Q4 2020 Digimarc Corp Earnings Call
Good afternoon, and thank you for participating in today's conference call.
I will turn the call over to chairman and CEO of DG market. Mr. Bruce Davis, Sir you May proceed.
Thank you good afternoon.
Everyone Welcome to our conference call Charles Beck, Our CFO is with me. We also have Bob Timna as our EVP in charge of sustainability, joining us today to provide an update on progress and prospects in this increasingly important use of our platform the plastics recycling.
On the call today, we'll review Q4, and fiscal 2020 financial results discuss significant business developments and market conditions.
An update on progress and execution strategy.
We've posted these prepared remarks on the Investor Relations section of our website and will archive this webcast there.
Before we begin let me remind everyone that today's discussion contains forward looking statements the 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.
Carlos will now comment on our financial results Charles.
Thank you Bruce 'twenty.
2020 was an extraordinary year full of unforeseen challenges and opportunities.
We started the year with a focus on retail store operations, then along came the COVID-19.
The pandemic caused a re prioritization of resources at retailers that impeded progress with thermal labels and new retail account acquisition although.
Although revenues increased year over year, we did not hit our growth goals for bookings.
The effect of the pandemic was not on negative new customer and partner opportunities emerged a long way with unexpected sources of financing the Bruce discussed during the Needham Conference in January leading our company to come out of the year stronger and better positioned than when we entered it.
Revenue for the fourth quarter was $5 6 million up 4% from Q4 last year.
Service revenue increased 7% from $2 7 million to $2 9 million due to growth in services provided to government and retail customers.
Subscription revenue increased 1% from $2 6 million to $2 7 million.
Reflecting the impact of new bookings offset by the impact of the renegotiated contract with a retail supplier partner in the first quarter of 2020 that we've discussed on prior calls.
Revenue from government was up 10% to $3 3 million driven by growth in both subscription and service revenue.
Revenue from retail was down 8% to $1 4 million, reflecting the impact from renegotiated contract I referenced a moment ago offset by higher service revenue.
Revenue from media was up 6% to 900000, reflecting growth in subscription revenue.
Retail bookings were $1 3 million around the same level as Q4 last year.
The impact of the pandemic continued to have an effect on bookings in Q4.
As we enter 2021, we are encouraged by our growing pipeline of opportunities in supply chain and recycling solutions.
We entered into several new contracts during Q4, most of which were early production from the pilot projects.
While these contracts do not contribute significantly to bookings during the quarter. We expect these contracts will grow into larger revenue streams in coming quarters.
Retail bookings included several notable developments.
We started work on our very first Golden thread project in recycling.
Bob Chairman this will elaborate later on the call.
We signed our first contract with the customer on the tobacco industry, who is using the <unk> platform for product with indications to deter the selling and usage of counterfeit cigarettes.
We continue to customer funded study of the commercial viability of laser engraving sort of organization with a global brand and its suppliers.
And we generated follow on bookings for the variable data printing solutions used in the traceability and brand protection use cases that I've referenced on prior calls.
In media, we entered into a five year extension with a customer using the digital platform for monitoring and reporting music usage.
Gross margin for the quarter increased to 69% from 66% last year due to improved service margins.
Service margins were 61% up from 52% last year due to a favorable mix in billable expenses with higher labor and lower non labor expenses and lower other costs.
Subscription margins were 17, 9% down from 80% last year.
Operating expenses were $11 7 million a decrease of 6% from $12 4 million in Q4 last year.
Operating expenses were lower reflecting lower travel consulting and trade show costs.
We expect operating expenses to range from $12 8 million to $13 2 million in the first quarter.
The expected increase in expenses over the fourth quarter reflects the impact of routine annual compensation adjustments for our employees.
Our 2021 hiring plan, which includes two new senior executive positions.
And recurrent fiscal year end related costs.
Net loss for Q4 was $7 8 million or $1 27 per common share versus a net loss of $8 7 million or <unk> 73 per common share in the fourth quarter last year.
Our net loss or net loss per common share calculation was impacted by an accounting adjustment required under U S. GAAP called a beneficial conversion feature.
Which represents the conversion premium on the preferred stock issued to TCM strategic partners.
That was later converted into common stock on December upon shareholder approval.
The conversion premium negotiated and the deal was 15% the same as the discounts on the common stock. However.
However, the preferred portion of the transaction.
A couple of extra days to close by which point the stock price had appreciated significantly, thereby creating a larger conversion premium for accounting purposes.
This is a nonrecurring and noncash adjustment to earnings per share.
Excluding the impact of this adjustment our net loss per common share would have been 51 cents.
2020 revenue grew 4% despite the pandemic effects.
Service revenue increased 5% to $13 9 million due to growth in services provided to government and retail customers.
Subscription revenue increased 4% to $10 1 million, reflecting the impact of new bookings offset by the impact of the renegotiated contract with a retail supplier partner I mentioned earlier.
Revenue from government was up 4% to $14 9 million in 2020, driven by growth in both service and subscription revenue.
