Q3 2021 Digimarc Corp Earnings Call

Good morning, and thank you for participating in today's call now I'll turn the call over to Chief Legal Officer, Mr. Bob Chamness. Sir. Please proceed.

Thank you.

Looking to our Q3 conference call Riley Mccormack, our CEO and Charles Beck, Our CFO are with me on the call I'm also pleased to introduce Niall Murphy, the CEO and co founder if everything who will be available for questions. During the course of the call.

We are hosting this call from London, England, its corporate headquarters with everything on the call today, we will provide an overview of the everything acquisition and our path forward as a combined company. We will also discuss Q3 financial results and provide a business update this will be followed by a question and answer.

For them.

We have posted our prepared remarks in the Investor Relations section of our website and will archive. This webcast there.

Before we begin luxury let me remind everyone that today's discussions contain forward looking statements that have risks and uncertainties. Please.

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 comment on our Q3 financial results and discuss the financial aspects should be everything acquisition.

Thank you, Bob and Hello, everyone.

Today is a monumental day for the company as we joined forces with the amazing team at everything.

Before I get into that I don't want to provide a quick summary of Q3 financial results.

Revenue for the third quarter was $6 4 million up 12% from $5 8 million in Q3 last year.

Service revenue increased 17% from $3 4 million to $3 9 million, reflecting higher commercial services related to Holy Grail, two point out projects.

Subscription revenue increased 4% from $2 4 million to $2 5 million, reflecting higher revenues from commercial customers.

Total commercial bookings were $3 million up 60% from $1 8 million in Q3 last year.

Operating expenses for the quarter were $12 2 million flat with Q3 last year, reflecting higher consulting and recruiting costs offset by severance costs incurred in Q3 last year for organizational changes we made in July 2020.

In September we received confirmation from our lender that our paycheck protection program loan was forgiven.

This resulted in a $5 $1 million gain in other income in Q3 upon forgiveness of the loan.

Net loss for Q3 was $2 9 million or <unk> 17 per common share versus a net loss of $8 4 million or <unk> 68 per common share in Q3 last year.

Excluding the $5 $1 million gain from the forgiveness of our PPP loans. The net loss for Q3 was $8 million or <unk> 48 per common share.

We ended the quarter with $52 5 million in cash and investments.

We used $8 6 million of cash and investments during the quarter of which $7 5 million was from operating activities and capital expenditures.

For further discussion of our financial results and risks and prospects for our business. Please see our Form 10-Q that we will file shortly.

Now back to everything transaction.

I wanted to first highlight a few important deal terms summarized in the 8-K, we filed this morning to provide more context.

First off this is a stock deal with the consideration split into two tranches.

The initial consideration will be issued at closing, which we expect to occur in January 2022, and the second tranche of consideration if any will be issued in September 2022.

The initial consideration in January amounts to $50 million of common stock and warrants as adjusted for everything is cash debt working capital and transaction expenses at closing.

We estimate that we will need to fund approximately $7 9 million at closing in order to cover everything is closing costs and other repayment obligations.

We expect this cash expense to be offset largely if not completely by proceeds from the exercise of the warrants that we will issue to the sellers at closing.

The number of shares to be issued at closing is based on a fixed value of $47 48 per share.

Which represents the volume weighted average price for the last 20 trading days.

We have estimated the number of shares to be issued at closing at approximately 785000 common shares and 215000 words.

The exercise price of the warrants will be calculated as described in the 8-K.

We expect that the exercise price will represent a substantial discount to our current share price.

<unk> will be issued to provide everything shareholders the opportunity to cover their cash closing costs and thus received the full number of shares they would have received without those closing costs.

The exercise price was set low to provide them extra cushion to do so.

To offset this lower exercise price the amount of shares we are withholding is higher.

While I encourage you all to read more details in the 8-K. The net of this is everything shareholders exercised their warrants they get the number of shares they would have received at the $47 48 price prior to adjustments.

If they do not exercise their warrants than the total shares issued at closing will have been reduced by 30% of the cash closing cost amount the <unk> funds.

The additional closing consideration payable on September will range anywhere from zero to $50 million of common stock.

There are two features that could reduce the closing consideration from the maximum of $50 million.

First there is a traditional earn out based on a product annual recurring revenue target.

If everything everything meets or exceeds $10 million of product <unk> as of the end of February 2022, then there is no reduction.

If everything does not meet the $10 million product <unk> target than the closing consideration payable in September is reduced by 10 times the amount of the dollar shortfall in product IRR.

Second there is a reduction to the closing consideration if digit mark stock appreciates above the $47 48 price used in determining the initial consideration.

As measured during the 20 trading day period prior ending on September 22022.

For example, if <unk> were to double as of September 2022, there would be zero additional closing consideration irrespective of everything's product <unk> eight our results.

