SMTP, Inc. Investor Presentation. December, SMTP Inc. investors.smtp.com Ticker: SMTP

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1 SMTP, Inc. Investor Presentation December, 2014

2 Safe Harbor Statement The information posted in this presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of You can identify these statements by use of the words "may," "will," "should," "plans," "explores," "expects," "anticipates," "continues," "estimates," "projects," "intends," and similar expressions. Forwardlooking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. These risks and uncertainties include, but are not limited to, general economic and business conditions, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of marketing, delays in completing new customer offerings, changes in customer order patterns, changes in customer offering mix, continued success in technological advances and delivering technological innovations, delays due to issues with outsourced service providers, and various other factors beyond the Company's control. This presentation includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and we do not make any representation as to the accuracy of the information. 2

3 The Opportunity SMTP s proven capabilities in delivery have provided consistently profitable growth worldwide for over a decade. The recent transformative acquisitions of SharpSpring and GraphicMail position it to challenge Hubspot and Marketo: SharpSpring s Flexible Marketing Automation Solution is winning rapid acceptance even in the year of its launch GraphicMail s International Distribution provides a global footprint to rapidly drive business forward worldwide SMTP s entry into marketing automation sector provides dramatic upside. SMTP s history of lean and profitable operations mitigates investor risk. 3

4 Performance History SMTP has a strong history of profitable growth. Financials (TTM 9/30/14) Cloud Based Delivery Global Sales Reach Footprint Profitable Growth $6.1M in Revenue with $2.0M Adjusted EBITDA Cloud-based subscription delivery business for over 10 years, helping thousands of customers effectively reach the inbox. Roughly 50% of historical revenues are domestic and 50% are international (SMTP serves over 100 countries, now with local reps in 14 countries) SMTP is headquartered in United States, and leverages service and support operations in South Africa and Eastern Europe. SMTP has a consistent track record of steady, profitable growth. TTM: Trailing Twelve Months through Q Please refer to the company s website for a reconciliation to Adjusted EBITDA. 4

5 Prior Market (SMTP Relays) Acquisitions broaden market reach GraphicMail and SharpSpring allow us to fulfill the needs of the majority of senders, who demand integrated solutions. Traditional Service Providers Marketing Automation Newsletters, promotions, and basic s SMTP Delivery Automated customized s, lead nurturing & sophisticated analytics SMTP relay services are used by a small subset of senders (Historic business) SMTP s recent acquisitions transform it from a niche player to a full spectrum provider. SharpSpring s sophisticated technology and SMTP s delivery capabilities are a perfect match. 5

6 SMTP s Expertise in Delivery Matters 22% of Opt-In Marketing Never Reaches the Inbox 78% Delivered to Inbox This is a worsening problem for senders The global inbox placement rate (the percentage of permissioned mail that reaches subscribers inboxes) actually declined vs. the first half of 2012, slipping to 78%. That means it s getting harder for senders worldwide to get their delivered. - Return Path H Intelligence Report 4% Delivered to Junk Mail Folder 18% Never reached intended recipient 22% loss of means lost revenues More than 1 in 5 opt-in commercial s are lost X SMTP drives revenues for its customers by helping them reach the inbox. 6

7 7 Transformative Acquisitions 7

8 The Marketing Automation Market Marketing automation is enabling the continuing evolution of marketing: Person to person marketing Triggered, individualized responses Deep analytics on customer interactions Cloud-based software to execute, manage and analyze marketing campaigns is expected to be "the most important battleground for technology providers over the next decade. Forrester Research $1.3 Billion Marketo Market Capitalization (Nov, 2014) $1.1 Billion Hubspot Market Capitalization (Nov, 2014) $2.5 Billion ExactTarget/Pardot Acquisition by SalesForce (Jul, 2013) $0.8 B Eloqua Acquisition by Oracle (Dec, 2012) $1.5 Billion Responsys Acquisition by Oracle (Dec, 2012)