Revenue from retail was up 6% to $5 6 million, reflecting the impact of new bookings offset by the impact of the renegotiated contract already referenced.
Revenue from media was up 2% to $3 5 million, reflecting growth in subscription rate.
Retail bookings were $5 4 million in 2020 versus $5 3 million in 2019.
For the year gross margin increased 67% from 65% last year due to improved service margins.
Service margins were 58% up from 55% last year due to a favorable mix in billable expenses with higher labor and lower non labor expenses.
Subscription margins were flat at 79%.
We held operating expenses essentially flat with 2019 at $48 9 billion.
Payroll costs were higher year over year due to routine annual compensation adjustments for our employees and 800000 of nonrecurring severance costs associated with the corporate restructuring we announced in July.
These costs were offset by lower travel consulting and trade show costs from 2020.
Net loss per common share for 2020 was $3 41.
Versus a net loss per common share of $2.79 last year.
Excluding the impact of the adjustment for the beneficial conversion feature I referenced earlier, our net loss per common share for 2020 would have been $2.52.
We ended the year with 77 7 million in cash flow investments.
Highest balance of nearly 18 years.
On October 1st we received the remaining $17 million of proceeds from the $53 5 million dollar investment made by TCM strategic partners.
On December 10th the 17000 preferred shares issued to TCM as part of the transaction were converted into 1.2 million common shares upon approval by shareholders.
Our application for forgiveness of the $5 million Paycheck protection program loan is still on the process of being reviewed by the small business administration.
We do not have any visibility on when they may complete their review.
For further discussion of our financial results and risks and prospects for our business. Please see our form 10-K that we expect to file shortly.
Bruce and Bob will now comment on significant business developments market conditions and execution strategy.
Thanks Charles.
I provided the 2020 retrospective and overview of keys to success for 2021 six weeks ago at the Needham Conference in mid January the presentation is available on our website much has happened since then.
Beginning at the board level I'm very excited to welcome <unk> to our board of directors for professional accomplishments commitment to making a difference on the world and thoughtful team oriented leadership will inspire our employees and other stakeholders.
I expect to shield his two decades of experience in leading high growth digitally enabled companies will invigorate and inform boardroom discussions about resource allocations market priorities and opportunities to scale the business.
Another important board development Raleigh, Mccormick Kosmos elected lead director.
He inherits this role from Jim Richardson, a very capable leader, who will remain on the board and continue to serve on the audit Committee.
He will be a strong advocate for shareholders interest enhancing our shareholder engagement.
I have been enjoying for some time now and extraordinary collaboration on how to best accelerated adoption on the <unk> platform is still a high performance culture and build upon our values consistent with the environmental and social benefits on our platform is delivering to customers.
In his new role Raleigh will work closely with me on the book.
Third members on our management team to strengthen the company's commitment to ESG practices communicate with and represent the interest of the shareholder community.
Seek ways to enhance overall board and company operations.
The company's organization continues to evolve with the maturation of execution of strategy.
Growth in size breadth and sophistication of our supplier ecosystem and the resultant expanding universe of applications built on the platform.
The organization has changed dramatically in the past few years as.
As we evolved from an IP licensing company to a customer centric software services supplier.
The pace of change has accelerated.
I'm proud of the versatility loyalty on focus.
On our mission of our employees and leadership team now.
So those changes are always challenging, especially.
When done in the context of the pandemic wildfires, an ice storm that we've endured in Oregon over the last year.
Leadership must evolve consistent with the stages of development of our platform in the market. It serves.
Recent changes include the departure of our director of corporate Communications, who we have begun the search to replace on the addition of a chief product officer, and Chief revenue Officer.
I'm very excited about the seasoned executives with successful track records that are moving into the senior ranks of our leadership. The executive changes are intended to strengthen the relationship between product development and sales improve accountability for customer outcomes accelerate a transition to the cloud income.
Better alignment between the organization on the changes in demand profiles, we're observing.
Opportunities to improve auto identification span consumer product life cycles from manufacturing to recycling.
The natural ebbs and flows of opportunities and allocation of resources across the supply chain, including retail store operations was disrupted by the pandemic.
It created a substantial temporary shift in demand, leading us to lower our spending and shift our resources from retail store operations to other areas of the supply chain.
Whereas we began market development with fast easy checkout and need to reduce long lines at checkout. The pandemic made those lines shorter.
It also changed the shopping experience in many ways, leading fewer shoppers to shop less often spend less time in the stores when they do and buy more on each visit on this.
<unk> moved online others rely on contract shoppers and store associates to do the work and that purchase was delivered to their homes or from curbside pick up.
These changes don't reduce the relevance of speed convenience and accuracy of product identification and shopping.
The new shopping model Ed safety to the paradigm.
The modern consumer wants low prices efficiency and safety.
Models of demand generation of product differentiation or changing environmental and social concerns are increasingly important associate responsibilities are expanding with safety and efficiency is top of mind concerns. We are embracing all of these changes.
Janey Whiteside.
