our next question today is coming from Chad Bennett at Craig-Hallum. Your line is live.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Hey, how are you? Thanks for taking my question. So maybe to piggyback, I think maybe the last questioner. So help me understand again, kind of the -- well, first of all, just on -- you talked about reinvestment, so to speak, or stepping up investment in the business. And it sounds like it's going to be pretty broad-based across all the opex line items.

Do you care to talk about your relative opex run rate to where you exited Q4 and what to expect going forward?

Rick Carlson -- Chief Executive Officer

Well, I wouldn't say it's -- well, I'll let Aaron answer specifically, but the first thing I want to say is we don't intend to increase opex across the board. I think we want to focus on R&D over the long-term and focus on sales and marketing to effect this year and beyond. The R&D is also, frankly, sales and marketing focus, as I touched on with sort of the multi-tiered pricing and some of the other things that we intend to do with the platform, the freemium on RAM strategy. This is stuff that our competitors have done successfully.

And so we feel like we need to be there as well, and we're excited about it. So I would say it was -- I would say that our investment is in those two areas rather than sort of across the board, and both of which will lead to faster growth and more return for investors. With that, Aaron, do you want to touch base on this answer?

Aaron Jackson -- Chief Financial Officer

Yes. So I think, specifically on the sales and marketing and on the R&D side, we're looking at a run rate much more similar to 2019 in relation to revenue. So kind of looking at the percentage of spend against revenue in 2019 as a good barometer to where we think we'll be in 2021.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

OK. And so again, piggybacking maybe on the prior questioner's question. So when we look at the metrics, MRR was down, I think, north of 20% year over year, more than that sequentially. Deferred revenues were down year over year.

Your agency and direct customer count is kind of flattish, or it has been. There's probably a lot of interworkings below the overall aggregate numbers. So where is the growth going to come from? In terms of -- you talked about a reacceleration in the business. Is that -- yes, I think you talked about a pickup in pipeline, reinvestment in sales and doubling marketing and so forth.

So is that just the expectation all that is going to come at this point? Hello?

Rick Carlson -- Chief Executive Officer

You know, I started chatting away, but I went on mute there when Aaron was talking for sound quality, and I made the classic mistake. So no, I think the -- I think the -- there's two ways in which the pandemic has affected us. The first is it's been harder to sell new customers. So we sold -- we sold significantly less deals in the final 10 months of the year as we did in the first two months of the year on average.

And just to give you those numbers, we were doing, say, 120 units. I know we've switched to MRR. And on average, we were doing more like 80 units during the pandemic. So we're very much looking -- and those were spend and sales levels that are lower than what we're looking at moving forward.

So we're looking forward to the economy improving, and we're increasing our spend to capture new front-end sales. The second big area, as I already touched on, we're really pleasantly surprised with how many customers who are already on the platform simply stayed on the platform. And again, every one of them being on a month-to-month agreement and could have left. And so that was a really great surprise for us, a pleasant one that I think speaks to the value of the platform.

But having said that, our agency partners also had a tough time during the pandemic. So where they were on a trend in many months prior to the pandemic of adding 100 clients a month net, net new clients a month themselves, underneath them, that went negative at the beginning of the pandemic, and for the last couple of quarters has remained essentially neutral. So we've definitely improved from the worst parts of the pandemic over the summer and beginning of fall. And this last quarter, we were positive again in terms of net new adds.

So -- but it's still nowhere near back to the a hundred a month that were being added from our agency partners. So thankfully, we look -- knock on whatever was in front of you -- we look like we're coming to the end of this pandemic or getting back to some normalcy, and we think those are going to be a couple of drivers that are going to help us as we move forward.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Just one quick clarification for Aaron. Just on sales and marketing in 2019, it was over 50% of revenue. So you expect it to go back there, correct?

Aaron Jackson -- Chief Financial Officer

Yes. I think it will be around that, plus or minus a few percentage points there. But just really trying to focus on reestablishing a stronger base and growing the base after a little bit slower last couple of quarters.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Got it. Thanks much.

Rick Carlson -- Chief Executive Officer

Appreciate it, Chad.

Operator

Thank you. Our final question today is coming from Eric Martinuzzi at Lake Street. Your line is live.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Hey, Rick. Hey, Aaron. Congrats on really navigating the past 12 months. We don't want to take any of that for granted because we all remember how dark the days were in March and April a year ago.

So I understand tough decisions were made a year ago, and it's nice to see you be able to put those -- put the payback to normal as of November. I'm sure there's a lot of people on the phone that were happy to see that. I had a question regarding the gross margins. Given the changes in the -- some of the pricing packages you've laid out, what's a good gross margin to assume for 2021? I'm going to punt that answer to Aaron.

Aaron, you got an answer for Eric?

Aaron Jackson -- Chief Financial Officer

Yeah. So we had a gross margin of 70 -- just shy of 75% here in Q4. We expect that to continue with a little bit of an uptick as we have the price increase rolled out in the early part of 2021. But we should see that continue to climb as it has the last couple of quarters.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

OK. All right. And then as we focused on the -- some of the things that your sales force is doing, the ability to grow direct versus indirect, where are we expecting to see the most traction? I realize you're pushing out in all directions here, but it's another way of asking more big customers on the direct side? Or really, is this more about growth-focused on the agency side?

Rick Carlson -- Chief Executive Officer

Yes. We reached a stage with our business -- listen, we are an agency first company, for certain. And as time has gone on, we've begun to build the brand outside of the agency where really, as I mentioned in the comments, we're winning awards on just about every software review site, which for SMB and mid-markets, is really the equivalent of doing well with analyst firms like Gartner and the rest that enterprises count on. And so we're becoming known there.

