Q1 2021 Digimarc Corp Earnings Call
Good afternoon, and thank you for participating in today's conference call now I would like to turn the call over to Chief Legal Officer, Mr. Bob Channel.
Sir you May proceed.
Thank you.
Welcome to our Q1 conference call Riley Mccormack, our CEO and Charles Beck, Our CFO are with me on the call today, we will provide a review of Q1 financial results and an update on the business followed by a question and answer Forum.
We have posted our prepared remarks from 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 that have risks and opportunities. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially Charles will now come.
On our Q1 financial results.
Thank you Bob and good afternoon, everyone.
Before I dive into the financial results I want to make everyone aware of two important changes we've made to our financing financial reporting structure.
First we are emerging what we previously referred to as retail and as media into one market cap category called commercial.
This change was made to better align with the structure of our sales organization to create better alignment and greater accountability.
Second we will report both total bookings and first year bookings for the commercial market to provide better insight into future revenue trends.
The definition of total bookings remains unchanged and is defined as the non cancel value of a contract over its term.
Versus first year bookings, which only includes the non cancel all value over the first 12 months of the contract.
To provide full transparency in our earnings script, we won't provide comparative information under both the prior and new reporting structure for the remainder of 2021.
We have also included a table within the script showing these comparative results for all of 2020.
Revenues for the first quarter was $6 7 million or 8% higher than Q1 last year.
Service revenue increased 1% from $3 7 million to $3 8 million, reflecting growth in services to commercial customers, partially offset by a decrease in services to the central banks due to timing of program work <unk>.
Subscription revenue increased 19% from $2 5 million to $2 9 million, reflecting the impact of signing a new commercial customer, which resulted in 460000 of revenue during the quarter.
The majority of the minimum contract value for this deal was recognized as revenue upfront versus ratably over the term of the contract which is customary for most of our commercial contracts.
<unk> revenue is recognized upfront as there were no continuing performance obligations once the software was delivered.
I anticipate we will see similar deals like this in the future, but I still expect most deals to result in ratable revenue recognition over the term of the contract.
Revenue from government were lower by 2% from 4 million to $3 9 million, reflecting the timing of program work with the central banks.
For the full year, we still expect revenue from the central banks to grow modestly in 2021 over 2020.
Revenue from commercial is up 26% from $2 2 million to $2 8 million, reflecting the impact of the contract I just referenced earlier and the impact of higher services to commercial customers in support of the plastics recycling work in Europe.
Total commercial bookings were $3 million.
Up 15% from $2 6 million in Q1 last year.
Total bookings included 550000 booking for the minimum fees owed under a two year software license for use in brand protection and traceability use cases.
The contract is with the same customer I referred to earlier.
First your commercial bookings were $2 5 million up 11% from $2 2 million in Q1 last year.
First year bookings included 200000 from the same contract I, just referenced representing the minimum fee for the first year of that contract.
Gross margin for the quarter increased to 65 per cent from 64% in Q1 last year due to improved service margins.
This margin, partially offset by lower subscription margins.
Service margins were 59% up from 55% last year due to a favorable mix in billable expenses with higher labor and lower non labor expenses.
Subscription margins were down.
Sorry, we're 73% down from 79% last year, reflecting higher license payments to a technology solutions provider.
We have initial customer interest in new solutions, where we do not yet have the full tech stack and are partnering to round out those offerings.
These license payments are recorded as cost of goods sold.
Operating expenses were $12 6 million, a decrease of 4% from $13 million in Q1 last year.
Operating expenses were lower reflecting lower travel compensation and marketing costs.
During the second quarter, we will record a nonrecurring charge related to the separation agreement, we entered into with our prior CEO.
The separation agreement includes continuation of salary and benefits through the term of his employment agreement and the acceleration of stock awards that he would have earned at best and continued for another two years.
We are estimating the total charge will be approximately $6 2 million, which includes $2 2 million of cash related expenses and $4 million of stock based compensation expenses.
Excluding this non recurring charge, we expect operating expenses for the second quarter to range from $12 5 million to $13 million.
Net loss for Q1 was $8 2 million or <unk> 50 per common share versus a net loss of $8 9 million or <unk> 74 per common share in Q1 last year.
We ended the quarter with $77 million in cash and investments.
We used $7 1 million of cash and investments during the quarter to fund the business, including 6 million of operations and 500000 per capital expenditures.
Our application for forgiveness of the $5 million Paycheck protection program loan is still in 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.
Bradley will now provide a business update.
Thanks Charles.
I wanted to start off by talking a bit more about the change in how we are presenting our financial results.
This change reflects both how we are now going to market and how we are now running the business.
Are you imagining our go to market strategy, we realize the prior split of our commercial business into media and retail was not only fly to name, but also applied in focus and opportunity maximization.
There are wonderful assets, including and especially human assets in the area. We used to describe as media that we could be should be and now are applying to our broader commercial effort.
Therefore, the historic split no longer captured who we are where we're going and it was a no brainer siloed and knocked down.
Kindly note, we will continue to provide detailed breakouts for the rest of this fiscal year, so you'll be able to monitor our business using both old and new reporting structures on both the bookings net of revenue basis.
