Akerna Corp.

Good morning and welcome to Akerna's quarter-ended September 30th, 2020 Financial Results Conference Call. Today's call is being recorded. All lines have been placed on mute. If you would like to ask a question at the end of the prepared remarks, please press the star key, then the number one on your touchstone phone. At this time, I would like to turn the conference over to Kristin Naughton with Akerna for introductions and reading of the Safe Harbor Statement. Please go ahead, Kristin.

Thank you, and welcome to today's quarter-ended September 30, 2020 conference call. Representing the company today are Jessica Billingsley, CEO of Akerna, and John Fowles, the FO of Akerna. Both will be available for questions during the Q&A portion of today's call. Before we begin our formal remarks, I'd like to remind everyone that during this conference call, certain statements will be made that are forward-looking statements. within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as estimate, projected, expect, anticipate, forecast, plan, intend, believe, seeks, may, will, should, future, propose, and variations of these words or similar expressions or the negative versions of such words or expressions are intended to identify forward-looking statements. These statements include but are not limited to statements regarding the future growth and prospects for ACURNA and statements regarding expected future revenue recognition. These forward-looking statements are not guarantees of future performance, conditions, or results and involve several known and unknown risks, uncertainties, assumptions, and other important factors which could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements, including risks related to changes in the cannabis market and risks related to the impact of the COVID-19 crisis. These risk factors are more fully discussed in Akerna's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Akerna undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except as required by law. Now, I would like to turn the call over to the Ternus CEO, Jessica Billingsley, for a more in-depth discussion of the company's quarter ended September 30, 2020. Jessica?