While we are super excited by the future combined company as you will hear Riley talk about in a bit we are reticent to part with a single share of <unk> stock even at almost $50 per share and so we structured the deal with that in mind.

The structure of the transaction is intended to provide us to levels of downside protection with one upside kicker.

If everything does not meet the product <unk> target. The closing consideration is reduced by 10 times the dollar shortfall.

In addition, if <unk> stock is below the $47 48 price as measured during the 20 trading days per week prior.

September 22022.

Any consideration owed in the second tranche is calculated using the $47 48 floor.

Meanwhile, we get full credit for any stock appreciation between now and the second tranche, which in essence allows us to benefit from a signed deal today, but significantly limit the dilution if our stock appreciably is appreciably higher by September of next year.

The structure is intended to result in evaluation of everything of between buybacks and 10 X product.

With the ultimate valuation, depending on the February 2022 product IRR and our stock price.

For high growth high margin SaaS business, even before considering all of the strategic and synergistic value. We expect this transaction to provide us. This is a really attractive valuation.

This headline valuation multiple is a testament to the vision of the everything shareholders as they see something which you will hear us say many times in the future. We are just simply better together.

More on that in rallies remarks, but I want to first provide some more financial context.

The financial figures I'm about to discuss have been prepared by Everything's management and have not been audited.

Note that everything prepares its financial statements and according with FRS, one or two also known as U S. GAAP, our UK GAAP sorry.

These financial figures have not been reconciled to U S GAAP.

Everything uses the financial metrics annual contract value or ECB and product <unk> as leading indicators of future topline growth.

While ACB is very similar to the financial metric we used for the same purpose bookings, they're not the exact same.

For the first half of 2021, everything ADC ACB was $3 2 million compared to ECB of $2 5 million during the first half of 2020 growth of 29% year over year.

For the first half of 2021 total revenue was $2 5 million of which product subscription revenue was $2 2 million and the rest of the service revenue.

Product subscription revenue for the same period in 2020 was $1 8 million or growth of 21% year over year.

As of September 32021 product <unk> was $4 9 million.

We believe product <unk> is the best indicator of the next 12 months or so of subscription revenue, but it may be conservative as it does not reflect revenue growth from new customers our expansion with existing customers.

It is simply an annualized snapshot of the current product subscription revenue line item.

Thus annualized in the first half of 2020 ones $2 2 million in product subscription revenue.

Pairing that to the most recently finalized product and there are number of $4 9 million.

And then looking out to everything is projected February 2022 product <unk> target of $10 million should give you a sense of the current growth rate and near term prospects of this incredible business.

Okay.

Subscription gross margins are in the low 70% before any revenue share payments from deals brought in by Everything's robust partner network.

While this is all preliminary we believe we can optimize our cost of sales and get subscription gross margins into the high <unk> at existing revenue levels.

With expected revenue growth subscription gross margins should further expand.

Everything is currently using around $2 million a quarter of the funded business.

They are able to increase their product <unk> the cash usage should decline significantly given the just mentioned high subscription gross margins.

Randy will now provide a business update and further details on the strategy behind the everything acquisition.

Thanks Charles.

I wanted to use the bulk of my prepared remarks to discuss everything acquisition and the results of our first annual product strategy meeting because both events are set our company on a different trajectory.

And while we realize that it might only be through the passage of time in the marking of distance travels that the true delta will be fully appreciated.

Not stress enough how wonderfully impactful we believe these events will prove to be.

As we say internally, we are not going through a transition of a transformation.

For those of you who have followed the <unk> story for a while everything is.

Our company you likely know what they've.

They've been a valuable go to market partner for five years, and we sure multiple customers who have realized themselves something we are today permanently a chicken stone our two companies just makes so much closer together.

For those of you not as familiar with everything they pioneered and are the market leader in the category of product cloud at its core product cloud provides a cloud based digital twin for any physical item.

For versa rebirth this digital twin or digital identity recorded an analog items journey, allowing a tremendous amount of knowledge and insights to be gained.

Data here to foreign captured now easily accessible analyzable actionable powering through digital transformation.

And items Adi allowed to add an item to be born digital enabling it to enjoy all of the information with business transformation of advantages that digital items have enjoyed for years.

Some of the world's most respected companies are using the everything product cloud the gathering apply data from it about their products as these items moves through the supply chain pairing solutions, such as traceability product authentication and consumer engagement.

As adoption of the product cloud increases not only with the features within these three applications get more robust with a number of applications will grow similar to how the utility of the Internet is growing as more people are connected and more micro focused on unlocking value from the original cloud.

<unk> as you all well know provides a unique means by which to provide the same analog items as well as digital items, a deterministic identity we.

