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spk01: Good morning and thank you for participating in today's call. Now I'll turn the call over to Chief Legal Officer, Mr. Bob Chamness. Sir, please proceed.
spk05: Thank you. And welcome to our Q3 conference call. Riley McCormick, our CEO, and Charles Beck, our CFO, are with me on the call. I'm also pleased to introduce Niall Murphy, the CEO and co-founder of Everything, who will be available for questions during the course of the call. We're hosting this call from London, England, at the corporate headquarters of Everything. On the call today, we will provide an overview of the Everything acquisition and our path forward as a combined company. We will also discuss Q3 financial results and provide a business update. This will be followed by a question and answer forum. We have posted our prepared remarks in the investor relations section of our website, and we'll archive this webcast there. Before we begin, let me remind everyone that today's discussions contain forward-looking statements that have risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Charles will now comment on our Q3 financial results and discuss the financial aspects of the Everything acquisition.
spk08: Thank you, Bob, and hello, everyone. Today is a monumental day for the company as we join forces with the amazing team at Everything. Before I get into that, I want to provide a quick summary of Q3 financial results. Revenue for the third quarter was $6.4 million, up 12% from $5.8 million in Q3 last year. Service revenue increased 17% from $3.4 million to $3.9 million, reflecting higher commercial services related to Holy Grail 2.0 projects. Subscription revenue increased 4% from $2.4 million to $2.5 million, reflecting higher revenue from commercial customers. Total commercial bookings were $3 million, up 60% from $1.8 million in Q3 last year. Operating expenses for the quarter were $12.2 million, flat with Q3 last year, reflecting higher consulting and recruiting costs, offset by severance costs incurred in Q3 last year for organizational changes we made in July 2020. In September, we received confirmation from our lender that our Paycheck Protection Program loan was forgiven. This resulted in a $5.1 million gain in other income in Q3 upon forgiveness of the loan. Net loss for Q3 was $2.9 million or $0.17 per common share versus a net loss of $8.4 million or $0.68 per common share in Q3 last year. Excluding the $5.1 million gain from the forgiveness of our PPP loan, the net loss for Q3 was $8 million or $0.48 per common share. We ended the quarter with $52.5 million in cash and investments. We used $8.6 million of cash and investments during the quarter, of which $7.5 million was from operating activities and capital expenditures. For further discussion of our financial results and risks and prospects for our business, please see our Form 10Q that we will file shortly. Now back to the everything transaction. I want to first highlight a few important deal terms summarized in the 8K we filed this morning to provide more context. First off, this is a stock deal, with the consideration split into two tranches. The initial consideration will be issued at closing, which we expect to occur in January 2022, and the second tranche of consideration, if any, will be issued in September 2022. The initial consideration in January amounts to $50 million of common stock and warrants, as adjusted for everything's cash, debt, working capital, and transaction expenses at closing. We estimate that we will need to fund approximately $7.9 million at closing in order to cover everything's closing costs and other repayment obligations. We expect this cash expense to be offset largely, if not completely, by proceeds from the exercise of the warrants that we will issue to the sellers at closing. The number of shares to be issued at closing is based on a fixed value of $47.48 per share. which represents the volume weighted average price for the last 20 trading days. We have estimated the number of shares to be issued at closing at approximately 785,000 common shares and 215,000 warrants. The exercise price of the warrants will be calculated as described in the 8K. We expect that the exercise price will represent a substantial discount to our current share price. The warrants will be issued to provide Everything shareholders the opportunity to cover their cash closing costs and thus receive the full number of shares they would have received without those closing costs. The exercise price was set low to provide them extra cushion to do so. To offset this lower exercise price, the amount of shares we are withholding is higher. While I encourage you all to read more details in the 8 , the net of this is Everything shareholders exercise their warrants they get the number of shares they would have received at the $47.48 price prior to adjustment. If they do not exercise their warrants, then the total shares issued at closing will have been reduced by 30% of the cash closing cost amount that DigiMark