Thank you, Kristen. Good morning, everyone. Thank you for joining us, and we welcome you to our conference call for the quarter ended September 30, 2020. As the calendar year comes to a close, I'd like to take a moment to reflect on all we have accomplished this quarter. First, let me begin by addressing the historic election we have just witnessed. A total of seven ballot measures in five states were up for a vote this past election. Every single state approved their cannabis measure by wide margins, and the only measures that did not pass were those competing with other cannabis ballot initiatives. We now have four new adult-use cannabis markets two new medical markets, and far more opportunity for the cannabis industry and cannabis technology solutions. Based on existing adult youth and medical markets, we estimate these ballot measures passing represent approximately $18 million in new total addressable market for our software offerings. In addition to the states that just passed via ballot measure, there are many more state governments with pending legislative initiatives as they look for ways to generate jobs and tax revenue. We are delighted to see the cannabis industry playing a role in helping these states generate new revenue streams. We also look forward to assisting clients in these states gain licensure, as we did in Iowa, where 100% of the medical cannabis dispensary licenses were awarded to MJ Freeway consulting clients. We are pleased to report in this quarter our total revenue increased 16% when compared to the same period last year to $3.7 million. We are on track to deliver strong year-over-year software growth in excess of 30%. Our software revenue increased 40% on a year-over-year basis. And our total SaaS ARR is currently $14.1 million, a 44% increase over the same time last year. These strong gains in software offset declines in our consulting revenue. As I noted several months ago in our annual earnings call remarks, narrowing our focus to client experience has increased our market share among the multi-state, international, and emerging enterprises in the $17 billion global cannabis industry. Further illustrating the value of our technology to the important mid-market and enterprise client base, our average MJ platform deal size has also increased by 94% year over year. On average, MJ platform clients, number of transactions tracked in our system, has also increased by 180% year over year. Throughout 2020, we have doubled down on our existing client partnerships and both our client and product experience, ensuring we are as sticky as possible with our rapidly consolidating and growing client base. Our retention rates have improved significantly. MJ Platform delivered 99.99% uptime And our average client satisfaction rating across all products exceeds 7 on a scale of 1 to 10. 2020 has been a banner year for the cannabis industry. Product demand continues to grow with consumer sales increasing nearly 80% year over year. Nearly every state and country has declared access to cannabis essential, with new technologies employed to facilitate digital sales channels, direct-to-consumer delivery, and and curbside pickup. The industry's growth has enabled us to continue to pursue our strategic objectives. In a time when investment capital is scarce among many sectors, Akerna successfully closed a $12 million public offering, which positions us to capitalize on the enormous market share opportunity in newly opening cannabis markets in New Jersey, Arizona, Montana, South Dakota, and Mississippi. With pro forma $23 million in cash and a strong balance sheet, we are well capitalized to deliver top-line growth and drive towards profitability. In addition to the public offering, we also announced a series of strategic partnerships and acquisitions that will boost our revenue growth and expand our market share gains across the industry. As Canada's industry-leading seed-to-sale platform, we enjoy a majority market share and serve some of the world's largest brands, including Aphria, Aurora Kronos Group, Organigram, and several other large Canadian enterprise businesses. After closing our Ample acquisition in early July, we fast-tracked our efforts to fully integrate Ample into our business. Under the leadership of Tom Ritchie, Ample Organics President, the pace of integration has accelerated. bringing the business unit to cash flow neutral ahead of schedule. We are now aligned and focused on revenue opportunities. In addition to the compelling opportunity to sell our retail offerings as provinces and territories continue to issue new licenses for adult use, there is a significant opportunity to sell the Akerna Ecosystems GMP and accounting system integrations with Sage Intact, NetSuite, and SAP into our significant Canadian enterprise operator base. We will also be pursuing opportunities to leverage our pharmacy-specific functionality in the U.S. In August, we signed an agreement with Priority Technology Holdings to provide CBD and hemp retailers that use Akerna's point-of-sale products with credit card payment processing. Through our agreement with Priority Technology, hemp and CBD brands now have a traditional credit card processing solution that is both affordable and seamlessly integrates with the rest of the Akerna ecosystem. With this agreement, we are positioned to also activate payment solutions through priority for medical and adult use cannabis sales pending legislative action at the federal level. This quarter marks the launch of MJ Retail, a first-of-a-kind proprietary software technology designed to provide merchants and consumers with a flexible and mobile-friendly experience. Cannabis businesses are often faced with the choice of using an underpowered but easy-to-use system or one that is fully featured and requires sufficient training. MJ Retail represents the best of both worlds by offering a clean and lightweight point-of-sale solution that connects the Akerna ecosystem without sacrificing critical features. MJ Retail positions us for even more robust growth among retail cannabis operators, where we can capture even more potential payment transaction volume post-federal change. As our mid-market and enterprise clients increasingly focus on their competitive positioning and business fundamentals, we partnered with the leading business intelligence firm, Domo, to release the next generation of cannabis data analysis MJ Analytics. Leveraging Domo's cloud-based intelligent systems, MJ Analytics helps operators run their business by empowering users to perform self-serve analytics on fresh data that can drive everyday decisions. As our existing clients upgrade to MJ Analytics, this represents as much as 25% in upsell revenue across our B2B software suite. Before I hand things over to John, but to just once again highlight the opportunities opened by the election. Despite a tight presidential election, cannabis once again proves to be a bipartisan issue that unites our fellow Americans. Five states voted on cannabis reform, and all five easily passed their respective measures. We now have four adult youth cannabis states in New Jersey, Montana, South Dakota, and Arizona, We are also proud to welcome Mississippi as the newest medical cannabis state, bringing the total medical-only states to 35. These new states represent as much as 18 million in new available total addressable market for our products and services. Once again proving to be more popular than either presidential candidate, cannabis reform has a clear and unambiguous national mandate. One out of three Americans now live in states where adult use cannabis is legal, and many more live in states where medical cannabis is legal. With the election in our rearview mirror, we now look forward to federal cannabis reform, which opens new revenue stream opportunities, representing orders of magnitude increase from where we are today, as we can begin to monetize based on transaction volumes. All of our work and achievements to date have positioned us for the inflection point of U.S. federal legalization. Now let's have John take us through the details of our financial results. John, please take it from here.