We are getting considered in more bake-offs for larger customers. Certainly, as the platform evolves, it becomes more and more capable in this area. So we're -- I would expect, over the long-term, over several years, that we would gradually shift to having more and more direct customers such that on a monthly basis, we would be adding more direct than agencies. I want to add that that -- I want to reiterat that, that trend would take place over years.

For the foreseeable future, we expect to continue to add agencies. If we thought about our sales in any given month, I would expect 70% of the MRR, give or take, to be coming from agencies, which has been about where it's been for a while now, 70%, 80% from agency. So hope that helps answer both in the current year and longer-term outlook.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

OK. The Perfect Audience, you talked about getting that integrated on the platform here in Q1. Any early signs that that's -- that the spend there has increased as a result of the wiring, the plumbing being done?

Rick Carlson -- Chief Executive Officer

Yeah. So what we're getting is just to explain that for a second. Perfect Audience has been a separate product and remains a separate product And our agency partners have had, but prior to Jan -- I'm just going to say February, excuse me, prior to us releasing SharpSpring ads in February, our agency partners and their customers would have to go to a completely separate interface to use Perfect Audience. As of the release of SharpSpring ads, it is now built into the platform just like any other feature.

So you don't leave the SharpSpring revenue growth platform. And so, what we've been seeing is we've been seeing more adoption of that product from our agency partners because that's sort of front and center for them in terms of functionality. We're beginning to really roll out campaign around that now that it's built into the platform and showing partner success stories and doing webinars and showing them how to use this. That will be an ongoing effort throughout the year.

But the fact that it's there, what we're looking to do is get more adoption from the SharpSpring user base into this ad platform. That's the goal, and that's what we're working on through this year. Separate from that is just the overall pressure that the adds -- that all ad platforms have been on from the pandemic, right? So people have either reduced budgets or eliminated budgets on this type of ad spend when the economy got tough. So I tried to touch on this in my comments.

We're looking for that to ease up a bit as well as the economy improves. And our hope is that, that will happen sooner rather than later, to state the obvious. But we're -- that's where I think we'll see expanded budgets, not only from the new SharpSpring customers and agency partners that adopt the platform now at SharpSpring ads, but also on the Perfect Audience side from the Perfect Audience separate customer base, if that makes sense. So hope that's clear.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

I understand you got the cross currents there. COVID impact on ads, but easier ability to launch ads. So --

Rick Carlson -- Chief Executive Officer

That's right. That's right. That's exactly right.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

And then lastly for me, given the freemium offerings, Rick, just wondering if you have -- you mentioned -- you threw three of them out there, so I will throw those three back at you. Social, CRM, chatbot, where do you think you get traction with freemium from those?

Rick Carlson -- Chief Executive Officer

Just because we're talking about it, I want to reiterate, I was trying to give everybody sort of a long-term view, multiyear view of the business. We are working on a free CRM product. Some of you who've been with the business for a long time, might remember that we dabbled with us a couple of years ago. It seems like a lifetime ago, it was pre-pandemic.

But here, the strategy is very, very different. This is a category where we have that's 10x the size of what is traditionally marketing automation, like if you were to look at the number of people searching for CRM, which is a 30-year-old business at this point, it's exponentially more than the number of people searching for marketing automation. We believe we can give a best-in-class product to peopl there, totally for free. We have no revenues to protect in that space.

And we believe there'll be very, very strong incentive for those people as they become aware of all the other features in the platform to be using to adopt the full revenue growth platform. We're excited about that. The reason incidentally is because everything works together. So within the CRM, I could show you the forms that somebody filled out or the pages that they visited, things that you just can't do with a stand-alone CRM or the media that they interacted with, or whether they like one of your social posts and provide lead scoring and all of these things that traditional CRMs can't do.

So we're very excited about being able to give away these point solutions and use them as feeders, knowing that we've got a very strong upgrade path to the full revenue growth platform. And CRM is at the very top of the list in terms of what we think is going to be the most powerful feeder system over the long haul. So that's what we want to build and get right. But this is a -- make no mistake, this is a longer-term strategy for us.

If you think about our large orange competitor out there, you see that they have low-cost entry point solutions that bring people on to more expensive solutions. Our strategy's got its own uniqueness to it because we really want to be disruptive, but is following a similar philosophy. And that company I speak of is certainly not the only one pursuing this. We think this is the way software is going to be sold and consumed in the future, and it will pay dividends for us over the long term.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Yeah. Certainly, makes a lot of sense. Last question for me is for Aaron, a housekeeping item. What's the share count we should be using going forward?

Rick Carlson -- Chief Executive Officer

Aaron, you are now making the same mistake I just made. We'll have to go to mute button training later.

Aaron Jackson -- Chief Financial Officer

Yeah. Yeah. I got caught in it. So yeah, we're just -- I think we're just shy of 12.8 million shares right now.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Got it. Thanks for taking my question, and good luck in '21.

Rick Carlson -- Chief Executive Officer

All right. I believe I heard the operator say that that was the last question. So with that, I just want to thank everybody for joining us on the call today. As always, I want to thank our employees, our partners, our analysts and our investors for your continued support.

And yes, we're looking forward to a great '21. Thank you all. We'll talk to you in 90 days or so. Take care.

Operator

Before we conclude today's call, I would like to provide SharpSpring's 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 SharpSpring's 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, including those discussed under the heading risk factors and elsewhere in the company's latest annual report on Form 10-K and quarterly reports on Form 10-Q that may cause actual results, performance or achievements to be materially different from any future results, performances or achievements anticipated or implied by these forward-looking 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. A 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 would 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.[Operator signoff]

Duration: 57 minutes

Call participants:

Rick Carlson -- Chief Executive Officer

Aaron Jackson -- Chief Financial Officer

Scott Berg -- Needham & Company -- Analyst

Luke Morison -- Canaccord Genuity -- Analyst

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

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