funds. The additional closing consideration payable in September will range anywhere from $0 to $50 million of common stock. There are two features that could reduce the closing consideration from the maximum of $50 million. First, there is a traditional earn-out based on a product annual recurring revenue target. If everything meets or exceeds $10 million of product ARR as of the end of February 2022, then there is no reduction. If everything does not meet the $10 million product ARR target, then the closing consideration payable in September is reduced by 10 times the amount of the dollar shortfall in product ARR. Second, there is a reduction to the closing consideration if DigiMark stock appreciates above the $47.48 price used in determining the initial consideration, as measured during the 20-trading day period prior, ending on September 22, 2022. For example, if Digimark stock were to double as of September 2022, there would be zero additional closing consideration, irrespective of everything's product ARR results. While we are super excited by the future combined company, as you will hear Riley talk about in a bit, we are reticent to part with a single share of Digimark stock, even at almost $50 per share. And so we structured the deal with that in mind. The structure of the transaction is intended to provide us two levels of downside protection with one upside kicker. If everything does not meet the product ARR target, the closing consideration is reduced by 10 times the dollar shortfall. In addition, if DigiMark stock is below the $47.48 price, as measured during the 20-trading date period prior, ending on September 22, 2022, Any consideration owed in the second tranche is calculated using the $47.48 floor. Meanwhile, we get full credit for any stock appreciation between now and the second tranche, which in essence allows us to benefit from a signed deal today, but significantly limit the dilution if our stock is appreciably higher by September of next year. The structure is intended to result in a valuation of everything between 5x and 10x product ARR, with the ultimate valuation depending on the February 2022 product ARR and our stock price. For a high-growth, high-margin SaaS business, even before considering all of the strategic and synergistic value we expect this transaction to provide us, this is a really attractive valuation. This headline valuation multiple is a testament to the vision of the Everything shareholders, as they see something which you will hear us say many times in the future. We are just simply better together. More on that in Riley's remarks, but I want to first provide some more financial context. The financial figures I'm about to discuss have been prepared by Everything's management and have not been audited. Note that Everything prepares its financial statements in accordance with FRS 102, also known as U.S. GAAP, or U.K. GAAP, sorry. These financial figures have not been reconciled to U.S. GAAP. Everything uses the financial metrics annual contract value, or ACV, and product ARR as leading indicators of future top-line growth. While ACV is very similar to the financial metric we use for the same purpose, bookings, they're not the exact same. For the first half of 2021, everything's ACV was $3.2 million compared to ACV of $2.5 million during the first half of 2020, growth of 29% year-over-year. For the first half of 2021, total revenue was $2.5 million, of which product subscription revenue was $2.2 million, and the rest was service revenue. Product subscription revenue for the same period in 2020 was $1.8 million, or growth of 21% year-over-year. As of September 30, 2021, product ARR was $4.9 million, We believe product ARR is the best indicator of the next 12 months of subscription revenue, but it may be conservative as it does not reflect revenue growth from new customers or expansion with existing customers. It is simply an annualized snapshot of the current product subscription revenue lineup. Thus, annualizing the first half of 2021 $2.2 million in product subscription revenue, comparing that to the most recently finalized product ARR number of $4.9 million, and then looking out to everything's projected February 2022 product ARR target of $10 million, should give you a sense of the current growth rate and near-term prospects of this incredible business. Subscription gross margins are in the low 70% before any revenue share payments from deals brought in by everything's robust partner network. While this is all preliminary, we believe we can optimize their cost of sales and get subscription gross margins into the high 70s at existing revenue levels. With expected revenue growth, subscription gross margins should further expand. Everything is currently using around $2.25 million to fund its business. If they are able to increase their product ARR, the cash usage should decline significantly given the just mentioned high subscription gross margins. Riley will now provide a business update and further details on the strategy behind the everything acquisition.