Thanks, Jessica. Today I'll provide an overview of our financial results and key business metrics for the quarter ended September 30, 2020. As a reminder, these results are discussed in further detail in our Form 10-Q, which will be filed shortly with the SEC. Financial results reported today are preliminary. Final financial results and other disclosures will be reported in our quarterly report on Form 10-Q and may differ materially from the results and disclosures today due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information. We encourage you to review the filing in detail. Before we dig into the financial details, I'd like to highlight one administrative change. In September of this year, our Board of Directors adopted resolutions to change our fiscal year end from June 30 to December 31, effective for this current year ending December 2020. We will cover the transition period from June 30 to December 31, 2020 by filing an annual report on Form 10-K for the transition year ending December 31, 2020. We made this change to simplify and standardize our operations for enhanced comparative analysis and reporting for both internal and external benefit. As we reflect on both the activities of this past quarter and really all of calendar 2020, this has been a period of rapid transformation for Akerna. Throughout 2020, we have matured as a publicly traded entity. We've completed three acquisitions that have expanded our footprint and provided additional TAM. We have completed two financings, giving us the capital to accelerate our growth and we have made remarkable progress on internal initiatives of building scale, developing our software ecosystem, while continuing to focus on client experience. This past quarter, we had strong sales to net new clients. Despite impacts from COVID-19, we saw momentum with both lead generation and sales, recording another 1.2 million of new ARR bookings. Our average booking amount is up 94% year over year, which reiterates the trust of the larger multi-location and multi-state operators to invest in our software platform. We continue to have a strong software and consulting pipeline heading into year-end. Additionally, our platform engagement continues to grow and reach new heights. As Jessica touched on, transaction volume is up 181% year-over-year, retail order volume is up 68% year-over-year, and retail order value is up 127% year-over-year. As for our cost structure, in the past we have announced a series of small restructurings as part of our transformation into a leaner, more focused enterprise. We continue to execute on that initiative and will look to deliver additional cost savings across the business in the periods ahead. I'll share more perspective shortly as we discuss operating expenses, but overall I'm happy with the progress we have made in just a few quarters. Let's turn to our financial results. As a reminder, our financial statements now reflect the results of operations of Ample Organics, which closed in July of this year and will impact comparative results for both revenue and expenses. For the quarter, total revenue increased 16% to $3.7 million, an increase driven primarily from growth achieved following the acquisition of Ample, offset by continued softness in our consulting practice, which I'll discuss shortly. Software revenue grew 40% to $3.2 million year-over-year, Excluding Ample, our core software business is roughly flat year over year due to the state of Utah moving from its implementation year to its go-forward run and maintain state. We currently have approximately 1.5 million of ARR backlog pending go-live. We have seen a rise in backlog and delays in go-live primarily due to COVID-19. We expect to see an increase in our B2B revenue recognition over the coming months as economies continue to reopen. We continue to see strong demand for our core platform offering as evidenced by our strong bookings and investments made in our platform are leading to improving attrition rates. Consulting revenue declined 60% to $300,000 year over year. Our consulting practice is important as it allows us to monetize our business development funnel and emerging markets to our software business. Consulting revenue was significantly impacted by the COVID-19 pandemic and related shutdown, which created delays in the delivery of our services. By comparison, consulting revenue is up $200,000 from the previous quarter ended June 30, demonstrating our consulting practice is beginning to return. Many state ballot initiatives were passed for new medical or adult use cannabis. We expect we will see increased