We separate ourselves from other means of Identic identification by waterfall of three attributes a workover b because we are covert we can be ubiquitous and C. Because we can be ubiquitous were redundant for solutions that require one two or three of these characteristics, we will either be the best or in many cases, the only solution.

The synergies and logic of this combination are obvious today, we are combining our unique and advanced means of identification with the pioneer and most advanced supplier traceability business intelligence to any means about identification.

While we will always have customers that will want one or the other either solutions built upon our unique means of identifying an item or product cloud with a non watermark product identifier for those that want both which we believe will be a large part of the venn diagram, we are eliminating the hassle of having to stitch together their own solution.

We will have done that integration work ourselves, making our customers' business problems that much easier to solve and that's our value to those customers that much greater.

Fortunately this isn't just a thesis as I mentioned before we already have shared customers that have beat us too much for those visionaries, we look forward to optimizing our combined solutions, making what you bought separately even that much better now that we are one for our future customers. We look forward to saving in the hassle of having to do this integration work yourself and to both groups.

Wait till you see where were taking our combined roadmap.

Now that a single company is taking ownership of that much more of your business problem, our ability to make your business better as increased dramatically more specifically the rationale for this deal was as follows first.

First and foremost is to people everything pioneered the private cloud market.

I believe the NIM.

Emily turned an idea into a product convincingly evangelize the need for this product and and succeeded in making Congress of some of the world's most respected companies. They are collaborative they are curious they are courageous and we are thrilled to form one team.

With our new colleagues so much so in fact all of the rest of the benefits I'm about to lift our peer upside if all we were gaining in this deal where these incredible likeminded teammates that alone would have been rationale with us.

The second rationale for the deal with the product as I mentioned before everything isn't just the pioneer they are the market leader in the product cloud we are still in the very early stages of the world's inevitable March to true digital transformation and there is a need for a powerful product graft to enable this movement.

If the last two decades out of the building of the human graph because one of the most dominant tech trends.

We strongly believe one of the defining trends of the next two decades will be the building of a product graph.

Compared to its human equivalent product graph will be factors larger just as CRM and ERP data class it become core business platforms. So too will the product data cloud as the data from the products themselves as a large role to play in providing transparency business integrity operational efficiency and sustainability impact measurement in response.

Yes.

The size and utility of the product cloud is still in its infancy. Today, we are combining with the market leader the opportunity ahead of us is enormous.

The third rationale is about the third rationale as the value of our combination will bring to our customers partners and prospects.

The best determinant of a technology products true value is how much of the customer's problem. The consults as full ownership of the business problem is what enables a product to become a solution.

By providing an analog item with the unique means a deterministic identive identification.

Using that identification to connect the item to its digital twin applying an ever increasing amount of business logic, both program to predictive to that digital twin and then allowing for easy access to that business logic, we not only provide a complete solution to a customer's problem, but began to unlock solves two additional problems to that item residing in excess of our dual platforms.

We will now not only be able to solve for the problems that brought the customers to our door, but also provide an easy sell to problems that customer wasn't contemplating solving when their journey with us began.

Before the rationale rest of on the edges of the above described solution as I mentioned early earlier everything is plenty of customers where today another form of IV works perfectly well as a bridge to a digital twin. Meanwhile, we have plenty of customers where today, they don't need a product line to benefit from our unique form of deterministic identification.

The solution, which these drives.

And while we will happily support customers and partners, who don't see the need for our combined solution.

Those close relationships across our newly combined company allows for future cross selling via today or in the future.

One of the many ways our two companies are complementary and geographic presence everything as a European company finding much success in North America did you Mark as a north American company with plenty of opportunities in Europe. Both companies just instantly built their international presence staffed by a plus plus talent steeped in the same culture.

There are additional benefits from this combination to numerous dimensions strategic as well as tactical but I wanted to add one last thought before we pick this back up during Q&A.

Of all the wonderful and synergistic logic for the deal. The one that does not factor in at all is head count reductions both companies are aggressively hiring in front of the massive opportunities ahead of them.

As a result of this deal at least those opportunities or are they going to be larger and more numerous.

And now that we and our customers can begin to imagine where we will take our combined solution there'll be even more urgency from both sides to get there. So I wanted to be very clear there is room on this bus for both cadence and in fact during it even post full integration, we're still going to be in hiring mode.

I want to end this part of my prepared remarks by going back to the first and most important rationale for this deal while speaking directly to all my teammates both old and new.

Today, we are beginning our one team story, while everything about this combination excites me. It is a combination of these two teams into one team that excites me the most.

Outside of our newly enlarged four wells I don't expect this to be fully appreciated as it is by all of us because I don't know how anyone outside of our newly enlarged four walls and fully fab and where we will go let's go show them.

Turning now to the results of our first annual our first ever annual product strategy I am thrilled to share with you the output which.

Which cements, our seminal pivot to being a product led company.