spk09: Thanks, Charles. I want to use a bulk of my prepared remarks to discuss the everything acquisition and the results of our first annual product strategy meeting because both events have set our company on a different trajectory. And while we realize that it might only be through the passage of time and the marking of business travels that the true Delta will be fully appreciated. I cannot stress enough how wonderfully impactful we believe these events will prove to be. As we say internally, we are not going through a transition, but a transformation. For those of you who have followed the Digimark story for a while, everything is a company you likely know well. They've been a valuable go-to-market partner for five years, and we share multiple customers who have realized themselves something we are today permanently etching in stone. Our two companies just make so much sense together. For those of you not as familiar with everything, they pioneered and are the market leader in the category of the product cloud. At its core, the product cloud provides a cloud-based digital twin for any physical item. From birth to rebirth, this digital twin, or active digital identity, records an analog item's journey, allowing a tremendous amount of knowledge and insights to be gained. Data heretofore uncaptured is now easily accessible, analyzable, and actionable, powering true digital transformation. And ITEMS ADI allows an analog item to be born digital, enabling it to enjoy all the informational and business transformational advantages that digital items have enjoyed for years. Today, some of the world's most respected companies are using the Everything product cloud to gather and apply data from and about their products as these items move through the supply chain, powering solutions such as traceability, product authentication, and consumer engagement. As adoption of the product cloud increases, not only will the features within these three applications get more robust, but the number of applications will grow, similar to how the utility of the internet has grown as more people have connected and more minds have focused on unlocking value from the original cloud. DigiMark, as you all well know, provides a unique means by which to provide the same analog item, as well as digital items, a deterministic identity. We separate ourselves from other means of identification by a waterfall of three attributes. A, we are covert. B, because we are covert, we can be ubiquitous. And C, because we can be ubiquitous, we are redundant. For solutions that require one, two, or three of these characteristics, we will either be the best, or in many cases, the only solution. The synergies and logic of this combination are obvious. Today we are combining a unique and advanced means of identification with the pioneer and most advanced supplier of traceability business intelligence to any means of auto-identification. While we will always have customers that will want one or the other, either solutions built upon our unique means of identifying an item or our product cloud with a non-watermark product identifier, for those that want both, which we believe will be a large part of the Venn diagram, we are eliminating the hassle of having to stitch together their own solution. We will have done that integration work ourselves, making our customers' business problems that much easier to solve, and thus our value to those customers that much greater. Importantly, this isn't just a thesis. As I mentioned before, we already have shared customers that have beat us to the punch. For those visionaries, we look forward to optimizing our combined solutions, making what you bought separately even that much better now that we are one. For our future customers, we look forward to saving you the hassle of having to do this integration work yourself. And to both groups, just wait till you see where we're taking our combined roadmap. Now that a single company is taking ownership of that much more of your business problem, our ability to make your business better has increased dramatically. More specifically, the rationale for this deal is as follows. First and foremost, it's the people. Everything pioneered the product cloud market. They nimbly turned an idea into a product, convincingly evangelized the need for this product, and then succeeded in making converts of some of the world's most respected companies. They are collaborative, they are curious, they are courageous, and we are thrilled to form one team with our new colleagues. So much so, in fact, all the rest of the benefits I am about to list are pure upside. If all we were gaining in this deal were these incredible like-minded teammates, that alone would have been rationale enough. The second rationale for the deal is the product. As I mentioned before, everything isn't just the pioneer. They are the market leader in the product cloud. We are still in the very early stages of the world's inevitable march to true digital transformation, and there is a need for a powerful product graph to enable this movement. If the last two decades saw the building of the human graph as one of the most dominant tech trends, we strongly believe one of the defining trends of the next two decades will be the building of the product graph. Compared to its human equivalent, the product graph will be factors larger. Just as CRM and ERP data clouds have become core business platforms, so too will the product data cloud. as the data from the products themselves has a large role to play in providing transparency, business integrity, operational efficiency, and