Walmart's, EVP and Chief customer officer reported that the virtual interest about high concern from associate well being creating a focus on low touch approaches to their work.
She also note that the financial effects will depend on we put even more emphasis on affordability.
Leading to share gains by private brands.
We also observed that stores have been rapidly transformed into hybrid warehouses, localizing pick and pack and rapid delivery of groceries.
I tried to emphasize the stores aren't going anywhere.
People still want to shop in stores, but theyre looking for a new generation of shopping experiences.
Corporate values are front and center trust.
Is a cornerstone of customer loyalty again, we can help.
More recently at the Walmart investment community meeting company leadership talked about the need for more innovation and speed.
New customer centric business model, serving them in new ways to monetize assets in ways not done before.
Low prices convenience the efficiency and safety are the key themes in their remarks.
We had didn't Mark C. On these changes greater opportunity than ever to help Walmart continue their omnichannel and digital transformation, while maintaining their operating efficiency advantages over competitors.
Our platform improves performance throughout the supply chain from production from recycling.
As the disruptions to our operations by the temp pandemic slowed progress.
It created heightened demand further up the chain and production and distribution, giving rise to new customer relationships and new industry segments focused on brand protection counterfeit deterrence channel management.
General supply chain transparency.
And another very positive development aim announced the formation of Holy Grail two in late 2020, describing it as quote a pilot project with the objective to prove the viability of digital water marketing technologies per app.
Sorting and consequently, higher quality recycling as well as the business case at large scale close quote.
We understand that participation has grown from 85 to more than 100.
In 20 companies and organizations.
A few weeks ago, we received a comprehensive work plan from Maine with detailed work streams deliverables and schedules.
Bob gymnast the executive in charge of this area will now provide an overview and update on market conditions and Holy Grail, two O and the circular economy initiatives, we're engaged in Bob.
Thank you Bruce it's my pleasure to join the call today to share our recent developments and plans for our recycling and sustainability initiatives.
If the pandemic showed nothing else. It has showed the critical role that plastics play in improving our everyday lives for many applications. There is simply no alternative that performs as well.
Plastic waste is a growing challenge to our environment, causing harm to our oceans waterways air quality in landfills.
Issue, then is not plastic itself, but our relationship to plastic.
Government scrutiny of plastic waste continues to grow with new plastic direct people coming from the European Commission, including a European tax on non recycled plastic waste.
The United Nations Plastic Treaty proposal initiated by the Ellen Macarthur Foundation, and the World Wide Fund Wildlife Fund calls for a global agreement setting goals and binding targets together with the national action plans and consistent measurement.
The proposed treaty seeks to enhance investment planning stimulate innovation and harmonized policy efforts the.
On the UN global compact the world's largest corporate sustainability initiatives is similarly focused on eliminating plastic waste in the environment.
In the U S. Several state governments are moving forward with extended producer responsibility regulations frequently known as EPR, which provides funding for upgrading trash sorting and creating green jobs. He be rfps are used to provide incentives for consumer brands to use more recyclable.
<unk> and reduce their packaging footprints.
Estimated that more than 30 percentage of product packaging contains plastic <unk>.
Corporations are stepping up to do their part there are more than 500 signatories to the Ellen Macarthur Foundation's new plastics economy global commitment, where they have pledged to increase the use of recycled plastic.
The signatories include well known consumer brands, such as L'oreal Mars Nestle Pepsico, the Coca Cola company in Unilever.
Government and private initiatives, Hawaii seek to reclaim post consumer waste plastic and recycle it into new products, creating a circular economy with goals to reduce the impact of post consumer plastics on her environment, while reducing use of Virgin plastics made from party hydrocarbon.
Such as oil and gas, therefore, reducing our carbon footprint.
These schools cannot be achieved with legacy technologies, there's a significant gap between what can be recycled today and the level of recycled content needed to achieve the published targets for the year is 2025 and 2030.
Did you Mark played a central role in the success of the new plastic economies original Holy Grail initiatives the initiatives scoured the technology landscape from means to improve the quantity and quality of recyclable material in post consumer waste streams digital watermark, King and chemical tracers.
We identified as potential solutions.
Did you Mark barcode was determined to be the more robust solution. So much so that our new initiatives was formed known as Holy Grail, two O whose sole mission is to quote.
Proves the viability of digital water, marking technology for accurate sorting and consequently, higher quality recycling as well as the business case of large scale.
The 29 cross value chain collaborators in the original initiatives. We're also impressed with the first utility of our platform to address a host of other operational issues faced by manufacturers and retailers such as parts matching counterfeit deterrence supply chain efficiency.
Food waste reduction Digitization of store operations and increased opportunities for consumer education and engagement.
Holy Grail, two O formerly Nounced. This past September with 85 members. It was facilitated by AME. The European Brands Association, representing 2500 corporate members a number of work groups have been formed to inherent to determine the path forward in all material.
A real aspects of integration into the ecosystem.
Holy Grail, two our membership has grown by nearly 50% in five months to over a 120 board participants representing brands and retailers printers, and plastic mold converters recycling sorting equipment manufacturers.