This is the first checkpoint in our journey, we discussed in our Q1 call in late April when we talked about the importance of owning our own future instead of allowing anyone with a logo and a small check to consumer valuable engineering resources by having a scope of bespoke solutions not supported by proactive market research.

Most technology companies start by identifying a problem and then work backwards to provide a solution to that problem.

That is so much easier than the alternative which is what we did starting with the technology of almost unlimited applicability and incredibly wide moats and deciding what problem do attack first.

So while the former is easier I'd, rather have the latter because it means our ultimate opportunity set is virtually unlimited, whereas a limited scope limited ultimate prize.

Thus, starting where we started is by far the preferred option with.

With the very important disclaimer as long as you bring your own disciplined because the market instead of forcing that discipline. Upon you will do the exact opposite and tried to pull you in 100 different directions.

Disciplined requires for spending the time to thoroughly research all the potential problems, we could solve in order to understand among other things the market size and growth the competitive set both current and future our ability to provide a differentiated solution a full understanding of the market readiness into dependencies, which we cannot control and gaps in our offering and how best we can close.

Disciplined then requires taking all of that research and applying an overlay to determine how to prioritize and sequence among potential opportunities.

And then even more importantly than that having the guts to say now whether that is a hard note or simply are not yet.

Is that a lot more directly disciplined requires taking the time to plan and having the fortitude to say no both of which are the result of having the mental clarity to realize the best way to get to everything has to start with some things where you run the real risk of delivering nothing.

This is the why behind Aps the realization, we must move with purpose to build their own solutions and thats build our own future.

Now, let's get to the what.

The criteria by which we measure and will measure all potential solution candidates are as follows first as a solution target a large and quickly growing market second while our solution be high margin and scalable and third is our technology provide a differentiator that like.

This last one is key in some ways is a reiteration of the second criteria just addressing our biggest fast growing market isn't enough. Our technology must provided an incredibly wide moat as from that mobile come our ability to achieve high margins and shorter sales cycles.

We also added a nice to have something without with something without which we will not rule out a solution candidate.

But instead provides a tool for prioritization between viable candidates.

Does this solution candidate build out a network effect and augment our rates to ubiquity.

With that as our guide coupled with a prodigious amount of work for both our product and engineering teams. We have settled on our first solutions, one product authentication and anti counterfeit or pack.

Online brand protection or OBP, three recycling and for product cloud.

To be clear this is where we are starting not stopping for example in addition to these four we have one solution, we hope to be able to talk about but not too distant future, but are not yet ready to publicly disclose.

Moreover, we have and always will have a pipeline solution candidates and it is very likely that one of the strongest sources of solution candidates will always be the market itself.

To that end as important as deciding what businesses. We are in today. We have also formalized a process with which we will handle inbound interest as this can be a wonderful source of idea generation if managed appropriately.

In bound requests scope correctly bring three clear benefits.

First as generation of revenue from customers or partners willing to work with our existing tools instead of our fitness solutions.

Understanding clearly they will have to make do without any support from our engineering team, who is busy building our future not theirs.

The second is alerting the product team to an area of potential market interest and acting as a source of for profit market research.

And the third is providing research an introduction to a paying partner if there are things out there to research list. This inquiry would allow them to cross off.

To be clear there are all sorts of checkpoints in place where any inbound interest can be shut down as we stated on that April call, our engineers and their roadmaps are not for Rex.

But listening to prospects instead of turning off that voice of customers a real key advantage the almost universal applicability of our technology will always provide.

In fact, the solutions above.

In addition to the solution, which we are not yet ready to disclose all came about by means of customer inquiry or in the case of product cloud that needs a customer actions.

This wonderful trend of having prospects provide the starting point for our market research process should continue for years, because the number of people who have thought about how our technology can make their company and their industry better is probably measured in the single digit millions that leaves seven 7 billion people to approach us with their problems they would like us to apply our generationally trans.

Information technology two to solve.

Looking at years into the future I don't know what our final solution capital B, but one thing that is clear to us is that our products go to market and technology strategies must be aligned to enable our customers to seamlessly take the next step in their journey with us regardless of where they began.

One of our key points of both differentiation and value is that they will always be additional steps available for our customers to take.

Exiting our first ever Aps It is clear, what we must and will do.

We will make it easy for customers to begin to realize value with us we will create long standing relationships that provide our customers exponential value by constantly providing additional solutions and is constantly addressing more of our customers' problems and we will always be there to guide our customers on the best way to achieve that laden exponential growth value.

Tying together these two seminal events a few points are worth making.

Everything is focused on product authentication will make our pack offering that much stronger and vice versa. We are now able to augment the unique benefits of our existing solution with the programmatic and importantly for this area of predictive logic everything is built into its authenticate module.

Overnight to differentiated offerings, just put another lap between themselves and the competition.

