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spk03: Greetings. Welcome to the MFA's Technologies Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I will now turn the conference over to your host, Brian Prenova. You may begin.
spk02: Good afternoon, everyone, and welcome to M-Phase Technologies' fiscal 2021 earnings conference call. As a reminder, the M-Phase fiscal year end is June 30th, 2021, so all figures presented for this period will reflect that end date. Yesterday, we issued our fiscal 2021 financial results press release, which highlighted a number of financial results for the fourth quarter and full fiscal year. A copy of the press release is available on the investor relations section of our website, and the complete financials are posted on EDGAR. Before beginning our formal remarks, I'd like to remind listeners that today's discussion may contain forward-looking statements that reflect management's current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. M-Phase does not undertake to update any forward-looking statements, except as required. At this point, I'm pleased to turn the call over to M-Phase CEO, Anshu Bhatnagar.
spk00: Please go ahead. Thank you, Brian.
spk04: This is our first earnings conference call, and it's been a long time coming. But we wanted to make sure we had the necessary pieces in place before we unveiled our strategy. First, I will discuss the company's overall strategy before we provide a brief overview of the financials. For more than a year, we have been developing our Empower ecosystem to harness the power of the EV revolution, which we believe will transform the way people shop, dine, fuel, and interact with the world. Today, we want to give you a better understanding of our unique approach to this future. and our plan to bring together consumers and retailers in ways previously not possible. The transition to EV as a dominant form of travel is complex, viewed as an opportunity to some and a major threat to others. We believe that we have built a much needed set of tools that will help improve the interface between retailers and consumers throughout this transition. We have branded this under the Empower name, which describes an ecosystem consisting of EV charging stations, ultra-fast 5G connectivity, and AI-driven consumer engagement software. Our Empower ecosystem has evolved out of our own effort to build an AI-enhanced travel platform combined with our AI engines and CloseCom's consumer engagement platforms. We already had the travel components, the mapping, the points of interest, locations built into our platform. So the transition to this EV platform was more of a case of adapting our products rather than building from scratch. We realized in 2020 that our powerful consumer-oriented travel and engagement tools could be integrated with EV charging stations and 5G connectivity to address some big changes coming in the way people travel and fuel. So we didn't just design an ordinary app, but set out to solve a problem experienced by EV owners today, while also helping retailers future-proof a post-patrol reality. The best way to understand our Empower ecosystem and why it's so rapidly gaining traction is to look at each of the parts. The EV segment is fairly straightforward. We're installing Level 2 and Level 3 chargers under our own Empower brand name. We are sourcing the stations from well-known OEM suppliers, so we will be equivalent to the biggest names in the business in terms of equipment itself. But unlike some charging configurations, which are a row of inanimate objects at the corner of our property, our stations will be connected devices acting as point of interest on a map that extends beyond the locations into retailers in close proximity to each station. Today, the issue of range anxiety is very real and something that can only be solved by the proliferation of charging stations. So there's an open window for the real estate grab that's going on around the world, and we have developed a significant conduit into a very large number of high-quality locations in the U.S., Our announcements to date are just a sampling of our sales pipeline in what is still a massive untapped market. It's easy to view us as an upstart in EV with a later start than better known names in the field. But on the other hand, we are highly experienced in consumer engagement, AI, and travel software. We have years of development behind us and patented and proprietary technologies in those categories. Other companies in the field have little or no experience in these value-added technologies, so we have a very real opportunity to leapfrog the industry in terms of building a more complete solution set that does more than just dispense electricity into a battery. The technology behind this is our AI-driven consumer engagement platform. This is a comprehensive promotions and incentive platform that learns specific consumer preferences and extends targeted incentives to consumers to drive sales to a retail location. A key target for this part of the platform is a quick service restaurant or QSR, such as Subway, Burger King, McDonald's, and other similar locations. We offer a very affordable program that enables retailers to drive traffic on demand via coupons and promotions. The ROI can be very high, over 300%, with a quick payback period. In this era of privacy issues, one of our great features of our engagement platform is that it is anonymous, learning habits of each phone holder while keeping the identity private. The privacy features combined with a very affordable price makes us a compelling offer in this space. The third element of our ecosystem is ultra-fast 5G. Contrary to the steady stream of 5G TV commercials touting various levels of functionality, all 5G is not created