Dick resin producers industry tended to trade associations and Ngos.
A link to a chart showing the current members who are elected to be identified publicly is included in the script.
Recent notable new members include European retail Giants, Cofflin, Lidl, and the Schwartz group, along with key industry suppliers armored CCL ESCO.
G C O sonoco and Sun chemical.
As an industry wide collaboration Holy Grail, two is open to all suppliers of digital water market. We are pleased to report that did you Mark has been chosen as the supplier of enhanced materials and detection software for the initial prototype sortation test phases.
We were entering into licenses and developing relationships with two of the largest manufacturers from high speed sortation equipment, Tomer, and telling who together provide over 80% of the global market for optimal sorting lines in material recovery facilities, commonly known as Mers and risk.
Cycling plants tomer on a public company headquartered in Germany hosted the two demonstrations Holy Grail that showed the superiority of digital watermark, King and identifying materials, we've begun discussions about licensing other optical system and component providers in Europe and <unk>.
With America.
COVID-19 has impeded progress in all respects from the initiatives.
Nevertheless, we are making progress and we are impressed with the eagerness of participants to produce compliant packages for use in the Holy Grail. Two O project production of printed labels flexible pouches and films and three D rigid plastics is underway.
We are making progress with industry leaders in rigid plastic packaging, including tag core very global and logo Plas Pak Coors notable in that we have been collaborating with them for nearly two years that you were a global supplier the second largest supplier of rigid plastic in Europe.
And the largest supplier in eastern Europe with operations in 15 countries.
Of course committed to sustainability and has been an ardent supporter of <unk> barcode in an amazing innovator and application of our platform to plastic packaging.
We were the first company that successfully applied did you mark barcode to reach a plastic packaging services.
Holy Grail, two or is not the only initiative in Europe that will demonstrate our capabilities to improve plastic sortation and create a more robust circular economy ecosystem. We are in discussions to create a number of golden threads. They will test performance in different countries and industry sectors.
One such agreement with a large European nations consumer waste collection provider was entered into in Q4 2020. The program is designed to develop and test strategies to increase collection through improved consumer engagement and increase the quantity and quality of raw.
Recovery and recyclable material.
The program is underway, we have similar golden threads in early stages of development in two other countries.
The European Commission is monitoring progress. There recently published final report on the effectiveness of the essential requirements for packaging and packaging waste and proposals for reinforcement.
States that a review will be carried out in 2025 with a view to required digital water marking is a legal requirement to report states that quote there are new technologies being developed that would make indemnification of recycled amounts by the individual functional unit of packaging.
Highly efficient and that's the production of data much more cost effective and achievable the.
The approach would utilize digital water, marking technology in sensor equipment to register the number of individual functional units of packaging sorted through sorting plants and quote.
The European Parliament, New circular economy action plan adopted on January 27, 2021 also address digital watermark King.
Quoting from that plan the Parliament quote urges the commission and the member states to enable digital technologies, such as blockchain and digital water, marking and make them interoperable. So that they can support the development of the circular economy through the tracking tracing them.
Mapping from resource use and product flows through all stages of lifecycle and quote.
Furthermore, the proposed sustainable product policy initiatives on the European Commission calls out for quote.
Stablish and EU rules for setting requirements on mandatory sustainability labeling and or disclosure of information to market actors along value chains in the form of a digital product passport in quote aren't being the carrier is often referred to in the market as a.
Digital recycling passport in quote and exploration we coined.
We are increasing our market development in North America encouraged by many macro level developments here at home.
The ecosystem for waste collection in Sortation, and North America is quite different from in Europe, where there is commonly only one or a few organizations that are providing for the collection of post consumer waste in each country in the U S. Each we now have municipalities selects the supplier could creep.
Getting a much more decentralized in complicated network.
There are signs of harmonization with Europe and recognition that radical change is required and must be driven by public policy.
This has inspired numerous congressional and state proposals to implement extended producer responsibility schemes as funding mechanisms EP rfps put the economic burden of pollution on the manufacturers of products with plastic packaging to fund infrastructure and encourage innovation.
These regulations typically include a calculus for determining the amount of tax that must be paid therefore, providing funding for improved sortation and recyclability.
We are closely monitoring E. P. RFP proposals in 12 states in Congress that may be acted upon during the 2021 legislative sessions to encourage explicit recognition of digital water, marking as a mitigating factor. We are also tracking similar activities in Canada.
E P. Our feed mitigation known as eco modulation conserve a good benchmark of minimum value realization for our ROI calculations in pricing and negotiations.
We continue to expand their influence to participation in industry initiatives and trade organizations. We are signatories to the Ellen Macarthur Foundation's new plastics economy, the proposed United Nations plastic Treaty and the UN global compact that I mentioned earlier.
We're also participating in the European Commission circular plastics alliance the EU plastics packed the U S plastics pact pet CT Europe, and the association of plastic Recyclers. These.
