Akerna Corp.

Good morning and welcome to Akerna's second quarter 2022 financial results conference call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Peter Seltzberg, investor relations for Akerna. Please go ahead, Peter.

Thank you and welcome to today's second quarter ended June 30th, 2022 conference call. On the call today are Jessica Billingsley, CEO and Chairman of Akerna, and Dean Ditto, 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 within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as estimates, projected, expected, anticipates, forecasts, plans, intends, 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 occurrences 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 the COVID-19 pandemic. These risk factors are more fully described in the current files with the SEC. Forward-looking statements speak only as of the day they are made. ACURNA 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, without further ado, I'd like to turn the call over to Acuna's CEO, Jessica Billingsley. Jessica, go ahead, please.

Good morning, everyone. Thank you for joining us. Today, we will be covering three key areas of the business, the key highlights of the quarter, the progress on our balance sheet cleanup and strategic alternatives, and the sector at large. Then, I'll turn it over to Dean for a detailed financial review, followed by a Q&A session. Yesterday, we reported our Q2 2022 results. While our team turned in a solid year-over-year comparison from the top line to the bottom line, inflation and other macroeconomic forces did have some impact on bookings and sales, which we'll elaborate on shortly. All things considered, I'm optimistic we will continue to execute on our strategy as we head into the back half of the year. Highlighting the quarter, the software revenue growth of 33% year-over-year, and over 50% for the first half or six months of the year. Our current annual run rate closing out the first half of the year is approximately 25 million, putting us on track for growth of approximately 31% at the top line this year. We have growth margins of nearly 70% in the quarter, which is toward the upper range of our target model. These margins reflect our focus on enterprise business, which is a key part of our long-term growth strategy. As we noted in our press release, We got off to a fast start in 2022, but we did see decreased client spending beginning at the end of Q1. Importantly, we announced and implemented a restructuring this quarter intended to reduce expenses and accelerate our path to profitability. The cost-dating measures, including staff reductions, reduced facility costs, and other considerations, will save us approximately $1 million per quarter, and we'll start to realize those savings in the third quarter of this year. We are also pleased to report that the cost of the restructuring initiative, while non-recurring at half a million, were significantly below what we had originally anticipated. Those costs have been fully recognized in the Q2 financials, and Dean will cover the specifics in his remarks. On today's call, as on our call last quarter, I'd like to reemphasize our key performance metrics, committed and over-occurring revenue, or CARR, growth in bookings, and growth in client transactions. I'll clarify each of these metrics, explain why they're important, and how we are performing. Then we'll provide an update on our strategic alternatives evaluation. Starting with metrics. Most of our revenue today is comprised of subscription revenue. As a result, the most important metric we track to measure our present success is our total CARR, or the total amount of contracted recurring revenue for which clients have signed contracts. Our CARR was 18.9 million as of June 30th, which represents a 9% increase year over year. I want to acknowledge that while this represents a nice year over year growth, it also does represent a 6% decrease sequentially, which warrants some explanation. First, let me clarify that this decrease does not represent a spike in lost clients. The primary reason for this reduction in CARR is that there are clients who have reduced and renegotiated their contracts with us. This represents the reality of a softer consumer economy that's reaching across a number of sectors, a reality where in light of macroeconomic factors, some clients have made select service cuts. However, broadly speaking, we have retained our clients for their most mission-critical needs. Importantly, by partnering with our clients to adjust to this climate, we provide value to them both now and in the long term, ultimately positioning us to expand with them as they expand and continue to serve this growing industry in the future. To underscore this important point, while it is routine in times of economic challenge for businesses to reduce costs, given our demonstrated ability to maintain and evolve our client relationships, we anticipate this represents a potential growth opportunity for the future. With regard to bookings, This equates to the dollar amount of new signed software contracts, the value of which will be recognized over the life of the contract. We consider growth in bookings to be a near-term leading indicator of our performance. Our Q2 software bookings were approximately 0.6 million, which was softer than our last two record-setting quarters. We expect to see bookings pick up in the back half of the year, and of course, we'll also start to recognize some of the revenue from the prior quarters with longer lead times. Turning to our third metric, client transaction growth, which we believe is the single most important long-term indicator of our true market share. We are pleased to report our transaction growth continued in the second quarter of this year with more of the industry running on the current as we posted 9% growth in volume and 8% growth in amount. Our transaction growth provides a future revenue catalyst as regulatory changes bring opportunities to monetize transaction volume. including through retail and wholesale payment opportunities. Macroeconomic climate and domestic political challenges certainly create headwinds for the industry, but ultimately, we are still charting on course for collective industry growth. I'd also like to provide an update on the Strategic Alternatives Initiative that was announced in Q1. This initiative was driven by our need to continue to fund the business prudently and strengthen our balance sheet, so we can follow our growth plan and capitalize on a massive market opportunity that we continue to believe is on the horizon. As we previously communicated, we hired J&P Securities to help us identify opportunities to create value for all stakeholders through strategic alternatives. We remain active in pursuing dialogues with numerous parties about partnerships, asset sales, and other ways to shore up the balance sheet to position us to reach and maintain profitability and produce a consistent and sustainable working business model that rewards our stakeholders. As an additional measure we have taken while operating with the best interests of our stakeholders in mind, we have successfully raised $10 million in a transaction underwritten by Alliance Global Partners. We intend to use the net proceeds from this offering for general corporate purposes, including servicing our ongoing debt obligations under our convertible notes, working capital, marketing, product development, and capital expenditures. During the quarter, we saw the Cannabis Administration and Opportunity Act, or CAOA, get filed in Congress by Senate Majority Leader Schumer and Senators Booker and White. In new discussions, and a demonstrable sign of progress toward federal legalization, both Senators Schumer and Booker have now publicly stated they will support intermediate steps to legalization, the first of which is state banking. States has a reasonable likelihood of passing before the end of the year, and as we have maintained, along with the rest of our peers, passage of this Act represents a potential revenue and selection point opportunity for Acarna. We believe that our long-term leading indicators all suggest good progress heading into the third quarter and balance of 2022 for three key reasons. First, our core business of compliance is a must-have and not a nice-to-have service for our clients. we will continue offering a best-in-class suite of services that addresses the needs of small to medium-sized businesses, mid-sized enterprises, and larger cannabis enterprises. Second, the cannabis market is projected to grow at an average rate of 27% in the coming years, and we are positioned as a central player with more of the industry running on Akerna each year. And third, We are making the prudent and necessary decisions to ensure that we are a household name in the cannabis space for many years to come by narrowing our focus to our core must-have product lines and ensuring we are firmly entrenched to rise with the industry and category to enjoy the growth that is projected for the years ahead. We are excited about our future, and we believe the cost-cutting we've done in conjunction with the opportunities we have in front of us will cement our leadership position and enable us to realize our long-term financial objectives. Now, I will hand the call over to Dean Ditto, who joins us today for his first investor call as our full-time CFO, and who will take us through the details of our financial results. Dean, congratulations again. We are very excited to have you on board. Please go ahead and proceed with the financial overview of the quarter.