Akerna Corp.

Good morning, and welcome to Akerner's third quarter 2021 earnings conference call. Today's call is being recorded. At this time, I would like to turn the conference over to Erica Mannion, Investor Relations for Akerner. Please proceed.

Thank you, and welcome to today's third quarter-ended September 30, 2021 conference call. On the call today are Jessica Billingsley, CEO and Chairman of Akerner, and John Fowle, CFO of Akerner. Before management begins with 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, believes, seeks, may, will, should, future, proposed, and variations of these words or similar expressions or 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 ACRNA 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, including risks related to changes in the cannabis market and risks related to the impact of COVID-19 pandemic. These risk factors are more fully described in occurrences 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 Akerna's CEO, Jessica Billingsley.

Good morning, everyone. Thank you for joining us today. Our third quarter results continued their momentum for 2021. with software revenue growth of 37% year-over-year. Our business as a whole grew 38% year-over-year and 5% sequentially with a mix of both organic and inorganic software revenue. Our total SaaS ARR is currently $16.5 million, a 25% increase over the same period last year. In addition to top-line growth, our focus on cost containment and accretive acquisitions continues to deliver results. with adjusted EBITDA improving 49% year-over-year and 6% sequentially. Looking ahead to the growth drivers of our business, there are a series of opportunities ahead for Acurna, from new markets and product line expansion to new regulations and ultimately to legalization at the federal level. On today's call, and in light of the strategic acquisitions we have made this year, I'd like to spend some time discussing our business strategy and the product portfolio and ecosystem we are creating. At the heart of our strategy is our ecosystem, which incorporates both our compliance engine as well as our open API infrastructure, which enables the seamless exchange of information between applications. In our view, having a robust compliance engine with the greatest breadth and depth of capabilities is crucial to being an enterprise software provider in the cannabis industry, as regulatory requirements are a foundational part of virtually every operational process. Of course, having a leading compliance engine is only one piece in the overall solution, as both user interface applications like point of sale, cultivation, and manufacturing, with reporting applications like SAP, Microsoft 365, and NetSuite, which need to integrate directly across the software stack to pass information back and forth. This is where the importance of our ecosystem and our over 80 integrations come into play. Through our standalone gateway, with which both our applications and those of our ecosystem partners integrate, we have significantly reduced the complexity of maintaining compliance within the fragmented, ever-changing market framework. Given this architectural approach, and our long-standing presence in the market. The net result is the ability for us to build a robust software portfolio with the most comprehensive compliance and regulatory capabilities in the industry, able to serve both the business and compliance requirements of the entire cannabis supply chain in more medical and recreational markets in North America and beyond than anyone else. To help illustrate how the platform works together, let's take an example of a vertically integrated MSO who owns cultivation, manufacturing, and retail locations. At each facility, which is a distinct step in their supply chain process, there are separate workflows and associated software applications with which employees regularly interact. This is often where challenges are introduced, namely how to capture the data from those separate processes and leverage it across the organization for compliance, financial and data-driven analytic purposes. NSOs often have three choices to solve this problem. First, they can develop their own applications and workflows, which often leads to manual intensive processes like the use of spreadsheets, lacks sophistication and features, and introduces significant liability risk by taking on the responsibility for compliance changes and updates. It is in this group where the majority of the industry sits today. essentially creating good enough solutions to keep the organization running while management attention is focused on building and growing the business footprint. The second solution is to use a competing product, which generally comes with pre-built applications for generic workflows and limited integration with applications and data beyond the core environment. While sometimes easier to implement than developing from scratch, These products often use a one size fits all approach. They're limited in the ability to upgrade with new features and do not integrate with resource planning applications like SAP and Microsoft 365. In addition, as MSOs grow and look to penetrate new states, if those products do not yet serve the compliance requirements of those regions, MSOs are then required to deploy separate systems, thereby increasing the complexity of their overall environment. The third option is Akerna, which offers MSOs a broad ecosystem of integrations to leverage the best-in-class applications of their choosing for each of their facilities, while at the same time offering the ability to integrate data captured across the organization and leverage decades of best practices in supply chain and manufacturing through industry-leading applications. In addition, by tightly integrating our