These activities provide a forum to advance the inclusion of our technology and policy discussions and to align legislative strategies, Therefore ledger leveraging our government relations efforts.
Our work in Holy Grail continues to garner accolades around the world since our last call P and Gs use of our platform was awarded the World start Global Packaging award from the World packaging organization, the industry's most prestigious honor and the packaging Association of Canada's best.
The show for packaging innovation, which included submissions from across North America.
We are adding resources to address this momentum we have engaged the services of Kim Holmes as an expert consultant in government affairs and sustainability.
<unk> is well known and respected in the industry and was the former Vice President of the plastics industry Association. We have also hired in North American sustainability program manager, who will help manage key relationships with our customers and facilitate timely delivery of our work for them in the north.
American industry and relationships manager, who will help coordinate activities to advance the use of the technology in Europe and North America.
We are also hiring additional product manager management, and marketing specialists, who recycling and increasing our engineering and R&D resources.
For sustainability and recycling in Europe, we are adding a senior program manager to assure effective management of in delivery to the Holy Grail project and support European customers additional circular economy initiatives based on our platform we are recruiting a.
The ability executive to oversee all European initiatives and advance our EU legislative and regulatory agendas regarding potential requirements for use of digital water, marking in plastic packaging and recognition of search use with EPR fee modulation.
Our human resources team reports of these positions generated the largest number of candidates submissions in our company's history.
Collecting the importance of addressing the issues with plastic waste in our time and the passion of candidates wanting to play a role in this solution I'll now turn the floor back to Bruce.
Thanks for Great recap Bob.
Secondly trends on the digital transformation of businesses on increasing evidence of the need to move beyond the UPC are evident in the plastics initiatives growing demand for brand protection serialization enhanced product transparency and the enduring effects of the pandemic.
But the fundamental building blocks of the platform in place as time to obsess about our customers, including both partners and end users delivering great value efficiently and effectively across the spectrum of enabled applications.
And platform development are increasingly informed by end users on their suppliers, bringing problems and opportunities to us that they believe can be uniquely addressed by the tumor.
The key takeaways from this quarterly update include that 2020 was an extraordinarily challenging year.
Growth was impeded, but we came out of the year stronger in many ways them when we entered.
The key market themes, our sustainability and recycling traceability and brand protection and safe efficient retail store operations.
Plastics recycling showing surprisingly high momentum an amazing levels of industry participation.
Walmart is increasing its investment in omni channel digital transformation and we are determined to play an increasingly important role.
Customers for brand protection are encouraging industry solutions based on our platform.
We are formulating a unique brand protection solutions that encompass physical and digital realms and leverage our security expertise.
We have always led with values E.
ESG is providing a roadmap for execution and articulation of great sustainable companies. We are committed to the ideals of ESG and should benefit from growing appreciation for the way in which we run our company and then the contributions to supporting the global monetary system mitigating the environmental effects of plastic reducing food waste and improving.
Product safety.
Our leadership team is evolving to manage the wealth of opportunities across industries and new solutions.
We have a chief product officer, and Chief revenue Officer now with impressive track records that have joined the team and we've had great board developments.
The <unk> platform as a general utility platform intended dose a successor to the dominant auto identification model built on the UPC.
We began the current phase of commercialization focused on improving retail store operations profitability and making the shopping experience more convenient.
Over the past couple of years the promise of the platform has given rise to new very important uses and product safety reduction of waste on improvement in plastics recycling.
On the fashion unprecedented in my experience, we've been given to Roadmaps for success and Walmart's detail articulation of strategy during their investment community meeting and in a detailed work plan from Holy Grail leadership the name.
In addition leaders on three separate industries, a recommended us to competitors in hopes of finding industry wide solutions to determine counterfeit goods.
On the meal the formation of the Central Bank lines to provide a global system to deter the counterfeiting of bank notes.
The broad utility of our platform is becoming more tangible and obvious we have built something really special something that will be transformative.
We are strengthening our board and management to guide our success.
Embracing the core tenants of ESG goals has always been core to <unk> mission and culture.
First and foremost our people are more most important asset keeping our workforce safe during the COVID-19 pandemic has been our primary concern.
We support our employees Holistically through training and development flexible flexible work styles and comprehensive benefits programs.
They carry our values to the community through various volunteer mentoring initiatives.
We have a diverse workforce, you'll see opportunities for improvement. Thus, we are bolstering our diversity and inclusion policies and programs music.
We take pride in our safe and inclusive work environment, our internal efforts to reduce carbon footprint water usage electricity usage and electronic waste have been impactful we have a green team constantly searching for more opportunities our commitment extends to our core business protecting confidence in currency, improving recycling and product safety reduced.
In food and manufacturing waste and better informing consumer purchase use and recycling decisions all helping to keep people safe from protect the planet.
With bold leadership from our board, we are redoubling, our commitment to ESG leadership, including significant changes from executive compensation to foster a pay for performance culture, which will detailed on our next proxy in the coming months, you will see us build on our internal initiatives on our existing business focus to become a leader in these qualities of sustainable high quality.