demand for our services following this past election cycle. Gross profit was $2 million for the quarter, representing a 53% gross margin. This compares with a gross profit of $1.8 million and a 57% gross margin in the same period last year. The decline in gross margin percentage is directly tied to the loss of consulting revenue in the quarter as the cost of sales for our consulting practice is largely fixed. As our consulting practice returns, efficiencies in our infrastructure are realized and software revenue grows. We expect we can expand our margin profile in the periods ahead. Incremental software revenue comes with margins in excess of 90%. Moving along to operating expenses, non-GAAP total operating expenses are up approximately $935,000 or 23% year-over-year. Non-GAAP operating expenses exclude a number of one-time, non-recurring, and non-cash expenses of approximately $2.5 million in the current period compared to approximately $180,000 in the prior year period. mainly recorded as a component of general and administrative. These expenses include depreciation, amortization, stock comp expense, business combination expenses, and other non-recurring charges. Further, excluding the additional impact of ample organics in our comparative results, total non-GAAP operating expenses would be down approximately $385,000, or 9%, compared to the prior year period, and down $1.1 million, or 23%, from the prior quarter ended June 30 of this year. The initiatives we are undertaking to normalize our expense base are starting to materialize in our financial statements, and we expect continued progress in future periods. Non-GAAP product development expense increased approximately $1 million, or 178%, as we continue to invest in our platform, including functionality and content, to increase retention, drive sales growth, efficiency, and increase our competitive moat. This also includes the results from Ample Organics. As we continue our integration initiatives, we expect to realize further cost efficiencies across our development organization. Non-GAAP sales and marketing expense is up 10% compared to the prior year period. We have finalized our sales and marketing integration and expect to realize significant synergies in future periods as we refine our go-to-market strategy across North America. Our non-GAAP sales and marketing expenses excluding AMPLES are down 12% compared to the prior year period as we have built a more focused and targeted sales organization. We are pleased with our sales and marketing efficiency as we continue to deliver a near record level of new business with improving customer acquisition costs. Non-GAAP general and administrative expenses declined 15% compared to the prior year period and would be down 34% compared to the prior year period if we exclude the impact of AMPL. As I have shared previously, we are laser-focused on operating efficiencies across the organization, having completed a number of incremental restructurings that are starting to have favorable impacts to our financial results. In the quarter, adjusted EBITDA was negative $3 million, compared with negative $2.2 million for the prior year. By comparison, adjusted EBITDA was negative $3.6 million for last quarter, ended June 2020, an improvement this quarter of 17%. The above-referenced non-GAAP financial measures are reconciled to our GAAP financial results in the earnings press release that was issued before this call. An adjusted EBITDA will also be reconciled as part of our 10-Q filing, which we encourage you to review in detail. As of September 30, 2020, we had cash of approximately $14.3 million and subsequently in October raised approximately $12 million in additional funding. Cash on hand and access to the capital markets positions us well to execute on our strategy, which is a significant advantage over many of our key competitors. We expect continued improvements in our financial performance as we continue to scale and drive towards profitability. In closing this past quarter, as we successfully integrated Ample Organics, we did so under the continued framework of becoming a leaner, more focused organization with the human capital and financial resources to execute our growth strategy. We are keenly focused on our performance and committed to delivering efficiencies across the statement. This concludes our prepared remarks. We will be happy to take any questions you may have. Please keep in mind that the forward-looking statement disclaimer discussed at the beginning of this call applies equally to the Q&A session. Operator, please open the phone.