9 SharpSpring Competes & Wins Technology New Accounts Dropped Accounts Net Additions Notes Hubspot Large majority of Hubspot installations are for landing pages, not for full automation solution DemandForce Intuit s solution is atypical of market Act-On Like Hubspot, each of these Marketo providers has been investing tens of millions into aggressive sales and Pardot marketing initiatives SalesMango UberFlip Eloqua Less than 1 year in market. Less than $0.5M in total marketing. No removals reported. Source: VentureBeat, November 7, Datanyze analyzed millions of websites for marketing automation tracking codes and contributed a summary of market share for major players in the marketing automation market. The data shows websites that added new tracking codes or removed the tracking codes in October, 2014.

10 SharpSpring has Winning Formula Flexible Architecture Ability to utilize any Content Management System (CMS) Ability to utilize any form creation tool Seamless integration with a host of external applications. Next Generation Solution SharpSpring s CEO, Rick Carlson, was an early user of Marketo. He saw the promise of the technology, but wanted to make it far easier for businesses to adopt and utilize quickly. Fully integrated CRM and call tracking functionality put it ahead of all incumbent technologies in providing 360 view of customer interactions Customers have option to utilize existing CRM system, to use SharpSpring s built-in CRM, or to mirror data across both (unique among all providers) Easier to Adopt and Use Intuitive and user-friendly interfaces Affordable solutions with stellar customer support Much lower customer acquisition costs than competitors have faced

11 Unified Technology at Disruptive Pricing CRM Solution Marketing Automation Call Tracking Annual Pricing Comparison $3k $20+B Market $1+B Market $1+B Market $30k $22k $10k $55k vs. $10k SharpSpring seamlessly integrates marketing automation with CRM and call tracking functionality for a fraction of the price of competitive solutions. Note: Illustrative pricing comparison based on pricing available on company websites for Salesforce.com Enterprise license for 20 users, Marketo Standard package and ifbyphone Professional package (line charges apply with both ifbyphone and SharpSpring). 11

12 GraphicMail Adds Midrange Product and Global Reach Midrange Product Creates Upsell Opportunities GraphicMail is a well-established provider of marketing solutions, handling newsletters and promotions (with capabilities for mobile & social) GraphicMail has been missing sales opportunities globally when customers required marketing automation or requested SMTP relay services. Well-Established Global Customer Base 9,000 Direct Customers 35,000 Customers (including customer of resellers and customers served via white label products) Worldwide Sales & Distribution Direct Service via GraphicMail.com Rest of World Local Support in 11 other countries Proven History of Growth & Profitability $4M in revenues in 2013 Profitable and organic growth for over a decade Available in 13 languages with localized sales and support in each region/market GraphicMail adds not only feature-rich solutions for , mobile & social, but also an extremely valuable channel to distribute SharpSpring & SMTP services 12

13 13 Benefits of Combination 13

14 Goals for Acquisitions SMTP screened over 180 potential targets to identify deals with the following benefits: Strategically Accretive: Providing complementary technologies and/or channels to market Operationally Accretive: Integrating firms that will benefit from our deliverability & service capabilities Financially Accretive: Adding scale to SMTP overall, which we expect will result in expanded multiples. SMTP utilized a disciplined process for evaluating potential targets. We offered targets unique strategic benefits and upside in growing their businesses along with immediate access to capital and liquidity. 14

15 Integration Broadens Product Offering Before Integration After Integration % of Market Product Small Business High Volume/ Enterprise Product Small Business High Volume/ Enterprise SMTP Relay Services SMTP Relay Services Basic Services Limited offering via an outdated, licensed solution Basic Services + Marketing Automation <not available> Marketing Automation + 15