Companies.
We are embracing key frameworks such as.
Sustainability accounting standards Board and the task force for climate related financial disclosures to guide our efforts set targets and reported on our progress.
We invite all of our stakeholders employees customers partners shareholders, and our community and beyond to engage with us on join US on this journey on.
All well intentioned suggestions are welcome.
Our brand is evolving from functional to purposeful.
As we lead with our values, we come full circle to the bedrock of our business the turning the counterfeiting of currency.
Digital payments have become more common, but when faced with natural disasters network outages political instability on cyber warfare.
There must be a medium of exchange everyone can count on.
Our important work there and gave rise to an enduring mutually successful 25 year collaboration.
We now see parallels in the aim industry wide initiative in plastics recycling and the circular economy.
And then the openness of the initial customers in multiple industries, we're recommending us to competitors in hopes of finding.
Industry solutions to brand protection counterfeit deterrence and channel management based on our work this.
This is a very exciting time.
I'm, so proud of our team for the way in which we navigated through the pandemic and the Oregon wildfires that keep us on track despite adversity.
Managed well through these challenges and exited 2020 with the stage set for a bright future.
But long term funding secured our working capital at the highest level in nearly 20 years.
New skills and experience and management of on our board formation of Holy Grail, two Dot O.
An uptick in demand for supply chain solutions on.
On the emergence of many new applications of our platform in the works.
We have an abundance of opportunities.
The key focus areas for growth include retail store operations recycling brand protection and traceability.
We must allocate our resources wisely and deliver effectively.
As we have demonstrated on our indebtedness to meeting challenges, we must continue to adapt towards sustainable responsible high performance company.
It will deliver superior shareholder returns for years to come.
Our platform will redefine relationships between people and things and many aspects of commerce in everyday life.
We will help make the world a better place, we will lead with our values and continued to excel with our technical achievements.
You all for your support of our mission and confidence in our ability to achieve it.
That's it for our prepared remarks for today, we'll now open the call to questions.
Thank you Sir.
Price.
Star one on your telephone.
Your question press the pound key.
Sure.
Sir.
Your first question is from Jim Ricchiuti with Needham and company.
Hi, good afternoon.
Couple of questions.
Clearly 2020 was.
A year, where you guys made.
Difficult progress and it sounds as if you have just a number on irons in the fire.
Bruce one of the things I'm wondering if you could.
Perhaps share with us.
What.
Some of the key milestones that you might be targeting.
For 'twenty, one because there are a lot of irons in the fire and it would be helpful to know which ones have the potential to have a more significant impact near term.
Sure. So the first thing Jim is integrating our new exec.
Executive leaders into the team and where we're engaged net.
Net process as we speak we brought them on board because we want to sharpen our focus we want to deliver on.
Predictable.
And the higher growth in our.
Bookings in on revenues and we want on.
Allocate our resources efficiently and doing so well.
We even though we have the most capital we've had on a very long time.
We want to remain conscientious on how we apply it and we want on demonstrate the leverage of those investments to our shareholders on to our other communities that we serve.
So I think you'll continue to look at the sort of standard benchmark sub success of.
Of closing business and on growing the top line.
But I think you'll also see.
The increasing relevance of our company on its values to the kind of work that people care about in the in the new financial market perspectives.
And so we made an effort here not only to better articulate.
Who we are what we do.
Which I think is is quite consistent with the new perspective on how to build companies of great enduring value.
But we're embracing other measures of that.
That we haven't yet.
Focused on.
Through the help of our board.
In order to make sure that we're on track that where we're doing all that we should be doing to be on.
On the kind of high quality <unk>.
Accessible company that we will be.
And so it's a great time for us.
Where there is an abundance of opportunity.
New experienced very capable leadership.
Strong more commitment to to both internal and external expressions of of ESG.
As I said I've never in my life actually heard of industry building a business plan for a small company.
We have a clear articulation of that on the work plan of aim and Holy Grail too.
And we have I think a very good set of direction and signposts from Walmart.
In there.
Oh really.
Amazing.
Investor day presentation to share quite different from prior years, they want to accelerate Digitization day.
They've added to Sam's original notion of book.
Save money live better.
Doug So our mantra of save time look better and then on the 2021 additional.
Save money save time be safe.
And all of that revolves around being efficient and supporting a wide range of.
Shopping preferences.
And delivering efficiently so that margins don't suffer in the process more than necessary I think we play perfectly into all of that so so our job here in 'twenty, one and I'm looking for.
A signpost of success revolver on all of those things.
And we will do our best to report on them regularly as you saw in Bobs presentation, there's enormous momentum building.
In dealing with the plastics crisis and we.
We are clearly defined by industry.
As a critical element of the.
Means to improve our situation and you may have seen bill gates publication of his book about the climate crisis seat, he feels where generational away from from <unk>.
Catastrophe.
And so I think to that whereas a couple of years ago, we were on that.
The suspect of the pace on a sincere.
Sincerity of involvement of people in that initiative I am Oh.