Over time, even more space will be opened as we combine our solution roadmaps.

The same synergy holds true for recycling.

Consumer education and engagement is a big part of solving for higher recycling rates and everything through its amplify module is a thought leader in automating business rose to optimize this engagement for both the consumer as well as the brand in.

In addition to meet the diverse needs of all stakeholders brands and retailers sorters and recyclers.

And regulators among others. It is clear that the deterministic sortation system must be dynamically updated both via the cloud.

It is the only way to build a system that is dynamic enough to accommodate the unknown requirements of the future. While at the same time is robust enough to handle the inevitable supply chain mistakes of the present.

In addition, it is the only way to provide real time improvements to both the efficiency and efficacy of the entire system.

Just like it will be true for all of our solutions, our recycling solution will not only benefit from the synergies unlocked by a joint roadmap, but perhaps most importantly for those that want our combined solution. The friction of adoption will be reduced as we handle the integration work ourselves instead of forcing this integration work on our customers and partners.

Moreover, until today, the minds behind the largest and most trusted product cloud in existence had been absent from the cross value chain collaboration that is Holy Grail two data.

We believe whatever form and structure of the recycling cloud ends up taking having everything's input and experience not to mention the thought leadership and trusted relationships as part of the process will benefit not just Holy Grail too, but also the industry and this ultimately the planet.

The two seminal events, we are announcing today are forming one team with a long valued go to market partner in <unk> transformation to a product led company are not only each important in their own right. They are also additive to each other.

I'm sure you all have plenty of questions. So we wanted to get to Q&A shortly but before we do I would like to spend a few minutes on recycling.

As is obvious to anyone on any form of social media Holy Grail, two is gaining more and more visibility. However, our focus extends beyond a successful trial to driving widespread adoption as only through cross value chain mass adoption can circularity be achieved and recycling rate targets and pledges be met.

That is why we were working with all stakeholders to convince and now is the time to pivot their thinking.

Due to the hard work of a lot of drilling and dedicated people inside our four walls, but importantly outside as well it is becoming obvious that our technology works and if adopted could help turn the tide of the plastic tsunami.

As we continue to fully support this project and are appreciative of the impact it is having on opening eyes across the value chain.

For both an industry and a regulatory perspective, we believe the time is right to focus on how on how the value chain begins to move to adoption.

In addition, we are still focused on opening additional fronts for introducing the benefits that come with the adoption of digital watermark, especially outside of Europe.

We believe friction will be reduced once the first Domino falls and the necessity of additional programs will asymptote zero.

Until we are there. However, we are selectively pursuing other opportunities that will lead to the delivery of additional obvious proof points, we will raise through the finish line of global adoption.

<unk> for our planet are just too high for us to do otherwise.

We all realize the world is watching to ensure words and test will turn into actions solvent for the end of life problem of plastics as a global imperative and we are firm in our belief that a digital water marking the industry now has a valuable solution to this problem.

It has been wonderful to see more and more stakeholders also come to that realization. We are trying to convey a sense of prudent urgency because every day of delay between here and eventual adoption comes at a price of real environmental harm.

The benefits of any true value added additional proof of.

This is where our heads are and the message the message we're carrying.

Operator, we are now ready for the Q&A session.

Thank you Sir to ask a question you will need to press star one on your telephone to withdraw. Your question question Palanquin. Please standby will be compile the Q&A roster.

Your first question comes from the line of Harvey <unk>.

He is a private investor.

Good morning.

Hey, Harvey How're you doing.

Got it can you discuss the.

Patents that are coming with everything.

Now you wanted to take that.

Good morning Harvey.

Yes.

Everything has.

Uh huh.

<unk>.

Portfolio of patents.

Pertaining to the.

Redirection of.

Digital content from our physical identities on product.

Various aspects of.

Digital authentication utilizing data science methods to these.

Patents, we believe are very.

Complementary with the identification methodologies, but did you mark already has and it's a substantial contributor.

Thank you also are we seeing any new contracts with Walmart or Procter and Gamble wegmans.

I haven't seen anything that indicates.

Some new additional cash flow.

You don't consider 60% growth in bookings.

Perfect.

For the quarter, I guess, I guess I'm not saying it.

Yeah, I realize that.

There's not a whole lot we can.

Sure with names and logos.

That goes for almost every company in the world. So.

Okay.

Thanks for the questions.

Thanks, Eric.

Okay.

And again, ladies and gentlemen, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.

Your next question comes from the line of Robin Knipp with Janney Montgomery.

Good morning, Thanks for taking the call.

I've been on a number of Webinars have late Paul involved call involving digital watermarks. So I must confess I cannot remember, which one it was that I heard this but can you talk a little bit about how digital water, marking can be incorporated with artificial intelligence and with this most recent.