16 Integration Broadens Sales Reach Before Integration Sales Team Locations: After Integration New countries added Sales Team (w/ co-located support) USA Rest of World Sales Teams (w/ co-located support) USA Rest of World (including resellers & country partners) 4 people <none> 8 People (selling both SMTP & ESP services) 6 people 55 People With a full product suite of automation, delivery and services. Local support in 14 countries and offered in 13 languages. 16

17 Top Three Growth Vectors 1. SharpSpring s growth will accelerate as marketing and word-of-mouth drives customer awareness and acceptance 2. SharpSpring will be launched globally through GraphicMail s well-established international sales teams. 3. SharpSpring and GraphicMail can now target higher volume customers via SMTP s delivery There are additional opportunities for growth for each of the SMTP, SharpSpring and GraphicMail businesses, but these represent the three most obvious opportunities.

18 Strengthened Leadership Team Seasoned leadership in sales, marketing, technology and finance. Jonathan Strimling Chief Executive Officer 20 years of experience as an executive and as an entrepreneur focused on technology commercialization Former CEO of US Dynamics, American Biomass Corporation and other ventures. Prior senior operating roles with American Industrial Partners and General Electric Track record of driving strong growth, including achieving nearly 400% growth annually for two consecutive years Drove prior firm to achieve 98% customer satisfaction ratings and a BBB perfect record award Direct prior experience with cloud based services as a customer through other ventures Masters degrees in Management and Engineering from M.I.T. Ed Lawton Chief Financial Officer, CPA Extensive experience in acquisitions for publicly traded technology companies Former Sr. Director of Finance for Bottomline Technologies (NASDAQ: EPAY) completing over 20 acquisitions globally. Previously held senior roles with publicly-traded Trico Marine and Cabot Corporation. Yvonne Gaudette Vice President of Marketing 20 years of experience in marketing and as a communications executive from VC-backed startups to Fortune 500 firms. Former Director of Marketing for RatePoint, Vivox, and other ventures Track record of driving highly successful product launches and rapidly and inexpensively acquiring new customers. Rick Carlson President, SharpSpring Proven executive and entrepreneur Prior to founding SharpSpring, Carlson was President of Panda Security US, an internet security company, and was Managing Director of North America Operations at AVG Technologies, leading the expansion of consumer, SMB and OEM channels in the United States and Canada. Nick Eckert President, GraphicMail GraphicMail s former CEO is staying on to lead global sales for all three products. Nick brings nearly two decades of international business experience, launching and selling multiple firms. Before co-founding GraphicMail, Nick founded Impact Promotions, and was a co-founder in All-Hotels.com, one of the first online hotel directories. Travis Whitton Chief Technology Officer As a co-founder of SharpSpring, Travis was responsible for the technical design and growth strategy of SharpSpring Prior to SharpSpring, Whitton was the primary data storage architect at Grooveshark.com where he implemented solutions to scale the online music streaming service for millions of visitors per day 18

19 19 Financials 19

20 Consistently Profitable Growth Strong revenue growth Consistent earnings growth 7,000 6,000 5,000 4,000 Lean operations have provided 3,000 consistent earnings with growth. 2, ,000 History of Revenue Growth 5,754 5,354 4,279 2,736 1, YTD 2014 Net Revenue $805 $1,549 $2,736 $4,279 $5,354 $5,754 $4,602 Gross Profit (GAAP) $628 $1,131 $2,097 $3,456 $4,272 $4,705 $3,583 Gross Margin 78% 73% 77% 81% 80% 82% 78% Operating Income (GAAP) ($196) $109 $742 $1,576 $1,714 $1,941 $398 Operating Margin -24% 7% 27% 37% 32% 34% 9% Note: All figures in 000 s 20