Really overwhelmed by the.
Level of support and detailed work plans.
That are coming from industry to help us to successfully contributed to save on the planet.
So it's very cool very cool stuff.
Yeah.
It sounds like.
More of the activity.
Based on.
What you the way you described on the recent developments is going to be coming from the supply chain.
Part of the business more so than retail is in 'twenty. One is that a fair characterization and I'm wondering is if theres expectation on your part.
That the the retail part of the business has the potential to perhaps maybe pick up in the second half of the year or is the visibility with customers still a little bit too cloudy.
Yeah.
Thank you Jim for the follow on question on or.
I'll give you a quite a candid response on those on that is that.
The effects of the pandemic appear to be waning, but appear to be well, we don't quite know yet.
Walmart leadership was cautious on their remarks about those things.
Changes in the retail environment of occurred with.
Startling rapidity.
And so they are digesting all of the required changes to accommodate new shopping experiences.
Wanting to accelerate their investments and so we're wrapping our minds around those things as they are.
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In terms of priorities I think that the reported optimization exercise will go on for a while and hopefully will climb back up in ways, we should.
But.
Because of the desire to maintain a reasonable investment rate and the <unk>.
Accretable opportunity posed by it.
An immediate opportunity post in the recycling area and the surprising inbound demand for brand protection on supply chain transparency.
We're going to focus our retail development efforts on Walmart.
We are we're a.
Blessed to have the world's largest retailer as a customer and on the on outstanding retailer and they're innovating, leading the industry and so I can't think of any better place to invest and retail store operations than at Walmart and so we're not going to be aggressively trying to add retail accounts.
But we do have metal margin discount.
In Europe.
That's 4700 stores very big very progressive retailer, who is enjoying success with our platform.
And then we.
Recently began.
On the rollout of our use of our platform with a large Japanese retailer.
So we've got three bigs.
And I want to make a three bigs.
More successful make us more relevant.
And make sure we're delivering value and then roll all of that into the rest of the retail industry over time, So I don't feel a sense of urgency to add more retail accounts.
Given.
Our investment model or investment thesis.
On that we have for 'twenty one.
Got it and if I could just slip one more in the Q3 call you gave some preliminary thoughts about 'twenty one in terms of revenues and bookings in Opex any change Bruce in your thinking along those lines.
Well, it's been a.
Stunning lead busy.
Six to seven weeks since we were together.
As a lot going on.
And and so.
On a more enthusiastic than I was six weeks ago about the year, but theres, just a lot going on and so.
I think.
I don't know exactly how to give you a detailed answer to that I think things are different.
But things are better.
They were.
And so again I've got two new executive leaders I've got the three new board members.
And.
We.
Went through the trials and tribulations of the.
'twenty 'twenty, including most recently ice storm or most of this loss par for more than a week.
And so we're getting their feet on the ground here on.
Making sure that we have our priority squared away. So I would say in our next call we'll have a firmer.
In response to your question Jim.
But I.
We're suffering from an abundance of opportunity right now.
That's what we got to figure out what to do with it.
Understandable, okay. Thank you I'll jump back in the queue.
Yep.
Your next question is.
With Craig Hallum capital.
Hey, guys. This is rudy on for Jeff Thanks for taking my questions.
I'd like to start with Holy Grail.
On the add some disruptions with Covid this year or I guess in 2020.
That said it does seem like the timeline the project completion and you know.
Meaningful revenue that pushed out a bit since the completion of only about one point al.
You had some some bookings in the quarter from one of the Golden threads, but it appears that was probably pretty minimal considering the total bookings number. So I guess at this point you know what are your expectations as of today.
On the time on from here to meaningful revenue contribution is that something you see over the next 12 months or is that still a couple of years out.
Charles or Bob do you want to chime in on this question.
Well I guess I'll start and then let US know what Charles said came in after.
This year will be primarily project oriented.
But we're prohibited under the rules of aim to give a lot of detail at this point.
They have a moratorium on a lot of the communications and until they announce it after which we're able to pipe in.
But the big projects in a nutshell involved getting suppliers in this case tomer and talent.
Ready to have their prototypes.
Testing a number of different.
Types of recyclable materials, including a variety of polymer meters.
On a variety of other packages.
Even paper and the like.
And have all of those preliminary trials looking for them full scale industrial trials later.
Because it is project it tends to be a lot of time and materials we.
We do have a pretty full agenda on those coming up.
I look for that additional leverage in 'twenty and 'twenty two.
As more broad scale adoption occurs.
And we go from projects.
Two even more detailed more global types of systems work on where theres a lot of leverage coming through the supply chain.
Through the two D and.
Enhancement partners through the three D converters and mold makers.
Through the relationships with the brands and retailers.
Yeah.
I think thats a good summary.
For 'twenty and 'twenty, one I mean monthly service revenue I think there's it depends on your definition of a meaningful but a good amount of service revenue opportunity there with the upside on the licensing side later on the ear to early 2022.
Rudy I would say with respect to the use of the especially meaningful I think we will have meaningful revenues to stuff.