equal. We're installing millimeter-wave 5G that can generate download speeds in excess of one gigabit per second, which is about four times faster than most public 5G networks. Sites with strong 5G are highly attractive to power users, particularly individuals operating out of a mobile office. At sites featuring our top tier Empower 5G, retailers gain a new incentive to attract customers while we gain a footprint capable of supporting local or regional private networks. This gives us an opportunity to provide service to municipalities, schools, and other entities in need of extra speed and coverage in their mobile computing. The 5G technology segment has an opportunity to generate multiple reoccurring revenue streams, so it is an important element in our concept to create multiple sources of reoccurring SaaS and task-based revenue at each installation. Co-location opportunities for EV charging and 5G are numerous, so this is a natural combination of technologies at many sites. For property owners, these services add value to their real estate and businesses. So they represent highly desirable capital improvements, particularly for owners, operators looking to remain competitive in their local markets. One of the key features of the Empower ecosystem is its adaptability, because it gives retailers the option to embrace the green future in stages. Some sites are not quite ready or simply cannot install EV charging due to restrictions from site configurations, but these locations can still participate in our Empower ecosystem via consumer engagement and 5G components. For chains, this is a very important attribute because it enables them to enhance their green footprint across the entire organization. In that regard, MPower is appropriate for any location desiring more customer traffic, but the program really shines at the locations that can install the entire stack of consumer engagement, 5G, and EV charging. To better illustrate this problem today, I would like to share my own experience on a recent road trip in my electric vehicle. My vehicle let me know that I needed to stop at a particular charging station, I had 6% battery left when I arrived at a closed restaurant parking lot at night with no restrooms or amenities. The next closest destination or charger was too far away. Our Empower platform is uniquely designed to avoid this kind of scenario. In our model, we have the same user interface, but with a much better engagement layer, where based on the driver's profile, our AI system can direct a driver to a preferred location. If I had the Empower system, it would most likely have said, instead of stopping at the 200 mile mark, there's a coffee shop at 170 mile mark. Why don't you stop there? The software would also know by my past actions that this location would have my favorite coffee and have 5G connectivity so I could do a bit of work while I waited. And the Empower system could take it a step further by presenting me the menu, giving me an easy way to preorder something. My food would be ready when I arrived. I could plug in, go to the restroom, grab food, eat, charge up, and get back on the road. I would be a happy Empower customer, and the coffee shop would get a visit from a new customer they would not have otherwise seen. This is a distinguishing feature between Empower Ecosystem, its ability to serve the needs of the consumer and retailers under a single platform. Now I want to turn briefly to the financials. Fiscal 2021 was the first profitable annual results in the company's 25 years in business, so we are proud of that achievement. Our core business is exceptionally consistent with little change quarter-to-quarter, But Q4, we had a number of one-time events that affected our profitability. However, these events also left us well positioned for future growth. The most notable of these actions involved our financing activities where we raised $4.6 million, which enabled us to eliminate less desirable forms of debt and provide us much needed cash. We ended the fiscal year with $2.5 million of cash. This activity, coupled with better receivable collection, has significantly improved our balance sheet. In terms of individual line items for the quarter, revenue increased slightly to $7.8 million compared to $7.6 million in Q4 2020. 79% of the revenue comes from subscriptions, 12% from service and support, and 9% from application development and implementation. These ratios are fairly consistent quarter over quarter. We saw some improvement in gross margins, which increased 190 basis points to 27.8 million compared to 25.9 million the same year ago quarter. We recorded an operating loss of half a million which was primarily driven by a 205% increase in software development costs. As a result, Q4 showed a net loss of $0.4 million compared to a net income of $0.3 million the prior quarter and $0.8 million in the year-ago period. Two significant one-time events are noteworthy. During the quarter, the company negotiated a one-time payment of $235,000 to eliminate its largest legacy debt of $784,000, which resulted in a $549,000 gain upon its settlement. We booked a large gain on change in fair value derivative liability for approximately $762,000 Since the company paid off four convertible notes during the fourth quarter, the existing derivative liability, which was established in the prior quarters, was eliminated as a gain. The net effect of all this was positive in the sense that the company now has a cleaner balance sheet with five significant debt vehicles paid off and replaced with more institutional debt instruments. All of these actions were essential to position the company to qualify for better forms of capital in the future. In terms of our results for the full year, annual net income set a record of $1.7 million