sustainability impact measurement and responses. The size and utility of the product cloud is still in its infancy. Today we are combining with the market leader. The opportunity ahead of us is enormous. The third rationale is a value our combination will bring to our customers, partners, and prospects. The best determinant of a technology product's true value is how much of the customer's problem it can solve, as full ownership of a business problem is what enables a product to become a solution. By providing an analog item with the unique means of deterministic identification, using that identification to connect the item to its digital twin, applying an ever increasing amount of business logic, both program and predictive, to that digital twin, and then allowing for easy access to that business logic, we not only provide a complete solution to a customer's problem, but began to unlock solves to additional problems due to that item residing at the nexus of our dual platforms. We will now not only be able to solve for the problems that brought the customers to our door, but also provide an easy solve to problems the customer wasn't contemplating solving when their journey with us began. The fourth rationale rests on the edges of the above described solution. As I mentioned earlier, everything has plenty of customers where today another form of ID works perfectly well as the bridge to a digital twin. Meanwhile, we have plenty of customers where today they don't need a product cloud to benefit from our unique form of deterministic identification and the solution which these IDs drive. And while we will happily support customers and partners who don't see the need for our combined solution, having those close relationships across our newly combined company allows for future cross-selling, be it today or in the future. Fifth, one of the many ways our two companies are complementary is in geographic presence. Everything is a European company finding much success in North America. Digimark is a North American company with plenty of opportunities in Europe. Both companies just instantly built their international presence, staffed by A++ talent steeped in the same culture. There are additional benefits from this combination too numerous to mention, strategic as well as tactical, but I want to add one last thought before we pick this back up during Q&A. Of all the wonderful and synergistic logic for the deal, the one that does not factor in at all is headcount reductions. Both companies are aggressively hiring in front of the massive opportunities ahead of them. As a result of this deal, those opportunities are only going to be larger and more numerous. And now that we and our customers can begin to imagine where we will take our combined solution, there will be even more urgency from both sides to get there. So I want to be very clear. There is room on this bus for both teams. And in fact, during and even post full integration, we're still going to be in hiring mode. I want to end this part of my prepared remarks by going back to the first and most important rationale for this deal while speaking directly to all my teammates, both old and new. Today we are beginning our one team story. While everything about this combination excites me, it is a combination of these two teams into one team that excites me the most. Outside of our newly enlarged four walls, I don't expect this to be as fully appreciated as it is by all of us because I don't know how anyone outside of our newly enlarged four walls and fully fathom where we will go. Let's go show them. Turning now to the results of our first-ever annual product strategy, I am thrilled to share with you the output, which cements our seminal pivot to being a product-led company. This is the first checkpoint in a journey we discussed on the Q1 call in late April, when we talked about the importance of owning our own future instead of allowing anyone with a logo and a small check to consume our valuable engineering resources. by having us build a bespoke solution not supported by proactive market research. Most technology companies start by identifying a problem and then work backwards to provide a solution to that problem. That is so much easier than the alternative, which is what we did, starting with the technology of almost unlimited applicability and incredibly wide modes and deciding what problem to attack first. But while the former is easier, I'd rather have the latter because it means our ultimate opportunity set is virtually unlimited. whereas a limited scope means a limited ultimate prize. Thus, starting where we started is by far the preferred option with a very important disclaimer, as long as you bring your own discipline, because the market, instead of forcing that discipline upon you, will do the exact opposite and try to pull you in 100 different directions. Discipline requires first spending the time to thoroughly research all the potential problems we could solve in order to understand, among other things, the market size and growth, the competitive set, both current and future, our ability to provide a differentiated solution, a full understanding of the market readiness and dependencies, which we cannot control, and gaps in our offering and how best we can close them. Discipline then requires taking all that research and applying an overlay to determine how to prioritize and sequence among potential opportunities. And then even more importantly than that, having the guts to say no, whether that is a hard no or simply a not yet. Or said a lot more directly, Discipline requires taking the time to plan and