May take us.

<unk>.

Sure. Thanks, Robert for the question as always so.

<unk>.

Depending on so so artificial intelligence is a is a big area.

What artificial intelligence is trying to do is take inputs and cockpit answer right, we have a deterministic input.

So we can make any artificial intelligence system better by providing as opposed to looking for a three or five or seven probabilistic inputs. We provide a deterministic we allow artificial intelligence to be easy when were present.

There is also an application of our technology because one of the areas of artificial intelligence one of the difficulties of building.

Artificial intelligence system is training that system.

A lot of the time, that's done through human means actually looking at 10000 photos of an item and trying to determine what it is.

We can provide that easy mechanism for training or artificial intelligence.

Im going to turn it over to Niall to talk a lot about is machine learning and predictive business intelligence.

Everything brings to us.

Thanks Ravi.

Yes.

The product cloud is able to collect data points from physical items using the deterministic identities on those items.

<unk> moved through a value chain for example, and then apply real time analytical technologies, including.

Machine learning methods.

With those data points to derive application conclusions.

And the combination of.

Trustable input data points from the.

From that from a tracking of items.

Yes.

And then predictive.

Or analytical analysis of those elements in real time is able to create powerful application benefits from.

Our current application point of view.

Everything is in a pre production.

Mode in a variety of predictor method, specifically applying traceability data.

Data points in the supply chain, we want gains partial data samples from a subset of products in our supply chain for example to build.

Predictions of a potential for example, integrity threats parallel trade within that within the supply chain into the these techniques are currently in test mode not in production Budd.

But if you think about that.

Obviously, there's a lot that programmatic learning can do in supply chain, but when youre dealing crude example, bad actors product authentication predictive staying ahead of what they might be.

Coming up with next is huge and that's just I mean.

If I were to list every single complimentary overlap.

Between these two companies it would be a five hour conference call Robin, but this is just another area where it.

As we were both digging into each other where like I look another fit.

It.

Super Thanks for the response I appreciate it.

Yeah.

Of course.

Your next question comes from the line of Jeff Bernstein with Cowen.

Yes, hi, Thanks for taking my questions can you just talk broadly about.

The pack and OBP offerings in.

Give a little color around why those.

Or ones that you're particularly interested.

Customer interest or the problems to be solved that are at the forefront et cetera, any color you can add.

Sure. So I mean as I mentioned.

All of our solutions.

Are things that that ideas generated by the customers that we then did the research we're going to have a lot more.

As we.

We began to start marketing the solution. So gentlemen, ask you to bear with us to get our product market.

Market research out in.

Yeah.

Out of the World and show them why we are so valuable solution here.

Both of these were areas where customers came to US I think I mentioned this on the April call, where customers would come to us and say I think if I understand your technology. This could be an unlock for us.

And we have multiple customers on this front that have already started they havent waited I mean, what's amazing about this where pre version one that we're still in beta I guess you could call. It we have paying customers fortune.

Ex very high up I'm, not going to get into specifics with very large customers, who have come to us and said Ed said you guys have a differentiated solve here and what we've done is said you know what yes, youre right, we do and let's go product ties. This will make solution out of this and let's go.

Let's go to this market it is a large market, but it's in the billions of dollars per year.

Area in which we play is growing I believe from these numbers 30, 40%, but all of that market research I take with a little bit of grain of salt because it's sort of like what was the online book market for Amazon got into it right. We are a differentiate itself by ourselves us plus everything is a double differentiate itself so whatever the market reach.

Search numbers and we'll share all this with.

And again as we get through to get our marketing behind all this out.

Taken with a grain of salt because I think we're going to be adding.

We are going to be growing the market simply by our presence.

Gotcha, Okay, Great and then just on everything so I'm just assuming.

This is a cloud native.

Capability elastic et cetera et cetera.

Yes, absolutely yes.

Cloud based platform we operate multiple.

All the infrastructures.

<unk> dynamic basis around.

Around the world to me.

Our global customer needs, some handle a pretty large volume of variable transactional data.

That's great. Thanks.

Thanks, Jonathan.

Again that is star one if you would like to ask a question at this time. Your next question comes from the line of Joseph Van <unk> with Craig Hallum Capital.

Hey, guys. This is Aaron on for Jeff.

Few questions here for us.

So first on the everything deal no.

Kind of curious to get a sense of the visibility to the growth rate acceleration.

Mentioned kind of 20% to 25% range over the first half of the year, obviously, assuming that that goes materially higher so what's the conviction and confidence there.

From our side and from everything site. So I will tell you an area that we have done customer diligence calls.

<unk> gone through the pipeline.

What the ultimate close rate is I guess, the future will tell us.

But this is this is a this is a high growing business that is growing.

Reflecting what that ultimate rate ended up being real estate.