compared to a loss of $14.1 million in fiscal 2020. Annual EPS also improved to 2 cents compared to a $1.08 loss in the prior year. In April 2021, Enphase recapitalized with $4.6 million in new financing, giving the company its best financial position in many years. Stockholders' equity established a new record of $11.7 million, a 112% increase over the $5.5 million figure in 2020, an important milestone as the company does not need to complete an equity offering to qualify for an uplist to a senior exchange. We are particularly pleased to report that due to continued improvement in the company's financial condition and our plans for future profitability and capital, There is no longer substantial doubt as to the company's ability to continue as a going concern, as reflected in our recently filed 10-K. This is more than just a matter of semantics, because our growing pipeline is expected to begin generating new revenue in the very near future, and we have significant cash and cash flow to launch our most important projects. We entered a new growth mode that will require additional spending and eventually capital but all our projects under the Empower umbrella will begin with some level of core monthly recurring revenue, which will increase as we layer on EV and 5G installations. The recent Store Owner Association announcement for Empower installations in Florida and Illinois represent around 1,800 sites, but are just a fraction of our target customer base, which will eventually extend across the U.S., We will start with smaller steps first, but we are encouraged by the size of our pipeline. It is important to remember that every MPower participating site can generate some form of monthly recurring revenue very quickly via consumer engagement part of the platform, with later growth coming from same locations as 5G and EV are installed. As a result, we expect to show accelerating quarterly revenue as installation cycle gains traction. We utilize both software as a service and technology as a service models, SaaS and TAS respectively, to create multiple revenue streams from a single location, so the positive impact on our revenue in the future quarters could be substantial. Understanding the capital required for this growth, the company is targeting segments that have very favorable equipment financing options, subsidies and grants from government sources, and considerable interest from financial institutions. As we grow, we will need to expand our resources, but our rapidly improving financials have put us in a great position to access better sources of capital in the future. I would like to spend the last part of today's call discussing what we have planned for the remainder of 2021 and what will be on tap for 2022. Operationally, we intend to name additional independent board members, as well as established board committees. We hope to hire a CFO in the near future, as well as other experts in areas where we need industry experience at high levels to fast track our partnerships. Forecasting EV charging is complicated at the moment due to the wide range in electric costs, subsidies, and rebates that can vary by state and county. Furthermore, we do not know which sites will implement the full EV 5G and engagement stack until we complete a site survey. But I can provide a framework for the kind of scale that is ahead of us. Every site will carry at minimum our consumer engagement software and will generate somewhere between $50 to $100 per month in recurring revenue. About half of these sites will qualify for 5G, which is another $50 per month, and we will expect about 15% of every location to qualify for EV installations. We expect each site to have an average of four ports and utilization of around 10%. Our current sales pipeline has more than 30,000 targeted locations, so it will be fairly straightforward to judge our success as we sign new contracts and begin booking revenue. Because a majority of our revenue is reoccurring and the rollout process will occur in stages, to establish a pattern of accelerated monthly, quarterly growth. We are really excited about this trend because the margins are very high on the SaaS part of the business, which will support the overall margins as we layer on more capital intensive hardware driven task parts of our ecosystem. As a company, we have kept a low profile because we wanted to begin locking down our site partners. The EV charging business is really a real estate land grab at this stage in its growth cycle, so it's important to secure as many high quality sites as possible. This is particularly important for our company as we work to create a premier value added network in the industry. Our goal is not only to future-proof our Empower location partners, but also to future-proof our network against that time when commoditization comes to this young industry. That might be years away, but location, location, location is a phrase that has never gone out of style. We get a lot of questions about pipeline and how an upstart like Enphase could make so much headway so quickly. But we have a simple answer to that. Most companies in this industry approach the problem with the battery and dashboard as their starting points. But our starting point was the consumer and the store owner. With this user-centric approach, we can now offer everyone in this EV value chain more than they get from any other provider. To understand where we're going with this, it's important to look closely at our pipeline. The low hanging fruit for us is that class of retailer most threatened by changes in the way people fuel, such as gas station and associated convenience store owners. They're facing a future similar to holders of taxi medallions when Uber and Lyft arrived on the scene. We have heard from some of these