having the fortitude to say no, both of which are the result of having the mental clarity to realize the best way to get to everything is to start with some things, or you run the real risk of delivering nothing. This is the why behind APS, the realization we must move with purpose to build our own solutions and thus build our own future. Now let's get to the what. The criteria by which we measure and will measure all potential solution candidates are as follows. First, does the solution target a large and quickly growing market? Second, will our solution be high margin and scalable? And third, does our technology provide a differentiated unlock? This last one is key, and in some ways is a reiteration of the second criteria. Just addressing a big and fast growing market isn't enough. Our technology must provide an incredibly wide moat, as from that moat will come our ability to achieve high margins and shorter sales cycles. We also added a nice-to-have, something without which we will not roll out a solution candidate, but instead provides a tool for prioritization between viable candidates. Does the solution candidate build our network effect and augment our race to ubiquity? With that as our guide, coupled with a prodigious amount of work from both our product and engineering teams, we have settled on our first solutions. One, product authentication anti-counterfeit, or PAC. Two, online brand protection, or OBP. Three, recycling. And four, product cloud. To be clear, this is where we are starting, not stopping. For example, in addition to these four, we have one solution we hope to be able to talk about in the not too distant future, but are not yet ready to publicly disclose. Moreover, we have and always will have a pipeline of solution candidates. And it is very likely that one of the strongest sources of solution candidates will always be the market itself. To that end, as important as deciding what businesses we are in today, We have also formalized a process with which we will handle inbound interest, as this can be a wonderful source of idea generation if managed appropriately. Inbound requests, scoped correctly, bring three clear benefits. The first is generation of revenue from customers or partners willing to work with our existing tools instead of our finished solutions, understanding clearly they will have to make do without any support from our engineering team, who is busy building our future, not theirs. The second is alerting the product team to an area of potential market interest and thus acting as a source of for-profit market research. And the third is providing research and introduction to a paying partner if there are things on their two research lists this inquiry would allow them to cross off. To be clear, there are all sorts of checkpoints in place where any inbound interest can be shut down. As we stated on that April call, our engineers and their roadmaps are not for rent. But listening to prospects instead of turning off that voice of customer is a real key advantage the almost universal applicability of our technology will always provide. In fact, the solutions above, in addition to the solution which we are not yet ready to disclose, all came about by means of customer inquiry, or in the case of product cloud, by means of customer actions. This wonderful trend of having prospects provide the starting point for our market research process should continue for years, because the number of people who have thought about how our technology can make their company and their industry better is probably measured in the single-digit millions. That leaves 7.7 billion people yet to approach us with the problems they would like us to apply our generationally transformational technology to solve. Looking out years into the future, I don't know what our final solution count will be, but one thing that is clear to us is that our product, go-to-market, and technology strategies must be aligned to enable our customers to seamlessly take the next step in their journey with us, regardless of where they begin. One of our key points of both differentiation and value is that there will always be additional steps available for our customers to take. Exiting our first ever APS, it is clear what we must and will do. We will make it easy for customers to begin to realize value with us. We will create long-standing relationships that provide our customers exponential value by constantly providing additional solutions and thus constantly addressing more of our customers' problems. And we will always be there to guide our customers on the best way to achieve that latent exponential value. Tying together these two seminal events, a few points are worth making. Everything's focus on product authentication will make our pack offering that much stronger and vice versa. We are now able to augment the unique benefits of our existing solution with a programmatic, and importantly for this area, predictive logic. Everything is built into its authenticate module. Overnight, two differentiated offerings just put another lap between themselves and the competition. Over time, even more space will be open as we combine our solution roadmaps. The same synergy holds true for recycling. Consumer education and engagement is a big part of solving for higher recycling rates. and everything through its Amplify module is a thought leader in automating business rules to optimize its engagement for both the consumer as well as the brand. In addition, to meet the diverse needs of all stakeholders, brands and retailers, sorters and recyclers, PROs and regulators, among others, it