Today's transcript provides all this information not just for Q1 2021, but also for each quarter of fiscal year 2020.
In addition, we are now also providing further transparency into the segmented duration of our bookings number because it is important for your understanding of our progress.
With everything we are fully open for feedback thoughts or suggestions on how we can shed further light.
I also want to provide you an answer to Jim Reid of Tucci's question on from the Q4 call and answer that I would imagine many are curious to here we.
We currently still expect to report triple digit bookings growth in what we used to refer to as our retail business. Although we now believe revenue gross and net growth in this area is unlikely to clear that bar.
Revenue will however growth at an extremely high rate.
I believe bookings is the best indicator for what all of US are waiting patiently to see an enduring inflection of adoption.
Bookings doesn't suffer from the vagaries of revenue recognition accounting rules and Moreover, it is the leading indicator for where the revenue line is growing.
However, while we are indeed, reaffirming that we expect to grow bookings triple digits. This year I wanted to tell you why I think it's really not that relevant and that the only reason I'm discussing this is because we promised you an answer and thus we owed you all an answer.
I believe the truly exciting takeaway from today's call is how we are positioning ourselves for 2022 and beyond.
Size and scale bring a whole bunch of wonderful benefits to the forecasting exercise.
A high percentage of bookings coming from renewals, which are more predictable than bookings expected to come from new business.
Big enough pipeline, so that even though less predictable new business self forms into a smoothed distribution curve and importantly enough history and win loss analysis.
Accurately probability weight that distribution curve with those attributes of company could get to statistically relevant statistically relevant predictions and thus give that guidance with confidence.
But specific guidance for a company that did 5.4 million bookings last year that doesn't enjoy the luxuries in forecasting I just listed that as some large lumpy opportunities to which it is almost impossible to accurately signed a meaningful expected value.
It has multiple ways a customer can start adoption.
Has multiple ways a customer can start adoption that resulted in a wildly different outcomes per day when bookings. It's frankly, just a bit of garbage in garbage out and I, just think promising without truly high conviction, there's a lot more damage than good because we try every day to earn your trust.
For you to build trust in our honesty transparency. We are best served in telling you things that fall into one or two categories outright facts or things that are based on knowable high conviction expectations inter.
Internally, we focus on under promise and over deliver and there's no other cadence I'd, rather get them with all of you as well.
And candidly for all the reasons I listed we just can't have the level of conviction in our 2021 bookings forecast that we'd like to apply in our communications with you.
On top of all that there's something else that makes our current internal numbers less relevant we are long term greedy not short term greedy, we're not going to do a deal that leaves money on the table just to make a number we are not going to chase business that doesn't align with our new go to market strategy just to make a number and we're not going to steer our customers who are paid upfront contract, which delivers a bigger.
Day, one booking number but comes at a discount versus a pay as you go contract, which understates contract size day, one but allows for a larger total dollar size deal just to make a number.
Do I think we will grow bookings triple digits, yes, I do it's just a logical outcome based on our pipeline and the level of engagement we have across the globe. There are many ways to get there we have the skilled team in place to execute on the opportunity set and there is significant upside potential even above our current internal point estimate.
So if we can just ignore for a minute. The arbitrary did you did you count hurdles, here's what I do feel comfortable committing to you we will grow bookings significantly.
Okay with those two housekeeping items out of the way I want to turn to what I believe should be the most exciting part of this call which is sharing with you. How we are switching our go to market strategy in order to build a scalable sustainable high growth and high margin solutions business.
It should allow for a shortening of the time to meaningful meaningful gross profit dollars, while also increasing our trajectory for years beyond that point.
Before I give you the output, though I want to spend some time on the input.
Very high level went to use software terms I believe there have been three digit Mark releases did you Mark version one day, though it was a bunch of really smart people with a game changing technology, who had the common innovators curse of trying to predict where the demand would come from and then taking the first steps to get there.
A natural place to start the go to market journey that problem. Every version one day to a company has is that truly great read scalable opportunities are sold they are not sold their box.
It is really hard to convince a large customer that they have a problem and then try to prove to them that you can solve it it requires predefined and static pricing finding the right audience and then finding the right ROI tests. It also requires AD hoc reactionary adds to the tech stack versus customer driven and data informed road mapping of your product.
Isn't scalable, it's not margin friendly.
Did you Mark version two data was released when a few visionaries in their field heard about what we were doing came to US and said I have a problem from what I understand of your technology I think you might be yourself.
If in our business planning posted that first conversation we can ascertain that this problem is not prospects specific and that's the Tam is large and ourselves can be universally applied then we have the spark of scalability and importantly, the spark of high margin scalability.
In addition, because did you mark Trudeau customers are coming to us with a problem.
The proof we can solve that problem is easier to provide and wonderfully. They most likely already have a line item in their budget for a solution to their problem.
It also allows us to be more thoughtful in how we price because our solution can be.
Based on the value it provides not some arbitrary price per jeetan.
The $50 per day tune pricing model almost always leave some value on the table and some cases that value is measured measured in orders of magnitude its orders within this for.
Or did you Mark Trudeau customers 50 dollar per cheetan pricing construct will be almost irrelevant going forward.