operators that the value of their gas station properties will peak in just a few years as the future of gasoline becomes more uncertain. So they are a very motivated group that will embrace EV out of necessity. But beyond that obvious retail segment, restaurants, hotels, bowling alleys, grocery stores, and other retailers with available parking lot spaces are also eager to add EV charging to enhance their value of their property. We have a full pipeline of sales prospects in all these categories, so our goal is to add new customers in each retail type to build use cases and momentum. With the world of business now emphasizing environmental, social, governance ESG practices, We intend to take advantage of the fact that participants in our engagement software are automatically part of a verifiable ESG positive platform, even if a participant cannot install EV charging. By participating in our ecosystem, our partner customers are helping proliferate the building out of EV charging sites. So we offer a direct way for companies to be ESG proactive beyond the limitations of their inherent business store locations. Every day, we get a new affirmation that our Empower ecosystem is a right solution at the right time in the form of interest from potential new customers and partners. We look forward to providing tangible evidence of that interest in a form of additional deals that will help make the Empower brand a well-recognized name for mobile consumers and retailers throughout the U.S. If there's one thing that I hope everyone takes away from today's call, it's that we are entering a growth phase armed with technology offering that is resonating across many retail categories. We believe That will translate into great momentum into 2022 and beyond. At this time, I would like to open the call for questions.
spk03: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A 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. We ask that you limit to one question and a short follow-up. One moment please while we poll for questions. As a reminder, at this time we are in the question and answer session. If you would like to ask a question, please press star one on the telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star two 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 questions. Our first question comes from Michael Rindos with The Benchmark Company. Please proceed with your question.
spk01: Hey Andrew, thanks for the update.
spk04: Oh, thank you, Michael.
spk01: So, you know, I want to better understand the economics for the consumer. Do they have to pay for the app? Is there any subscription fee associated with that at this time?
spk04: No, so for the consumer, there's no fee for the consumer. We will be providing them an app. So historically, we actually worked with the retailer and with their retailer's app Under our current model, we're also extending this to our own platform. So basically within the next few weeks, we'll have our app that consumers can download and essentially no charge to them. It will be used for both their charging network as well as the consumer engagement platform with retailers. So we have our own royalty rewards program and everything else built into that, but no charge to the actual consumer itself.
spk01: Gotcha. And so how do you promote the take up of the app?
spk04: So each location will be one, we have an NFC chip built into like a sticker or a counter display and where essentially the retail location would basically push the adoption of that app because they're incentivized for that as well. So as far as the consumer, all they need to do is touch their phone or bring their close phone to that counter or on the counter sticker and that will pop up our app and they can just press download and they'll have that that downloaded and with that we can kind of load their digital wallet with discounts and coupons maybe immediately upon their purchase right so similar to you go there you have a $50 bill you touch this thing you get 20% off immediately so there's a there's sort of an immediate incentive for people to download the app and then there will be a continued incentive for them to keep the app installed
spk01: Gotcha. Okay. And so who will be paying for the hardware at these locations, either for the charging stations and or for the 5G equipment? Will that cost be borne by M-Phase or will that be borne by the retailer?
spk04: Yeah, so as far as the 5G is concerned, M-Phase will pay for bulk of the cost. because our larger strategy is to build our own private 5G network, essentially a WISP around that location and hence the dense locations where we would be getting a lot of revenue from many other sources, right? There'll be a lot of other users that can get on our platform and pay a monthly subscription fee. But as far as the EV charging is concerned, it's a combination where we have certain customers who want to own it outright. We also have some hybrid model. And then in some cases, We've actually partnered with finance companies that will essentially provide us a hardware on almost like a CAS model, right? So they'll be giving us a per location per month charge, and that would be paid for through the subscription itself, right? So that's something we've worked out with different locations. We have a hybrid model, which we'll be kind of posting within the next, you know, say 30 days or something. We'll kind of get all our model worked out and share that with everyone.
spk01: Right. Okay. That's fabulous. Okay. And then as far as the app, can you talk about the inbound calls that you're receiving from either retail chains or others who are playing in the EV charging space, whether or not they're directly associated with that? Maybe they just want to be on the app and what that might look like?