is clear that a deterministic sortation system must be dynamically updatable via the cloud. It is the only way to build a system that is dynamic enough to accommodate the unknown requirements of the future while at the same time is robust enough to handle the inevitable supply chain mistakes of the present. In addition, it is the only way to provide real-time improvements to both the efficiency and efficacy of the entire system. Just like will be true for all of our solutions, our recycling solution will not only benefit from the synergies unlocked by a joint roadmap, but perhaps most importantly, for those that want our combined solution, the friction of adoption will be reduced as we handle the integration work ourselves. instead of forcing this integration work on our customers and partners. Moreover, until today, the minds behind the largest and most trusted product cloud in existence have been absent from the cross-value chain collaboration that is Holy Grail 2.0. We believe whatever form and structure the recycling cloud ends up taking, having everything's input and experience, not to mention thought leadership and trusted relationships, as part of the process will benefit not just Holy Grail 2, but also the industry and thus ultimately the planet. The two seminal events we are announcing today are forming one team with a long-valued go-to-market partner, and Digimark's transformation to a product-led company are not only each important in their own right, they are also additive to each other. I'm sure you all have plenty of questions, so we want to get to Q&A shortly. But before we do, I would like to spend a few minutes on recycling. As is obvious to anyone on any form of social media, Holy Grail 2 is gaining more and more visibility. However, our focus extends beyond a successful trial to driving widespread adoption, as only through cross-value chain mass adoption can circularity be achieved and recycling rate targets and pledges be met. That is why we were working with all stakeholders to convince them now is the time to pivot their thinking. Due to the hard work of a lot of brilliant and dedicated people inside our four walls, but importantly outside as well, it is becoming obvious that our technology works, and if adopted, can help turn the tide of the plastic tsunami. As we continue to fully support this project and are appreciative of the impact it is having on opening eyes across the value chain, from both an industry and a regulatory perspective, we believe the time is right to focus on how the value chain begins the move to adoption. In addition, we are still focused on opening additional fronts for introducing the benefits that come with the adoption of digital watermarking, especially outside of Europe. We believe friction will be reduced once the first domino falls, and thus the necessity of additional programs will asymptote to zero. Until we are there, however, we are selectively pursuing other opportunities that will lead to the delivery of additional obvious proof points. We will race through the finish line of global adoption. The stakes for our planet are just too high for us to do otherwise. We all realize the world is watching to ensure words and tests will turn into actions. Solving for the end-of-life problem of plastics is a global imperative, and we are firm in our belief that in digital watermarking, the industry now has a valuable solution to this problem. It has been wonderful to see more and more stakeholders also come to that realization. We are trying to convey a sense of prudent urgency because every day of delay between here and eventual adoption comes at the price of real environmental harm without the benefits of any true value-added additional proof. This is where our heads are and the message we are carrying. Operator, we are now ready for the Q&A session.
spk01: Thank you, sir. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Harvey Mordka. He's a private investor.
spk06: Good morning, Riley. Hey, Harvey. How are you doing? Good. Can you discuss the patents that are coming with everything? No.
spk09: You want to take that?
spk07: Good morning, Harvey. Everything has a small portfolio of patents pertaining to the redirection of digital content from physical identities on product and various aspects of digital authentication utilizing data science methods. So these patterns, we believe, are very complementary with the identification methodologies that Digimark already has in its substantial portfolio.
spk06: Thank you. Are we seeing any new contracts with Walmart or Procter & Gamble, Wegmans? I haven't seen anything that indicates some new additional cash flow.
spk09: You don't consider 60% growth in bookings anything, Harvey, for the quarter?
spk06: Well, I guess I'm not seeing it. Yeah, I realize that.
spk09: You know, there's not a whole lot we can – share with names and logos, but I think that goes for almost every company in the world.
spk06: Okay. Thanks for the questions.
spk09: Thanks, Harvey.
spk01: And again, ladies and gentlemen, if you would like to ask a question at this time, simply press star, then the number one on your telephone keypad. Your next question comes from the line of Robin Knipp with Janie Montgomery.
spk03: Good morning. Thanks for taking the call. I've been on a number of webinars of late, all involving digital watermarks. So I must confess, I cannot remember which one it was that I heard this. But Riley, can you talk a little bit about how digital watermarking can be incorporated with artificial intelligence and where this most recent acquisition may take us in that capacity?