Thank you. We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Brian Kitzlinger of Alliance Global Partners. Please proceed with your questions.

Hi, good morning. Thanks for taking my questions. First, can you give a little bit more, Jessica, can you give us a little bit more detail on the drop in LEAF data revenue during the quarter? Maybe numerically, you know, where were we today versus a year ago or a quarter ago? And just take us through, as we've talked about in the past, Utah, the end of implementation, how that impacted revenue.

Sure, sure. So our government contract with the state of Utah for our LEAF data systems product, it began in July of 2019. And so we have concluded now our first year of LEAF data systems revenue for Utah and generally the first year has a higher contract amount due to the fact that you're an instrumentation and there's a lot of support and training process involved. And then in subsequent years, so for years two through five, it will revert to a run and maintain state. John Fowle, do you have any specifics on the exact dollar amounts there or percentages that we could share?

You know, I don't have the percentages, but we can think about, you know, the first year. The first year, it could be as much as several hundred thousand dollars a quarter, and certainly that can, you know, make meaningful impacts on a sequential basis quarter to quarter. But like Jessica said, sort of getting back into a run and maintain state is sort of where we start to normalize our leaf data business.

Great. And then with the new state regulations and the $18 million – addressable market, how quickly does this turn, first of all, into consulting opportunities? How quickly does the state typically take until they issue licenses? And then secondly, which is a little bit different, talk to us how you get to the $18 million. Is that an annual revenue number if you want all the government and all the commercial contracts? Is that what $18 million represents?

So I can talk about the time to see some revenue from these new states. We're excited about this catalyst to return our consulting revenue to pre-COVID levels. Although some states will move faster than others, we often start consulting in new states in advance of applications for pre-application work and can share that our pipeline of potential revenue in these new states is already building fast. As to when we can expect government RFPs, and or the licensing program for new B2B licenses. We really see this vary state by state. I expect we'll see a rolling thunder over the next 18 to 24 months. Some states license and implement their program and then afterward select a track and trace vendor for the state. And then some states want to have their vendor in place as the licensees begin operation. So we really see that vary. And of course, there's going to be probably a difference in ramp time for a state like South Dakota that just passed both adult use and medical at the same time that will be implementing a program from scratch versus a state like Arizona that has a very healthy medical program already that will be adding adult use and leveraging existing businesses already with their adult use.

in terms of the $18 million market?

John, do you want to speak to that? I know you worked on that with our BI team.

Yeah, so it's a great question. We looked at the different states, and our market is really defined by how many licensees exist in any given market. And so what we essentially did is looked at the states who are coming on, whether medical or adult use, and tried to estimate how many new licensees that would mean for the particular jurisdictions, medical or otherwise, and then certainly just back in what we know our average revenue per licensee is and sort of in a very conservative way put out a number that we think the opportunity is for us in these new states. So it's really a hypothetical mathematical exercise, but again it's, you know, unlike maybe other industries, our sort of limiting factor is how many new licensees are actually issued and obviously various states approach it differently and so like Jessica talked about Arizona we can sort of see what they've done on the medical use side and sort of extrapolate what that might mean for adult use but new states that are coming on for medical or like South Dakota we might not have an estimate and so we can use sort of population data how large is the state's population and sort of estimate how many licensees that could mean and then what that means for us we think $18 million, you know, really over the next couple years is a relatively conservative figure, but that's sort of how we want to start to frame that.

And just to clarify, that number does not – sorry, I was just going to clarify, that number does not include the LEAF data systems or consulting revenue opportunity. It's really just a B2B number. Right, John?

Correct. That is just core B2B. There's certainly consulting opportunities. There's potential government contracts. And that's also, you know, we don't even think about, you know, upsell opportunities, you know, with Domo or as we get into the MJ Retail and, you know, what that could mean as we roll out that. It's more using a conservative historical look of what our, you know, revenue per licensee is, you know, without getting too aggressive with some of the new opportunities we're rolling out.

Great. Jessica, you said normally on the consulting side you're in ahead of these kinds of efforts, these kinds of changes in regulations. Consulting revenue is pretty low. Do you have a handful of people that are driving that revenue in some of these states?

We certainly do. So as John noted, we're beginning to see our consulting revenue return, and we have reported that our bookings have continued fairly consistently. for our consulting practice. And I can share that anecdotally, our pipeline has exploded following passage of these ballot measures. And we certainly expect to see a real catalyst to return our consulting revenue to pre-COVID levels there. Also, you know, I just, John touched on it, but I would love to just touch one more time on the opportunity presented from MJ Retail. and in new states especially, to launch with that product and to have an option that gets us more of that transaction volume as we prepare for coming change at the resolution of the federal-state conflict in the coming years.

You mentioned 100% win rate in Iowa. John, using that same math, what do you think that opportunity is, you know, long-term on an annual basis.

Are you talking about for, you know, how that would turn into B2B revenue or, I'm sorry, or additional?

Right. Right. Well, I mean, I don't know. I guess I didn't dig into it. How many licenses do you expect in Iowa and, you know, 100% win rate? What does that mean to your business in terms of revenue?