Our pricing will be higher when viewed from the standpoint of this arbitrary metric of price per cheated because we are selling a solution not a jeetan. This.
This is especially true for Digi, Mark Trudeau solves, we're serialization as a key ingredient.
And then for true scalability that is did you Mark version three day, though our newest release.
Did you Mark three data was when a happy to day to a customer becomes a digital art champion reaching out either across divisions or geographies in his or her own company or in some cases, reaching across the aisle to competitors and saying we're seeing this type of type of ROI with did you Mark but we believe if we adopt this is a wider solve that ROI will be even higher.
Our work in sustainability is the most public example of our version three day they'll release, but there are others earlier in the process did.
Did you Mark three day would always currently the version two which we want to get all of our products in all of our customers to migrate.
I say currently because there is a digit mark Ford Edo, which involves data analytics, but it's still in the ideation stage more on that if and when relevant.
Did you Mark Trudeau allows us to really roadmap of our products. It allows us to fully lean on our wonderful partners. So they can deliver enduring triple wins customer partner and did you Mark.
It creates powerful network effects that allow us to iterate with our customers because we've moved it up a level in terms of our relationship with them from supplier level to partner level.
It allows us to really consider where else in the stack. We can provide value because we can fully grasp the solutions our customers are seeking not just the product.
And this isn't credit incredibly important because of the history of Tech has taught us anything.
People will make do with tools, what they really want our solutions to.
To be fair a lot of these features are available and two that out but it was in three day, though they come truly impactful to our business.
With the release of two Dot O and more recently three data then we have the opportunity to reinvest who we are and how we set our priorities.
It is a massive unlock for us.
<unk> at both time, too and scope of future value creation.
And it is the way forward.
Our customer obsessed and customer driven customers have to provide the answers to almost every question we ask ourselves.
We are upgrading our CX and a bunch of simple ways. So we can provide an intuitive consistent customer friendly way to do business with us no matter what entrance you have chosen as a starting point for your did you Mark journey, we're becoming it will continue to become easier to do business with in multiple different ways, because great CX as a byproduct of customer obsession.
We are guiding our business based on data not guesses not guidance.
We're no longer chasing lower margin development deals solely for the current bookings they would provide so we can free those otherwise booked internal resource resources to focus on vision and roadmap.
Discipline will allow us to capture bigger and higher margin bookings in the not too distant future.
To this point.
To be clear, if we can work with a potential customer partner to build the business plan that proves out signing a POC or entering into a base level partnership agreement helps us accelerate our roadmap we're in.
And we still want to hear meat and playing with anyone interested in doing so as we realize we don't have a monopoly on great ideas are an amazing technology.
Not invented here is not welcome here.
But if you're a customer that wants to perform a P. O C for an offering that is already fully baked we completely hear you and we fully respect your process. After you've done whatever it is you need to do to complete your P. O C and are ready to go into production with US we will be here ready and eager to every day when your business and we can't wait to reconnect.
If you're a partner that wants to pay us a small feed to get onboard or just to check a box or to put out a press release press release with us.
We're honored and thrilled you are as excited as we are by our future, but we are focusing our internal resources on delighting partners with whom we've roadmap the path to wonderful triple digit deals in the near future.
Those partners and our soon to be delighted shared customers deserve our laser focus.
Other words before we chase rainbows that might help with 2021 bookings, but aren't obvious accelerants to roadmap solutions. We are now taking the time to ascertain if their R&D giant pots of gold on the other side of set Rainbow and <unk>.
Just a few gold coins along the way.
Moving up a layer across the whole company, we are questioning every assumption and being patient to come up with the right answer good enough and this is the way. It has always been done are no longer answers we need to accept.
I promised my teammates one thing above all else and that is what we will allow for focus not fire drills.
'twenty two 'twenty 'twenty, two and beyond will be much better if we take the time to do things right starting today acting with a wonderful freedom to plan not react.
Race than we are in essence shutting down a bowl of Spaghetti go to market engine. When it was cobbled together as one might expect from a company anniversary one day they'll release that were in process of building a space ex engine to replace it when we will have ready for 2022 and beyond.
But here's what's amazing about this company is technology is opportunity in every single teammate on this team.
We're gonna make this hot hot swap in such a weighted if we didn't just tell you we were going to do it you wouldn't have known that it happened.
Instead, you would have just noticed the outcome. We expect this upgrade to have which is an enduring inflection to a truly scalable high margin customer informed and customer driven solutions company that is changing the world in many different ways.
Because on the side. The team has built this auxiliary engine of on the truck products and pipeline that will carry us across the checkpoint of 2021 without forcing us to put pull into pet row I'm at all and frankly, all of you should be as well.
Starting on our Q2 call I want to begin introducing you to the internal leaders that are actually creating all this magic because I said two mondays ago, my confidence that this opportunity starting with technology, but grew infinitely once they've got a first row seat to the level of talent throughout this amazing team.
I know when you get to spend time with them.
On these earnings calls or at a much re imagine analyst day that I can't wait to get organized.
You will see with their own eyes, why I'm so confident.
So I will stop there and save a further description of the impressive details underlying all of the above until then.