spk09: Sure. Thanks, Robin, for the question, as always. So artificial intelligence is a big area. What artificial intelligence is trying to do is take inputs and come up to an answer, right? We have a deterministic input. So we can make any artificial intelligence system better by providing, as opposed to looking for three or five or seven probabilistic inputs, we provide a deterministic. We allow artificial intelligence to be easy when we're present. There's also an application of our technology because one of the areas of artificial intelligence, one of the difficulties of building an artificial intelligence system is training that system. A lot of the time that's done through human means, actually looking at 10,000 photos of an item and trying to determine what it is. We can provide that easy mechanism for training artificial intelligence. And I'm going to turn it over to Niall to talk a little about his machine learning and the predictive business intelligence that everything brings to us.
spk07: Thanks, Riley. So, yes, the product cloud is able to collect data points from physical items using the deterministic identities on those items as they move through a value chain, for example, and then apply real-time analytical technologies, including machine learning methods, with those data points to derive application conclusions. And the combination of trustable input data points from the tracking of items with then predictive or analytical analysis of those elements in real time is able to create powerful application benefits. From a current application point of view, everything is in a pre-production mode and a variety of predictor methods, specifically applying traceability data points in the supply chain, where one gains partial data samples from a subset of products in a supply chain, for example, to build predictions of potential, for example, integrity threats for parallel trade. within a supply chain. And so these techniques are currently in test mode, not in production mode.
spk09: Yeah, but if you think about that, you know, obviously there's a lot that programmatic learning can do in supply chain. But when you're dealing, for example, bad actors in product authentication predictive, staying ahead of what they might be coming up with next is huge. And that's just, I mean, if I were to list every single complementary overlap between these two companies, it would be a five-hour conference call, Robin, but this is just another area where it's, you know, as we were both digging into each other, we're like, oh, look, another fit. It's amazing.
spk03: Super. Thanks for the response. I appreciate it. Of course.
spk01: Your next question comes from the line of Jeff Bernstein with Cowan.
spk04: Yeah, hi. Thanks for taking my questions. Can you just talk, Riley, about both the PAC and OBP offerings and give a little color around why those are ones that you're particularly interested, the level of customer interest or the problems to be solved that are at the forefront, et cetera, any color you can add.
spk09: Sure. So, I mean, as I mentioned, all of our solutions were ideas generated by the customers, and we then did the research. We're going to have a lot more on this as we begin to start marketing this solution. So Jeff, I'm going to ask you to bear with us to get our product market research out to the world and show them why we are such a valuable solution here. But both of these were areas where customers came to us. I think I mentioned this on the April call. where customers would come to us and say, you know, I think if I understand your technology, this could be an unlock for us. And we have multiple customers on this front that have already started. They haven't waited. I mean, what's amazing about this, we're pre-version 1.0. We're still in beta, I guess you could call it. We have paying customers. Fortune X, very high up, I'm not going to get into specifics, but very large customers who have come to us and said, You guys have a differentiated solve here. And what we've done is said, you know what? Yeah, you're right. We do. And let's go productize this. This will make a solution out of this. And let's go to this market. It is a large market. I mean, it's in the billions of dollars per year. The area in which we play is growing, I believe, from these numbers 30%, 40%. But, you know, all of that market research I take with a little bit of grain of salt because it's sort of like what was the online book market before Amazon got into it, right? We are a differentiated solve. by ourselves, us plus everything is a double differentiated solve. So whatever the market research numbers, and we'll share all these with you one again as we get our marketing behind all this out. Take it with a grain of salt because I think we're gonna be adding, we are going to be growing the market simply by our presence.
spk04: Gotcha, okay great. And then just on everything, so I'm just assuming this is a cloud native, Capability, Elastic, et cetera, et cetera.
spk07: Hi, it's Niall here. Absolutely, yes. Cloud-based platform. We operate multiple cloud infrastructures on a completely dynamic basis around the world to meet our global customer needs and handle a pretty large volume of variable transactional data.
spk04: That's great. Thanks.
spk01: Thanks, John. Again, that is star one if you would like to ask a question at this time. Your next question comes from the line of Jeff Van Rie with Craig Hellum Capital.