Jessica, do you want to touch on, do you happen to know how large Iowa is?

Yeah, so Iowa is a limited licensed state, and that probably represents in terms of our win rate as well as any existing licenses in the state. We're probably talking about an opportunity of maybe somewhere between a quarter of a million and a half a million dollars.

Okay. Okay.

in that state, in ARR?

Yep. Great. And then you guys touched on – It's a small state.

It's not New Jersey.

Right, right, right. You guys touched on a backlog and COVID-impacting implementations. Just touch on – the bookings have been really strong for the last nine months compared to historically where the business has been. Speak to the conversion cycle and how long it's taking, you know, and especially with these larger deals.

Sure. So, of course, John touched on our backlog that is sitting at $1.5 million in ARR currently. And we do expect to see that convert to revenue as economies continue to reopen. We don't publish specific conversion or retention numbers for competitive reasons, given we're the only publicly traded company among our competition. But I can share, as I touched on in my prepared remarks, that we have focused on Both product and customer experience and our retention numbers are improving. I noted our 99.99 stability for MJ platform and our customer satisfaction rating across all product lines of at least seven on a scale of one to ten. John, is there anything that you would add specifically related to conversion from backlogs?

No, I mean, I think you touched on it. You know, we mentioned in our remarks a couple things, I think, to note that our average booking size has, you know, grown pretty significantly year over year. And I think what we're seeing is, you know, for instance, we might have had a single location, you know, we sign a new customer, it's a single location, they go live. You know, now we're seeing more multi-location, multi-state. deals coming in, and so we might sign, and I'll just use numbers to talk of it. If we sign a deal for $1,000, that might go live. Well, now we're signing deals that are $4,000, $5,000, $6,000, but they'll have multiple go-live spots, and so we'll take that booking all in a particular quarter, but one location goes live today, the next location's live in 60 days, the location after that is live in 120 days, and so forth. That's a positive sign for us, we see, is that we're signing larger deals, more multi-location, multi-state deals. It's just taking a while for them to get live. Certainly, obviously, the COVID pandemic has impacted that. And there was a lot of delays, of course, related to the election. People were sort of sitting tight on what to do. And then certainly COVID, not just the economic impact, but as states had shut down, the ability to get people were expecting licenses. applications to be processed sooner, and so those have been delayed. So, you know, we're overall happy with the types of deals we are taking in now, but they are, you know, the back side of that is that it's taking longer for them to go live, but we think we'll actually be more meaningful long-term.

Okay. Thanks so much, guys.

Thank you. Thank you. Our next questions come from the line of Martin Toner. Please proceed with your questions.

Good morning, guys. How are you?

Good morning, Martin. We're well. How are you today?

Great. Next question. So question about organic growth. I think I can get the ample contribution based on your comments about flat organic growth X ample. I guess you can just walk me through the impact of the Utah Go Live dynamic and then any comments you can make about organic growth rate at MJ specifically would be helpful.

Sure. So first I'll touch on the impact of our government contracts. They certainly have swung our revenue a bit more in the past. They tend to be lumpy. And now that we have more of them, we do see less of an impact from the lumpiness or the variability. Utah, our first year of that contract concluded in June of this year, and we're now in a run-and-maintain state. And we do... The way that the government contracts are structured, they generally have a higher first year of revenue, and then they convert to a run and maintain state moving forward for the next two to five years. Of course, there's always opportunity for change requests and additional services and revenue throughout the life of the contract, but generally there is a change between year one and year two. As for our Our growth, of course, John reported our bookings number. Again, extremely strong continued bookings, very consistent B2B software bookings, and those have continued at a similar rate. As we were just discussing with Brian, of course, we do have an increase in backlog. These are committed year-long contracts where deposits have been paid. And we will continue to see more of that convert into revenue here over time, both as economies reopen and also as these larger multi-locations are staggering their go-lives location by location, state by state.

Great. So are most of the B2B deals that go into backlog annual?