Because I want you all to be able to dialogue with the visionaries that are actually behind them in the meantime of course, we are happy to answer any questions you might have on the subject during the Q&A session at the end of our prepared remarks.
And as I said, two Mondays ago, I don't expect you to do anything but just from the results.
Three last things before we turn it over to all of you for Q&A.
First I promised you consistency of message and there was just too much level setting necessary to really start that process today.
I don't believe a series of shiny anecdotes tells our truth that provides you any value you need a framework. So you can follow threads across quarters that is.
Only true way for you to monitor our progress and begin to extrapolate where we are going plus a series of shiny anecdotes often reflects a true lack of focus internally internally and we are not lacking focus.
But that being said there was also too much goodness that happened since our Q4 call, but not give you a quick update on some of them.
And hopefully it's clear how each of these aren't just snapshot anecdotes or vague promises of what could be the tangible stepping stones to our future.
And Ian I'll open threads, you had from prior calls bringing them up in Q&A will help you connect the dots there.
First as a wonderful partner of ours pack or announcing a customer event. They held just last week. The city of Hamburg is green with a full scale commercial test of all packaging types of Packer offers with the objective being to prove the power of applying <unk> technology as a means to dramatically improve plastics.
Six recycling sortation.
This is the first Golden thread, we were able to discuss and should work in parallel with the efforts of AME and Holy Grail too as well as other golden threads, yet to be announced to prove beyond a shadow of a doubt the planet saving benefits of our technology.
Further to that point I encourage everyone to keep an eye out for Packers annual report coming in May which will include a scientific study of the benefits of <unk> technology.
Thank you Nicholas and team for everything you do our partnership as a role model of what all corporate partnership should be and together, we will save the planet hashtag did you pack.
On the aim wholly grill to that upfront. The membership continues to grow in both number and global thought leadership in the base plan for phase III, including test markets and packaging formats has been blocked by the leadership team it will be publicly announced soon.
I fully understand the excitement of curiosity surrounding this potentially game changing endeavor the world changing endeavor, but I remind everyone. This is not our truth to tell so we ask you to kindly respect that fact as hard as I know it is.
We also closed a deal with practical methods, which is five things worth highlighting.
It is one of the first big maybe like first big migrations, we've done of an H P link customer and sets a template for how we can migrate more of those customers.
Secondly, the customer committed to eight figures of serialized codes, which should give you a sense of how scalable this business can be.
Third Howard in this wonderful team are based in South Korea, adding a new flag to the did you Mark map.
Fourth the end customers being targeted are heavily cosmetic and beauty vertical and what you're just scratching the surface.
And fifth and most importantly practical methods is a fantastic company that is doing wonderful things and we're thrilled to be associated with them and more powerfully call them a partner.
Yeah.
Another fantastic partner of ours M. C. C. Recently completed a seven figure production run of serialized labels using a hybrid print technology.
This is the first at scale commercialization of ex serialized offering using this cost efficient hybrid technology and opens up a whole other tier of the market that can benefit from our solutions around items item level traceability.
As impressive as this is in so far as what it means for Tam expansion, we're equally thrilled by who's packaging. These labels will adorn.
The customer a large fresh food CPG company allowed us to pass along this message to all of you and this is their quote.
Over the last few years, we made significant strides adopt adapting the day generic technology into brand image and we now look forward to propagating it across our SKU portfolio.
This production run validates that our technology scales in a cost efficient way. Moreover, thought leaders are adopting.
And last like the Brooklyn Nets, we just keep adding all stars to our already impressive roster I mentioned on the last call all of a wonderful talent experience and perspective, we've added at the board level, but at the company level, we've been busy as well we've added wonderful talent across the board, including two new senior executives, Tim price CRO and Kelly Haggerty CPO.
As a product company trying to get the big revenues. These are two positions we had to find experienced all sorts to field and I'm thrilled to announce that mission was accomplished.
Second I want to share some feedback on what I've learned in these last two and a half weeks ive been meeting with as many teammates partners and customers is to make the time for me and I want to thank them all for their trust their time their trust and their candor.
And these last two weeks I grew taller.
The consistent message I heard from customers and partners when I asked about what we could be doing better is just do what you promised as you do new Guy make this transition seamless because we love. The teams are working with or did you market don't you dare mess that up.
The message I heard from teammates was a bit more varied and touch them in quite a few different topics.
Was downright inspiring to have the kind of honest and transparent dialogue I was fortunate enough to have so many passionate people.
Importantly, the single constant I heard in each and every conversation was the love they have for the company and the love they have for the people who work here message oftentimes said overtly but in any case was woven into all the wonderful ideas people shared with me regarding ways to make us better.
I wanted to brag a bit about my new teammates because they deserve to be bragged about his team is tough it is smart and it is passionate.
It is a team of rock stars dedicated changing the world I.
I heard quotes like I came from the tech, but I stayed for the people, which just about sums up all my conversations.
The level of honesty and transparency it gave the level of C T seen us.
And you have to apply to whenever open racks to know what that means.
The level of C. T seen as I repeatedly heard maybe realized just how lucky I am to be a late season trade to this amazing team.
Every company has its beauty marks and its words normally the people inside the company seeing firsthand how the sausage is made tend to see much more of the warts and much less so the beauty marks and that's just not the case here.