Lunch is not getting any more technical on your definition.
Non trivial.
Got it.
I appreciate that got it and then and then.
As a follow on I think you know if I look here and I adjust for Walmart and you know I look at your bookings.
Revenue per retail revenue and you know I just from Walmart only being in there three quarters in 2019 in there for the full year on 'twenty.
You know all of those appear to be flat to slightly down over the last couple of years.
And Jim kind of already asked this you guys said last quarter.
You thought you'd have triple digit bookings growth in 'twenty one.
We'll hear an update to that next quarter, but just.
What are the biggest near term opportunities.
For revenue growth over the next 12 months.
Charles do you want to respond.
Sure.
It comes down to supply chain applications, So traceability brand protection and recycling, that's where we think the majority of that growth in 2021, well will come from obviously, we're all trying to expand the relationship with Walmart on where I'm focusing as much efforts on on retail operations outside of our key customers in that space. So it really comes down the supply chain.
Applications and then all the work they're going on the Holy Grail and on.
The other thing to keep in mind, though in your comparisons terrorists net we did out of one contract with a supplier partner that canceled, it's causing some of that compare more flat than it would've been.
Got it and then lastly, I've just sneak just one more in.
Walmart I know again, a couple of quarters ago, you gave an update I think you said you're over 2000 skus any.
Any update on that and then also.
The thermal label rollout has been on pause for a while and I did it COVID-19 any any update there as to when you think that will get going.
So first with respect to the.
Package enhancement, it's substantially higher number now.
I'm not sure everyone.
Continued to give detailed information without Wal marts, okay to do it but that's much higher than 2000 now on.
With respect to thermal where we're trying to figure out a way to implement that.
I think just a quick summary of the history there.
On a holdup due to some software development late last year.
Meaning 19.
When we were hoping to get going and then the pandemic.
Most everything to stop.
M of the proposed implementation has substantial implications for the shopping experience on for store operations generally and so it's it's not yet back on the table, but not in any way cancel and we're trying to figure out ways to.
Either either get it going there or get it going somewhere else.
In order to have a fully articulated debug system ready for broad scale rollout as soon as walmart's ready to introduce it into the new shopping experience.
Got it helpful. That's it from me thanks, guys.
Alrighty.
Your final question is from Robin Knipp with Janney Montgomery.
Thanks for taking the call Bruce on the last call you mentioned debt.
New customer opportunities are in the pipeline and forms of media in industries that you doubted would be contemplated by the investment community.
Without any customer attribution can you give us a bit more clarity on who or what these potential applications and the total addressable market that they may represent and then I just have one quick follow up after that.
Yeah, I don't I don't have anything to add there at this point.
The.
I think one of the things that is changing now.
And I'd say the answers on uncertain.
Is that between then and now have hired two new senior executives.
Revenue in product.
And I brought him on board for a reason I want I want them to provide leadership for us guiding our investments in guiding our exploitation of opportunities right now we have more opportunities than we can manage.
And so.
Those two executives and other members of my leadership team on.
We are collaborating to determine where we should put our investment.
And we're going to have to say no to some opportunities.
And so.
I don't I don't have the answer for you because there are only a few weeks soon.
But we're going on we're going to sharpen our focus.
We're going to doing that I think provide a better near term.
Measures of success.
On the capital markets.
But also.
I believe.
Focus on opportunities.
Great upside.
And I've outlined them for you on this in the script, there's no secret about them categorically. Its just a question really about specific opportunities and how we resource them the big change that occurred here that.
I want to make sure you. All appreciate is the Bob listed a whole bunch of increase of resources dedicated to recycling.
That was not something that I expected a quarter ago.
Okay.
One aim came out with their announcement I was.
Very surprised.
At the level of participation on 85 members.
When they recently gave US a detailed work plan on told us that the membership has grown by 50%.
My jaw dropped it's like Wow. This is real on the care, they really want us to deliver.
And so we have to do some juggling.
That will mean some of the things that I was contemplating a quarter ago, we may not resource for some time.
Okay. That's fair then just a quick follow up in the same vein in your prepared remarks, you mentioned that the leaders on three separate industries have recommended us to competitors in hopes of finding industry wide solutions to determine counterfeit goods and again without any customer attribution can you just tell us which industries. This covers.
Automotive tobacco and pharmaceutical.
Super Thanks, Bruce appreciate it.
Yep.
At this time this concludes our question and answer session.
David Please.
Christy.
Alright, thanks, very much everyone. It's a very exciting time for the company.
And we are we are doing our best.
To to keep you up to day keep you well informed.
And make sure that we express our values on our technology and optimal fashion to all the relevant audiences. So so we're working hard on on every aspect of improving the quality of our company. So that we will in fact be recognized for what I believe we must be and that is.
Ideal really.
Volume driven.
Transformational technology supplier. So thanks very much for your help and all of your support I appreciate it.
Now.
This concludes today's call. Thank you, ladies and gentlemen for joining us today for the presentation you may now disconnect.
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