retail, point-of-sale, and e-commerce applications, like MJ Retail and our newly introduced Akerna Connect, we are able to provide MSOs with both the necessary consumer data to make effective business decisions and the ability to seamlessly interact with consumers with the potential to quickly enable payments when legislation is passed. This is why we believe the infrastructure improvements we've made and the acquisitions we've closed in the last two years position Akerna for success. Delivering compliant access to the necessary comprehensive set of capabilities has been a focus of ours as we strengthen our channel connections with existing enterprise financial and tax planning providers and firmly solidify our strategic moat as the only true enterprise software solution and scaled technology ecosystem for the cannabis industry. This started with our own integration with SAP, NetSuite, and Sage and continued with our acquisition of Viridian earlier this year as we took the strategic steps to broaden the scope of our offering to cater to the growing needs of our clients. With the recent addition of 365 Cannabis, we further extended these capabilities to the Microsoft product suite. From our perspective, this was of particular importance to the cannabis industry as the Microsoft Dynamics 365 offering has been gaining wide acceptance with small to mid-sized organizations. which is well-suited for the scale of many of the MSOs in existence today. As these companies look to take the next step in their IT evolution and move beyond spreadsheets and the Office 365 product suite, including Word and Excel, to more robust enterprise software solutions, Microsoft becomes a natural choice. With our integrations now covering access to a majority of the mainstream mid-market financial and tax planning market, We believe this is a crucial competitive advantage. Regardless of a cannabis business's preference for a particular accounting and tax suite or other traditional ERP add-ons such as HR and payroll, we have the widest variety of solutions to meet their needs. As we discussed on prior calls, over the past few years, there has been a substantial positive change in the political and social climate surrounding the cannabis industry. which has seen continued growth in revenue, new markets, and consumers. As new markets are added and the possibility of US federal reform advances, cannabis operators are looking to expand their operations both vertically and horizontally by opening locations in new states. As these businesses grow and the complexity of their operations expands, they increasingly require comprehensive enterprise software systems that can scale with them from startup to enterprise, while always maintaining multi-state compliance. As our clients continue to scale their operations and the industry makes a natural progression to maturity, we believe the leadership position we've created will allow us to capitalize on the multitude of growth factors ahead. To illustrate this point, while over 40% of public cannabis companies are current Akerna clients, the vast majority are still in the early stages of rolling out our ecosystem. To help demonstrate the opportunity this represents, I'd like to take a moment to highlight a few examples of how our client operations are growing ever more complex through consolidation. In the first example, a stalwart in the US cannabis industry recently acquired a smaller operator in the second and third largest markets in the US, creating an organization with a combined 60 dispensaries and 11 cultivation and production facilities across eight states, and the operational platform for further expansion into new states. In a second example, two regional operators recently combined with an existing portfolio of 27 retail locations with an additional 18 plus in the pipeline over the next 18 months. In a third example, a recent consolidation within the Canadian market allowed one of our clients to double their footprint to 16 retail locations with an additional two in the pipeline before the end of the year. In these particular examples, the companies being acquired are not existing or current clients. Some of these acquired locations are now in our implementation pipeline, and the rest become captive opportunities to increase our revenue as our clients work to roll out comprehensive software systems. While far from a complete list, these examples are reflective of both the continuing growth and consolidation activities of our clients and the opportunities they represent for Acarna. With our focus on large multi-state operators who are naturally becoming the consolidators in the industry, we believe we are well aligned with the highest growth segment of the market. In addition, as the complexity of these organizations grows, and the value of sophisticated data-driven analytics continues to increase, we believe there will be additional opportunity beyond the current level of software spend in the industry. In closing, we are very excited about the many value creation opportunities ahead and the business we have built to leverage the upcoming waves of growth. With the leadership position we have in our core business and capabilities we have integrated, take advantage of new opportunities, such as new state initiatives with both LEAP data systems for governments and our enterprise software platform, we strongly believe we are quickly approaching an inflection point in growth, both in the cannabis industry and Akerna's role within it. All our hard work and achievements to date have positioned us very well for this moment, and we look forward to driving long-term shareholder value as the path unfolds in front of us. Now I'll hand the call over to John, who will take us through the details for our financial results. John, please take it from here.