Best way I can describe the spirit and to leave from my to my new teammates.
Is it if I could somehow copy and paste the internal view about our future partners customers and investors, we'd have millions of partners billions in revenue and trillions and market cap.
My teammates and their unshakable belief in US is the foundation on which all of the aforementioned will be built.
My biggest takeaway from these last two and a half weeks that foundation is world class and it's miles high.
And then finally I wanted to share a question someone asked me last week and my answer to him because while some might call. It a stretch goal. It is what loops through my mind every day on endless repeat.
He asked how I would define success for did you Mark and I told him. The answer lies on four axes. One were considered the single best company organization anywhere in the world for which to work.
We are considered the single best supplier or a partner of any company in any industry anywhere in the world.
Three we never run out of really high ROI ways to invest a portion of a prodigious amounts of free cash flow and thus arent returning all of it just a large percentage of it to our owners.
And then lastly, every single stakeholder or did you market, probably tell their kids and grandkids that yes, they actually worried did remark stakeholder and yes. It did change and continues to change the world.
As with everything.
Judge us on our results.
So with that we'll open it up to Q&A, we want to try the same format as the last call, but hopefully it'll be a few more questions. This time around.
We have not set a hard stop and will be here for a while and everyone will have a chance to ask your question. However for us to be able to continue this slightly different Q&A format. We do ask that you keep it professional again not asking you to take it easy on US you guys. On this company just asking you to keep it professional operator.
Thank you Sir.
A question you will need to press star one on your telephone you withdraw your question price per pound key.
And while we compile the Q&A roster.
Yeah.
Okay.
Next question is from an investor named Hardy.
Hey, Harvey.
Could you go into a little bit of detail on the number of shares we had 12 million. This time last year and were up to 16 million now.
Then also if you could address the.
Number of shorts were like 15% of our outstanding shock has been so short.
Yeah, well, let me.
Address the share count that's my fault.
We bought a $3 7 million share so.
That's a share count Charles I mean.
And if they come in on that.
Yes, $16 9 million shares outstanding Yeah. So your numbers are a little bit off but $3 seven of that was with me and Mike.
Wonderful Mlps.
On the shorts you want me to confirm the number that you said or what's your question why are they there yeah.
Or why is 15% why why did so many people want to be shorting us when there is such a wonderful opportunity out here.
Yeah I mean.
Great question.
I honestly don't spend that much time.
The shirts and I'll answer it.
If.
Charles or Bob do you want to join.
Joining it but the best way.
Shorts performed.
There's nothing wrong with shorts right, they're just doing their job our job is to show them at least in this case, they're not very good at theirs right. So the best way to beat the shorts as one contract at a time two contracts at a time.
And the best way to get rid of them is to execute so we do care about the stock obviously for many reasons wanted to retention tool for the team and recruiting and maintaining a fantastic team is one of my number one priority in all of our top priorities.
It's a currency for acquisitions, so that's ever.
Something we consider going forward.
And importantly, too I get it it's the price of our owners have to transact to buy and monetize right. This is your entry and exit price of <unk> because of the price of the stock.
But you know candidly I kind of always hope you have a high short interest.
That's a great shock absorber and.
Shorts are just people that at some point have to buy your stock I mean, theres a lot of people on this call or or or out there in the world who don't ever have to make a decision to buy <unk> stock shorts eventually have to buy our stock if we prove them wrong.
That's that's my thought on the share that there's probably more than I've thought about it in the last three months.
Will you be moving to Portland or are you just going to still operate out of Florida. That's a great question and I actually just signed my least today I'm not going to move full time I got a 10 year old an 11 year old and they are in school here, but I'm gonna be logging a lot of a lot of.
A lot of miles in the air and also I don't just wanted to come to Oregon, right. I mean, it's very important to spend time with the team, but there's a lot of our business that's happening elsewhere in the world.
And there's nothing that would make me more happy to get on a plane and go visit customers and suppliers and partners.
You know, it's a little difficult still people don't really want to do face to face meetings from spending a lot of those meetings on on teams or zoom, but yeah, I'm going to probably get platinum status pretty quickly here on the plane, okay, well you'd be getting a national PR company.
I'm sorry.
Would you be getting a national public relations company.
So remote all sorts of communications Investor Relations Corporate Communications government relations are a big focus of ours.
And you know.
That's what we're working on.
Okay. Thank you very much look forward to many more years Fantastic me too.
Thanks.
With <unk> capital.
Patriots.
[noise] E G 10, or the pricing is viewed through on a per day 10 basis.
In light of your confidence that that will be north of 50, when you calculate that.
And my understanding is there is tens if not hundreds of millions of day turns out there.
Is it is it fair to say that you are looking at billions I don't want to pin you down on an exact number but something.
In the billions on on Holy Grail to point out.
So we haven't talked about our pricing.
For recycling application right.
My my bigger point was in almost every case.
That I'm aware of.
A lot of cases.
If we can move it if an inversion window it made sense, because we were trying to replace.
The G to N for front of store.
That was sort of it was a natural metric with which to anchor pricing.