And I would say I think that I don't want to speak for Niall, but this is a target that they set.

Is it <unk> so they have.

Again, it's impossible to predict close rate haran.

The world's most here that just on a spreadsheet trying to forecast these things out, but obviously you have some comfort in getting there.

Validated that by going through their pipeline and talking to customers.

Got it got it and then secondly, your comments right.

I think that the market space for Digitization of physical items.

Global consumer brands appetite to be able to build this competence into their into their operating model is accelerating and we certainly see a healthy level of demand in the pipeline.

<unk> is a range of conversion.

And I.

I guess, we'll see but we feel we feel good about our outlook.

Yeah sure. This is what acquisitions are a risky right.

In other business I can tell you that.

As I mentioned, we've been a go to market partner with everything for five years, we have plenty of share customers, we know what.

Where the trajectory for those businesses already they were sharing with both of us.

Independently now I guess youre sharing with us together at once the acquisition closes.

The customer calls that we did with everything's customers growing I mean, it was incredible to hear these well well respected gigantic companies talking about what.

So everything team has done.

So we shall see.

And I guess, one more thing not just what they've done but also the increasing need they have for more of what everything is done.

Got you that's definitely helpful. And then on the bookings number obviously material acceleration sequentially and year over year, just any more color you can give on kind of use cases, where the strength is in those booking numbers.

Sure Yes.

Probably the biggest component there is the work that we're doing with wholly grill.

That work continues to increase and then we're also seeing is related indicated some.

<unk> interest in the pack area and.

New product penetration those are the two primary contributors to the growth.

Again, just highlighting that we haven't even officially launched version one that OPEC beta and it's already it's already seeing it.

Collection.

Got you and then lastly, any update on thermal they've been deployed and you're still looking to move ahead with them.

Package, marking to be checkout.

I assume you meant you mean Walmart.

Yes, the thermal because that what youre talking about when you talk about thermal in general.

Alright.

Hey.

Largely that yeah that product offering.

Yeah. So have you heard thermal was not wanted to the product solutions that we talked about going forward.

Now.

Yes.

So we have.

Hi.

Yeah.

We have with the Walmart as it was originally said in that original contract thermal was part of that contract they have what they need.

They want to roll it out of course, we're all of our existing customers. We will support everything that we have sold them. What's wonderful about all of that work at our existing customers for all the products are existing customers that they are all synergistic with where we were going.

So we will standby export when we're talking about going forward.

The post Aps is where were focused going forward our go to market strategy going forward.

And so a thermal is not an area that we are going to be proactively sell and go forward, we will support any customers.

Our current customers in that area.

And like I said this is.

What we are building going forward our solutions are really two different ways of putting together our tools, we need to advance our tools for all of our existing go forward solutions. So any existing customer will be brought along.

We will continue that work with thermo was not an area. We're focused on going forward go to market strategy.

Got you good deal that's it for us.

At this time. This concludes our question and answer session I would now like to turn the call back over to Riley Mccormack Sir. Please proceed.

Well. Thank you everybody I know this is a different day and a different time slot than we normally do these calls, but we had.

Couple of things, we had to get signed before we could do our call. So we appreciate you guys bearing with us, but hopefully you guys.

Sure the excitement that hopefully you heard from us today I think.

These both the Aps, but also this combination with everything is truly transformative.

We can't wait to show you guys. The results of that so thanks, everybody have a great rest of your day.

This concludes today's call. Thank you, ladies and gentlemen for joining us today for our presentation you may now disconnect.

Okay.

Okay.

No.

[music].

Yes.

Yes.

Okay.

[music].

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[music].

Good morning, and thank you for participating in today's call now I'll turn the call over to Chief Legal Officer, Mr. Bob Chamness. Sir. Please proceed.

Thank you.

Welcome to our Q3 conference call wildly Mccormack, our CEO and Charles Beck, Our CFO are with me on the call I'm also pleased to introduce Niall Murphy, the CEO and cofounder of everything who will be available for questions. During the course of the call.

We are hosting this call from London, England at the corporate headquarters of everything on the call today, we will provide an overview of the everything acquisition and our path forward as a combined company. We will also discuss Q3 financial results and provide a business update this will be followed by a question and answer.

Four.

We have posted our prepared remarks in the Investor Relations section of our website and will archive. This webcast there.

Before we begin let me remind everyone that today's discussions contain forward looking statements that have 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.

Charles will now comment on our Q3 financial results and discuss the financial aspects should be everything acquisition.

Thank you, Bob and Hello, everyone.

Today is a monumental day for the company as we joined forces with the amazing team at everything.

Before I get into that I don't want to provide a quick summary of Q3 financial results.

Revenue for the third quarter was $6 4 million up 12% from $5 8 million in Q3 last year.