21 Acquisitions Double Revenues, Triple Growth Revenues Growth Rate $11M+ $2.5M+/year $6M $0.5M/year SMTP Alone Combined Entities* SMTP Alone Combined Entities* Benefits of Combination Combined entities will have significantly higher revenues and growth rate immediately; over time we expect operating synergies to also materially improve earnings GraphicMail is expected to be accretive, generating operating margins in the 20% range once fully integrated; SharpSpring is expected to become modestly accretive in 2015 Combined purchases for $10.1M at closing in cash & stock, plus $10.8M in earn-outs (tied to goals that would add about $6M in recurring revenues to the combined business) * Represents TTM values for SMTP and GraphicMail (unaudited). For SharpSpring, the charts reflect the last three months annualized revenue value and growth rate because of the recent launch of the product. Excludes potential cross sell benefits between the three products. 21

22 Acquisitions on Attractive Terms Profitable $4M provider of integrated solutions operating globally Adds global distribution with local sales & support in fourteen different regions spanning 6 continents GraphicMail is being purchased for $5.1M in a 50/50 split of cash and stock plus a $0.8M earn-out. GraphicMail s earn-out is tied to achieving revenue growth through 2015 and creating operating synergies. GraphicMail is expected to be accretive, generating operating margins in the range of 20% once integrated Acquired for 1.3xRevenues (excluding earn-out) Acquiring for 1 xrevenues (if earn-out achieved) Closed 10/17/14 Next generation solution for marketing automation this is already winning business from Marketo, Hubspot and Act-On. The first marketing automation solution that includes seamlessly integrated CRM and call tracking functionality. Purchased for $5M in cash plus $10M earn out tied to achieving $5M+ in annualized bookings by December (Earn out is 40% stock). SharpSpring is on track, adding over $500k in Annual Recurring Revenue accounts in Q3. The company anticipates additional revenue streams from its call tracking service, which provides integrated functionality unmatched by any other player in the market. Acquired for 5xRevenues (excluding earn-out) Acquiring for 3xRevenues (if earn-out achieved) Closed 8/15/14 22

23 SMTP Facts & Figures Financial Highlights (ttm) Revenue $6.12M Stock Highlights (as of 11/12/14) Price $6.30 Adjusted EBITDA $2.03M Market Cap $31.6M Net Income (GAAP) $0.62M Shares Outstanding 5.02M Operating Margin (GAAP) 15% Float (Shares) 2.6M Total Cash $5.88M Avg. Vol. (3 mo) 12,379 Total Debt - Diluted EPS (GAAP) $0.14 EV/EBITDA 13.0 Dividend Yield (forward annual) 7.6% Outstanding Options 0.74M Outstanding Warrants 0.20M TTM: Trailing Twelve Months through Q Please refer to the company s website for a reconciliation to Adjusted EBITDA. 23

24 Attractive Valuation Multiples Comparable Firms Revenues (Current Yr Guidance) Enterprise Value Growth Rate (TTM) Enterprise Value /Revenue Constant Contact (CTCT) $331M $1,007M 16% 3.04x Callidus Software (CALD) $134M $722M 14% 5.37x Marketo (MKTO) $148M $1,218M 54% 8.22x Hubspot (HUBS) $113M $1,048M 43% 9.26x SMTP (SMTP) $11M (2) $26M 25% (2) 2.34x SMTP is relatively unknown and trades at a discount due to size. Our recent acquisitions add scale and product dimensions, which should improve multiples as our scale continues to climb. SharpSpring provides new growth vector in rapidly expanding marketing automation sector. SharpSpring s proven traction with GraphicMail s global distribution creates significant upside. SMTP s track record of operating profitably reduces risk. Our attention to both the top and bottom line differentiates us from other fast-growing firms in marketing automation sector. 1 Figures are based on company announcements and public filings as of November 13, SMTP revenue and growth rates are derived from TTM values for SMTP and GraphicMail (unaudited). For SharpSpring, revenue and growth rate reflect the last three months annualized revenue/growth because of the recent launch of the product. Excludes expected cross-sell benefits between the three products. 24

25 For further information: investors.smtp.com Download our Investor Relations App SMTP Inc. Ticker: SMTP