But as we evolve to $2 three day, though where we're solving problems and not selling G. Tunes, we can do at a value based pricing and so obviously, we were not going to.
Proactively pre released what our pricing schedule is and you.
You know.
There's every price and contract negotiation right, but I, but I stand by with what I say is I can't think of very many applications.
Anywhere.
Where the pricing when viewed from a different metric than an arbitrary number per jeetan.
You know again I try not to talk about sustainability, but think about some of the products out there and how many billions of units are sold right that had plastic in them.
Eight.
I think writing more than $50. If we can recycle some of those so it's not.
Yes at some point, we'd probably do a postmortem and back in and say well what does this mean on a per <unk> basis, but that's not where our head is what our where our head is right now is.
What is the problem.
Right try to quantify that.
As best as we can working with customers in some cases right what is the problem.
What is our solve and what percentage of that do we take it to the teachings almost.
It's not relevant.
Okay.
What I would say at least maybe another way to answer your question without answering how we're gonna price recycling is yes, it's a massive massive opportunity.
Okay. Thanks, I'll I'll wait for the analyst day on on more specifics I guess.
Thanks Bruce.
Your next question is from Joseph.
With Craig Hallum.
Hey, guys. This is rudy on for Jeff.
I wanted to start with the one customer that contributed.
60000 in the quarter I think you just said it was a commercial customer unless I missed something but is that a media or retail customer what was the use case just any more color that you could give on that one.
Yes.
That was what we would've previously classified as a retail customer and so their focus is around brand protection and traceability.
Got it.
And so there's no there's no significant ongoing recurring stream from them. This was more one time license deal.
So that's the minimum value of the contract. So they made a certain level of commitment there is potential upside that we would get recognized is that upside is realized yet.
There is some revenue.
And really this isn't on this is that we didn't do like a one time deal. If that's your question. This isn't license payment. This is this is a revenue recognition.
Issue or not issue too.
As Charles said this would be.
Normally recognized overtime, but because of the.
Specifics of this contract, but this is an ongoing relationship we hope continues for years.
And growth as Charles said.
Yes.
Okay.
Basically a minimum price for two years.
So beyond two years theres opportunity, but even within the first two years there is opportunity for upside.
Got it.
The Golden thread you talked about a homburg, what what you know what more specifics if you have any day you could share at this point and then you said.
Well Youre talking backwards the report made but with Homburg I'm just what are the you know.
Initiatives from here with them over the next 12 months in terms of testing if they'd laid out any specific timelines yet or.
Bob do you want to take a.
Answer that.
It still isn't the Bruce.
Early planning stage, the environmental climate energy and agricultural authority of the city of Hamburg is.
Net working with four partners of which we're one.
To put a plan together and there'll be participation by Hamburg Technical University.
In developing the projects study so.
Let's look at it as early stage planning for deployment later in the year.
And the primary focus is on.
Proving up the ability to both identify and source the various.
Forms of plastic polymers.
Increase the quantity.
Arrested plate that you could pull out of the waste stream and to improve the quality of the sorts.
It's kind of the nature of the project.
And it really the significance here is.
There is multiple.
Groups, forming to prove our technology is assaulted is right. There is no single group Theres multiple groups that are being formed.
And running.
Tests and trials that are running simultaneously.
To get to the same answers. So this is it.
Alluded to there's other.
Their golden threads, we cannot yet talk about.
But there as you know.
There's more than just one test of our technology is the answer for plastics recycling.
Got it and then just just one more I know you.
Talked about sort of revamping the whole go to market engine and you'll have that ready.
Next year and beyond.
What are your early thoughts on what that looks like I mean, what.
What does it look like now and what you know what are you guys wont change and transform it into sure I'm glad you asked that question because I must have misspoke, it's already happening right. My only point was we are changing how we go to market as we speak and actually had been.
But because of of of.
This auxiliary engine, we have youre not going to notice it in the bookings I mean again.
And again I don't want to harp on it too much because as I said to me it's not the exciting part of this call. We're reaffirming that we believe that we will do triple digit bookings.
For this year right, but at the same point, we're completely changing how we go to market.
I mean, that's what I'm you know when I saw this right. This is where it gets so exciting about this is this opportunity so.
How exactly we're changing the go to market with I talked about right, we're being driven by data where customer obsessed right, where we are focused our resources on opportunities that are part of the roadmap we're planning.
So as opposed to you know, which is a very version one day, though of any company, where youre kind of feeling out what the market is we're at the point now where.
We have the opportunity and I don't see the luxury but call it that.
The benefit of of a planning and being thoughtful in how we.
Build our products and build those products into solutions and what business. We're taking on that further and partnerships are taking on that further that goal.
So it's a little bit more when you ask what what it looks like I can get specific details, but I'd love to do on the next call is bringing Tim and Kelly on the call. So you guys could talk about you know thinking about what they're doing in their organizations and again, it's not just the sales and product right I mean, obviously for any organization to work well.
Wheels, the cog wheels have all worked together. So so it's every organism every functional group of did you Mark is.
I'm going through these amazing.
Arc home upgrades.
They are empowered to change to become the organization that we know we are.
And so but where it's most prevalent in the go to market side.
The.
Tip of the spear is on product and sales and if you have specific questions again.