spk02: Hey, guys. This is Aaron on for Jeff. Just a few questions here for us. So first on the everything deal, so just kind of curious to get a sense of the visibility to the growth rate acceleration. I think you mentioned kind of the 20% to 25% range. over the first half of the year, obviously, assuming that that goes materially higher. So what's the conviction and confidence there?
spk09: From our side or from everything's side? So I will tell you, Aaron, that we have done customer diligence calls. We have gone through the pipeline. What the ultimate close rate is, I guess the future will tell us. But this is a high-growing business that is growing quickly. that is inflecting. What that ultimate rate ends up being, we will see. And I would say, I think that, I don't want to speak for Niall, but this is a target that they set as an ARR. And so they have, again, it's impossible to predict close rate here. And the world's messier than just on a spreadsheet trying to forecast these things out. But obviously, they have some comfort in getting there. And we validated that by going through their pipeline and talking to customers.
spk07: I think that the market space for digitization of physical items, global consumer brands' appetite to be able to build this competence into their operating models is only accelerating. We certainly see a healthy level of demand in the pipeline. The uncertainty factors are a rate of conversion. And I guess we'll see, but we feel good about our outlook.
spk09: Yeah, and, you know, we share – this is – look, acquisitions are risky, right? You're acquiring another business. I can tell you that, as I mentioned, we've been a go-to-market partner with everything for five years. We have plenty of shared customers. We know where the trajectory for those businesses are. I mean, they're sharing with both of us independently. Now I guess they're sharing with us together once the acquisition closes. The – Customer calls that we did with everything's customers, glowing. I mean, it was incredible to hear these well-respected, gigantic companies talking about what the everything team has done. So we shall see. And I guess one more thing, not just what they've done, but also the increasing need they have for more of what everything's done.
spk02: Gotcha. That's definitely helpful. And then, you know, on the bookings number, obviously material acceleration sequentially and year over year. Just any more color you can give on kind of use cases where the strength is in those booking numbers?
spk08: Sure. Yeah. Probably the biggest component there is the work that we're doing with Holy Grail. So that work continues to increase. And then we're also seeing, as Riley had indicated, some increased interest in the PAC area.
spk09: product authentication those are the two primary contributors to the growth which is again just highlighting that we haven't even officially launched version 1.0 right we're beta and it's already it's already seeing uh inflection gotcha and then last for us um any update on thermal that's been deployed and you're still still looking to move ahead with um you know package marking speed checkout I assume you mean Walmart?
spk02: Yeah, the thermal.
spk09: Is that what you're talking about when you talk about thermal in general? I'm sorry?
spk02: It's largely that product offering.
spk09: Yeah, so have you heard thermal was not one of the product solutions that we talked about going forward? Now, so we have... We have, with the Walmart, as was originally said in that original contract, Thermal was part of that contract. They have what they need if they want to roll it out. Of course, for all of our existing customers, we will support everything that we have sold them. What's wonderful about all of the work that our existing customers, for all the products our existing customers have, they are all synergistic with where we were going. So we will stand by and support. When we're talking about going forward, the The post-APS is where we're focused going forward, our go-to-market strategy going forward. And so thermal is not an area that we are going to be proactively selling going forward. We will support any customers who have our current customers in that area. And like I said, this is what we are building going forward. Our solutions are really just different ways of putting together our tools. We need to advance our tools for all of our existing go-forward solutions. So any existing customer will be brought along because we'll continue to do that work. But thermal is not an area we're focused on going forward, going to market strategy.
spk02: Gotcha. Good deal. That's it for us.
spk01: At this time, this concludes our question and answer session. I would now like to turn the call back over to Riley McCormick. Sir, please proceed.
spk09: Well, thank you, everybody. I know this is a different day and a different time slot than we normally do these calls, but we had a couple of things we had to get signed before we could do our call, so we appreciate you guys bearing with us. But hopefully you guys share the excitement that hopefully you heard from us today. I think both the APS but also this combination with everything is truly transformative, and we can't wait to show you guys the results of that. So thanks, everybody. Have a great rest of your day.
spk01: This concludes today's call. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect.
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