All of our contracts are at least annual contracts and often multi-year contracts. And some of this is a function of revenue recognition. I mean, we certainly collect, you know, as I said, a deposit and sign a contract.

And can you comment on the growth rate of the health of the growth rate at Ample?

Sure. So in Ample for this year, throughout 2020, Canada has been pretty locked down with COVID and there was quite a delay on beginning to issue new licenses. And certainly all of our existing clients have done very well in being declared essential throughout this year, 2020, and have seen nice increases often across the board in their incremental sales to consumers or to patients. But we have seen a delay in the issuance of new licenses, which is our largest driver for new incremental revenue. Also, as I touched on in my prepared remarks, we're beginning to focus on our mutual revenue opportunities, and there's certainly opportunity as more provinces and territories issue retail licenses to sell MJ Retail, MJ Platform into those new licenses that are being issued. And also there's a significant opportunity to begin to visit with our existing clients and talk about upsell opportunities with GMP integration and our accounting system integration through the ecosystem to Sage, to NetSuite to SAP. And we announced a big NetSuite client actually in Canada not that long ago, rolling in the green, one of our NetSuite cornerstones there.

Okay, super. Thanks. Can you give us any anecdotes or updates on the pace of adoption of analytics and or retail?

Absolutely. So look for us to be issuing some updates on that moving forward. I can share that, anecdotally, we are in beta with MJ Retail now with some existing clients, and we have had problems really great reception to MJ Analytics. And I noted in my prepared remarks based on what we're seeing so far that we see this representing as much as 25% upsell opportunity for us among our existing client base for MJ Analytics. And of course, that amount of incremental revenue across any new potential clients as well.

So I understand Domo is a usage-based model. Are you guys going to pass those costs along, or are you going to price it more as a traditional subscription product?

So that's a great question. And our pricing is not the same, and our structure is not the same as the retail's. pricing and structure. So for us, we have a different arrangement as part of our strategic partnership with Domo for this product and to OEM. And then also with our clients, we have structured it much like our other reporting packages with levels of reporting and across which locations and to user packs rather than usage.

Okay. Great. One last one. What is the developed software additions on the CACSO statement? It's $600,000 this quarter, $500,000 a quarter a year ago.

Yeah, I can go ahead and take that one. Yeah, that's basically our – I think what you're referring to is our capitalized software. So, you know, early-stage companies like us will capitalize our internally developed software and then amortize those over expected useful life. So it's just the accounting treatment for some of those activities.

Okay, super. Great. Thanks very much.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question has come from the line of Brian Kitzlinger of Alliance Global Partners. Please proceed with your question.

Great, thanks. I have one follow-up. Can you talk about the M&A pipeline? What are the size deals, you know, with your improved balance sheet you're looking at? Are they ample size, say $5 to $6 million in annual revenue? Are they more Trello size at a million plus or minus? And then can you speak to what valuation is looking like in the market today?

Sure, sure. Thanks, Brian. Great question. We continue to have a strong pipeline of potential technology, and each of three categories we've shared where we focus on inorganic opportunities. So those are TAM, expanding technology, product token, and market share. And I can share with you that we have a full pipeline in each of these categories, and therefore we can afford to be very opportunistic with anything we pursue. As one of the larger shareholders, of course, I'm focused on ensuring any opportunity is accretive to us, and also we are only interested in opportunities where there is positive cash flow synergy. We certainly, as you look at the competitive landscape, there are more opportunities trellis-sized opportunities than there are larger opportunities just in terms of what is out there and available.

Great. Thank you.

Sure thing.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Jessica Billingsley for any closing comments.

Thank you, Operator. We continue to do what we say we're going to do. Our ecosystem strategy and strategic investments are focused on locking up the tech spend of the enterprise cannabis businesses and solving with technology the growing demand for increased supply chain transparency among consumers and governments. You can depend on us to continue to execute. We know our greatest opportunities lay just ahead. Thank you for your continued support. We look forward to sharing our continuing progress with you in the future.

This does conclude ACURNA's conference call. Thank you for your participation and have a great day.