Tim and Kelly will be on the next call.
But it's it's everything I talked about right, it's being customer obsessed it's becoming easier to do business with it's not cheap chasing deals just because they bring some bookings into 2020 one it's planning it's data driven decisions.
Got it and then just lastly, if I could sneak last one in here.
Any updates on Walmart either you know SKU count the number of packages that they've tagged or just any expectations on when they rollout thermal labels.
I don't know that.
Number of Skus and I don't know, if we talked about that.
Charles.
Yeah, we normally don't that there've been guidance okay.
Okay, Yeah, I think what.
You highlighted.
Highlighted before Rudy is that they're continuing to enhance packaging net and then.
Any disruption in the work that we're doing there, but we're not going to give regular SKU count updates, yeah and and and.
I'll I'll tackle the second part right, which as you know part of the beauty of this business model is also part of the risk which is there's always going to be some go to market partners right, even as we build out our solutions stack theres always going to be.
Adjacent tech or adjacent products that we touch right.
So you've heard the history here that this was an issue outside of our tech stack right now.
We could give up right, where we can say challenge accepted in turn what could've been to defeat them to victory.
And if you're paying attention and I think you know the caliber and toughness of this team. So you can make your own conclusion on which route they chose.
So you know setbacks to come opportunity. So there's three things working with us with Walmart right is there an awesome corporate citizen in every day doing the best thing for their stakeholders not just yourselves with all their stakeholders. There was a lot of arrows, we can provide to their quiver.
And we're heads down focus on all of our customers. So we actually brought in a consultant a few of them.
Months ago, because when he started his work to really help us.
Take.
To make sure we're maximizing all of this opportunity with this wonderful customer of ours right. I mean, there were so aligned Walmart is so focused on doing the right thing for the as a corporate citizen and there are so many tools that we have that could that could help them.
And and.
What's wonderful about this this work and this.
Reinvigoration of of what we can provide to Walmart.
<unk>.
The output of.
This study and it goes back to the go to market right. This is the planning as opposed to kind of.
What Walmart wants let's look at what we have and let's really studied this with Walmart right and so I think the output of this and you know.
Who knows right, but I think the I'll put it should be great win for us with Walmart, because we're going to get closer to our customer. The goal again, we wanted to not just be a supplier. We wanted to be a partner secondly, what we've learned during this process is back to the planning right now what we've learned we can take this process in reply and apply it to other retailers.
And then the last thing is this is a process. It is that as you know.
Wash rinse and repeat rates once we've done this deep dive and how do we really understand and work with the customer to understand where we could be going with them as a solution provider that's.
That's a template we're gonna have internally not forever and we can use it for other people as well besides just retailers.
Got it great Thats it from me thanks, guys.
Thanks Rudy.
And as a reminder, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.
Next question is from Robin Knipp with Janney Montgomery.
Thanks, very much operator.
So rally you you partially answered the question that I was going to ask you about understanding the sales culture did you mark.
How effective it's been.
Where we've come from where we are and where we're going and what I heard you say was you know if we can wait till the next next quarterly call and get him price on.
On the call that there would be helpful. Just to have a better understanding. So let me just skip to my second question. If I may and that is I recently attended the world intellectual property day 2021.
Monster by the U S patent and trademark office during which I was able to hear Joe Meyer Who's the EVP of innovation specify casual.
Yep Yep I thought you had speak about the value proposition that digital watermarks can bring so during this time of statement was made by another one of the panelists I think it was Frank Upton who said.
Intellectual property is probably the most valuable asset in any one's portfolio.
So given our very robust and unique patent portfolio.
And our unique technology that we bring to solutions can you help us understand how we should be thinking about how to value our intellectual property.
Yeah, you know what I've got to say now Robin that's your job not mine.
Unless we're looking to monetize it it's not my job.
And Bob would probably cut me off if I tried to do that anyway.
There are so many levels of goodness here right and in our IP as a massive one but its only one.
So IP.
Is I guess, maybe the bedrock of which all value can be build you can build a lot of value in technology without strong IP you can't right. You can also build nothing and have a lot of value in IP. What we're doing here is both.
What that turns into what multiplier effect that is on.
Even if I could take it get to the value of the IP I'm not going to but then with everything we're building around it.
There's a there's a slide deck on the.
On our homepage right that has is the introduction to whatever.
And I forget what slide number it is but there is where we list. The moats are I forget how we reference it but to me it's sort of like why there is so much so many layers.
Our value and actually it's I think it's a concentric circles as the way we represented Ip's one part of it right there's massive value at each one so I would challenge you and say Robin.
Don't just stop and figure out the value of the IP figure the value of every other moat in that stack.
That's fair enough I just the reason behind the question is really as much a function of what's it worth but also.
The IP portfolio, we've got patents that run off at a certain point in time with over 150 patents issued and pending I have no clue, what's a patent runoff.
Sunset looks like.
Yeah, but that's only one of our moat right. So my point is you can have a lot of value in technology without IP it using it well.
Patents as it, particularly as it correctly right correct, so and so here's the thing with a couple of ways to answer that right number one is.