spk04: Sorry, can you repeat that question again?
spk01: You know, what does the inbound call spectrum look like from either retailers or other EV charging installers? Because I think, you know, regardless of the multiple revenue streams, I think that there would be just a wave of folks who want to be on your app, right? And so it would seem as though every EV charging company that's out there, you know, maybe competitors in some ways, they still want to be on your app. Are you starting to see interest like that?
spk04: Oh, absolutely. And I think that's honestly what's been the sort of leading driver. We're not only talking to like the independent owners, which has become a very kind of niche market for us because it's an unserved community, right, where they're basically are not being targeted by or even approach or even they're having a tough time even when they reach out to some of the other companies that they simply don't want to deal with them because it's an independent one single location. and it's just not something that they're interested in. We feel that the industry is changing, and they're feeling that the industry is changing. When we sit down and have conversations with them, they realize that for them to partake in this future, there have to be changes, both on the green, the EV charging, but also the engagement side of how the world is changing, how consumers are going to be be going to work and how they interact with one another, all that is changing, and they're not well positioned for that. So when we kind of walk them through our engagement platform, they absolutely love it, and that's really been our key driver behind our rollout. And we just have a tremendous pipeline at this point in terms of clients of interest, and we're just kind of working all that out as we speak, and we sort of reflect on the recent announcements. But we're also working with a lot of big brands as well, so there'll be a lot of interesting announcements on that front as well.
spk01: Let me just try to clarify the model a little bit if I could, or prompt the question and have you clarify a little bit. So if I'm a driver of an EV vehicle, and I already have your app downloaded, I roll into a subway based on a suggestion from your app, and I purchase a meal and drink. Maybe there's a promotion attached to that. As part of that whole transaction, and of course I'm charging my vehicle and maybe ultimately using 5G services, what is the revenue flow to your company as a result of that whole process?
spk04: Sure. There's two types of revenue models that we have. One is a reoccurring model that we have from the from the property owner itself, right? So that would include our platform that we license to them, which includes a reoccurring model from both the consumer engagement platform as well as the 5G model. And then there's a separate sort of model around the EV charging, which is a little more complicated for us to really provide guidance on right now. But even aside from that, there's many additional revenue sources for the company when it comes to this type of platform. There's a whole separate revenue stream that comes from driving traffic to locations and the coupons where we can get actually a percentage of the sale or the promotion that we're offering. And we also have a lot of interest from companies who are wanting to get their products on our platform And they're looking to either pay a per site fee where they can actually give us a fee to get their products in locations as well as percentage of sales from products that are sold. So we're actually looking at a much more expansive revenue stream that will come out of this.
spk01: Right. I get what I'm getting at. So at this point, those details are still being worked out or –
spk04: Yeah, well, we have a model. We're just kind of – because there's a lot of components that we just need to kind of build into it because especially on the EV charging side, right, there's a whole – every state, county is – and sometimes even cities have different pricing structures that we need to work with as well as demand charge and many other factors that go into this. So we actually have engaged outside consultants to actually build that model and work on that for us. And we're pretty close to being able to provide more detailed guidance around that. And at the same time, we're actually in the process of rolling out our alternative revenue streams to really get to that point. Those are still some time away, but at the core of our model, right, the core of our business is that reoccurring model that I talked about, which is about $100, $50 to $100 per location for the engagement platform. There's about $50 per location for for 5G. And as we roll the 5G network out, we can offer the same services to schools, to counties, to government facilities. Again, $50 per user per month. And that's something that doesn't even come from the school board, right? It comes from federal emergency broadband funds. So this is all part of the CARES II Act where we can get a tremendous amount of subsidies from both the federal government as it relates to 5G connectivity as well as EV charging. So a lot of that stuff we haven't disclosed yet because there's a lot of things that we just need to kind of work out on being able to disclose that model.
spk01: Understood.
spk00: All right, fantastic. I look forward to hearing more. Thank you.
spk03: At this point, we have reached the end of the question and answer session. I'll turn it back over to Anshu for any closing comments.
spk04: Well, thank you, everyone, for joining. Going forward, we intend to hold a quarterly call for every earnings release. So today marks an important starting point in our investor outreach. Thank you again for joining us today.
spk03: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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