If we're not constantly patenting new things, we're not doing our job in Joe's not doing your job and I know Joel does his job very very very well right. So so one is of course patents run off right and and if our only moat, if our only single them out with patents.
Yes in 20 years, maybe somebody could be where we are today with our tech stack right.
But our job is to stay in front of that and to constantly innovating, but the IP protection and the patent protection, there's only one layer of that protection right.
So something we're obviously very focused on spring Joel, especially is very very very focused on but it's just.
This is what I'm, saying if you go to that if you go to the to the website and look at that deck. It's just one part of this con centric circle.
Stack of moats that we have that's fair I'll go spend some time there. Thanks for taking the question really of course, thanks, Robyn Yep.
Your next question comes from Investor.
Yeah.
I have.
A specific question and then a more general question, specifically I'd like to focus on the practical message customer and I'm wondering is my understanding correct that on the income statement. The revenues there would show up on this in the new subscription category and in.
The service category.
That is correct.
Okay, and then have revenues.
On the March statement or or do you expect it to show up in future in future statements.
So most of that.
Great great.
Got you all right.
Most of that was recognized in Q1, so that's the.
Well I should say on that particular contract, yes, we won't get on those specific contracts on individual customers.
Okay.
Fair enough.
Right, So and then.
You know its exciting because you said, it's a you know there's a minimum commitment of eight figures. So is my understanding correct that eight figures refers to tens of millions serialized codes. So we're not gonna have pricing so serialized codes, meaning.
Right right tens of millions of coats correct.
Okay, Yes, correct.
Serialized codes. So he understates it so again that's different than the 50 dollar per G to N right. So this is.
Right right understood understood. Hugh this is from which was kind of my point, let me just take a quick so so not talking I'm thinking completely generically right. So nothing about practical methods right. Yes in general if we have a contract for serialized and you do you know what I mean by serialized codes.
Right I mean, just like you said for the H P link where you can have an individual code for an individual package to enable tracking right. So take product xyz right, let's say so yeah, so probably like others. He under the old rubric of thinking about it it might be $50 for Xyz East Houston, but if they sell a million.
Items, we get a and it's their serialized.
It's per item, that's a serialized codes right. So so.
Back to my point in dresses question about about how to think about different pricing metrics.
I have no idea.
To be honest from the practical methods that the eight figure of codes, how how many G turns that might represent how many different products that are going on.
But I would assume.
I don't know this.
And it's not really my place to Jerry but I didn't know it that if you did the math on that random metric of of G to N.
It would be higher than $50. So serialized codes. This means an individual item gets its own code right right understood and they want to track you know.
Tens of millions of items right. So.
At least they remember every Charles said, that's the that's the minimum so so and practical methods and Howard are absolutely fantastic fit as a company and a fantastic team.
No.
You know.
Right.
Like over time that to go up because they're there they're a great company and we're happy to have them as a partner. So their success is our success and you know that that also shows the.
The power and the correctness right of your switch to value based pricing right because.
You know obviously.
No one would take more than they think it's worth in the real difficulties convincing the customer that.
You know getting to agreement with customer on the the value of the solution right and that's where where it takes off and that gets to my second question, which is.
Do you believe in the hockey stick model of earnings and.
If that is what's in your mind, where do you think we are on the hockey stick at the moment.
It's a great question, it's a great attempt.
No I mean I literally.
It wasn't just throwing random words at the beginning of this call where I said, there's a lot of reasons why it's really tough to forecast. This business right. There there is size and a scale.
Scale issues at any company our size would face, but then we have these other really big.
Caters or things you know things that are that that makes it even more difficult.
You know first of all we have very large lumpy opportunities right I don't know how to expect.
Those are very tough opportunities, but they are expected value on right, but the other thing is there's other there's multiple ways to come to market with US right. So somebody can say hey listen.
Here's what we think we're going to use over X period of time or whatever.
I want to say in the enterprise license today and liquidate some of that value. So I'm I'm willing to pay you upfront right and obviously as you'd imagine somebody pays upfront, they're probably going to get some discount and other ways to say, yes, we're fully in but we're gonna Repays you pay as you go we're gonna pay as you rollout right and then.
That obviously has a wonderful impact of at full scale contracts bigger than if they paid an upfront license or not in front of the upfront booking if they're doing an enterprise deal.
But it takes longer to hit so it's not just a matter of trying to nail. The timing you would also be trying to understand where exactly and how these different contracts are going to come in.
Uh-huh plus again I think if I tried to answer that bothered probably disconnect. My line, so I'm not going to try.
<unk>.
Okay well.
Yeah.
Good enough I mean, you know obviously.
You know, obviously I feel very optimistic about what I'm hearing on this call. So.
Well that makes two of us.
But at least more than two of us, but thank you for that yeah I agree.
Yes.
Yeah, that's it thank you.
Thank you.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Mccormack Sir. Please proceed.
Well I'm glad there were more questions. This time than last time, and thanks, everybody for dialing in and Ironically I'm just looking at the clock now has ended up being an hour anyway, but.
But I really do appreciate you guys dialing in.
And we look forward to updating you guys in the future take care have a good night.
Yeah.
This concludes today's call. Thank you, ladies and gentlemen for joining us for our presentation you may now disconnect.
Yeah.
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