Service revenue increased 17% from $3 4 million to $3 9 million, reflecting higher commercial services related to Holy Grail, two point out projects.

Subscription revenue increased 4% from $2 4 million to $2 5 million, reflecting higher revenue from commercial customers.

Total commercial bookings were $3 million up 60% from $1 8 million in Q3 last year.

Operating expenses for the quarter were $12 2 million flat with Q3 last year, reflecting higher consulting and recruiting costs offset by severance costs incurred in Q3 last year from organizational changes we made in July 2020.

In September we received confirmation from our lender that our paycheck protection program loan forgiven.

This resulted in a $5 $1 million gain and other income in Q3 upon forgiveness of the loan.

Net loss for Q3 was $2 9 million or <unk> 17 per common share versus a net loss of $8 4 million or <unk> 68 per common share in Q3 last year.

Excluding the $5 $1 million gain from the forgiveness of our PPP loan the net loss for Q3 was $8 million or <unk> 48 per common share.

We ended the quarter with $52 $5 million in cash and investments.

We used $8 6 million of cash and investments during the quarter of which $7 5 million was from operating activities and capital expenditures.

For further discussion of our financial results and risks and prospects for our business. Please see our Form 10-Q that we will file shortly.

Now back to everything transaction.

I want to first highlight a few important deal terms summarized in the 8-K, we filed this morning to provide more context for.

First off this is a stock deal with the consideration split into two tranches.

The initial consideration will be issued at closing, which we expect to occur in January 2022, and the second tranche of consideration if any will be issued in September 2022.

The initial consideration in January amounts to $50 million of common stock and warrants.

As adjusted for everything is cash debt working capital and transaction expenses at closing.

We estimate that we will need to fund approximately $7 9 million at closing in order to cover everything is closing costs and other repayment obligations.

We expect this cash expense to be offset largely if not completely by proceeds from the exercise of the warrants that we will issue to the sellers at closing.

The number of shares to be issued accordingly is based on a fixed value of $47 48 per share.

Which represents the volume weighted average price for the last 20 trading days.

We have estimated the number of shares to be issued at closing at approximately 785000 common shares and 215000 works.

The exercise price of the warrants will be calculated as described in the 8-K.

We expect that the exercise price will represent a substantial discount to our current share price.

The warrants will be issued to provide everything shareholders the opportunity to cover their cash closing costs and thus received the full number of shares they would have received without those closing costs.

The exercise price was set low to provide them extra cushion to do so.

To offset this lower exercise price the amount of shares we are withholding is higher.

While I encourage you all to read more details in the 8-K, the net of it is everything shareholders exercised their warrants.

The number of shares they would have received at the $47 48 tech price prior to adjustments.

If they do not exercise their warrants and the total shares issued at closing will have been reduced by 30% of the cash closing cost amount that <unk> funds.

The additional closing consideration payable on September will range anywhere from zero to $50 million of common stock.

There are two features that could reduce the closing consideration from the maximum of $50 million.

First there is a traditional earn out based on a product annual recurring revenue target.

If everything everything meets or exceeds $10 million of product <unk> as of the end of February 2022, then there is no reduction.

If everything does not meet the $10 million product <unk> target than the closing consideration payable in September is reduced by 10 times the amount of the dollar shortfall in product IRR.

Second there is a reduction to the closing consideration if digit mark stock appreciates above the $47 48 price used in determining the initial consideration.

As measured during the 20 trading day period prior ending on September 22022.

For example, if <unk> were to double as of September 2022, there would be zero additional closing consideration irrespective of everything's product <unk> our results.

While we are super excited by the future combined company as Youll hear rarely talk about in a bit we are reticent to part with a single share of <unk> stock even at almost $50 per share and so we structured the deal with that in mind.

The structure of the transaction is intended to provide us to levels of downside protection with one upside kicker.

If everything does not meet the product <unk> target. The closing consideration is reduced by 10 times the dollar shortfall.

In addition, <unk> stock is below the $47 48 price.

As measured during the 20 trading day period prior.

September 22022.

Any consideration owed in the second tranche is calculated using the $47 48 floor.

Meanwhile, we get full credit for any stock appreciation between now and the second tranche, which in essence allows us to benefit from a signed deal today, but significantly limit the dilution if our stock appreciably is appreciably higher by September of next year.

The structure is intended to result in evaluation of everything of between buybacks and 10 X product.

With the ultimate valuation, depending on the February 2022 product IRR and our stock price.

For high growth high margin SaaS business, even before considering all of the strategic and synergistic value. We expect this transaction to provide us. This is a really attractive valuation.

This headline valuation multiple is a testament to the vision of the everything shareholders as they see something which you will hear us say many times in the future. We are just simply better together.

More on that in rallies remarks, but I want to first provide some more financial context.

The financial figures I'm about to discuss have been prepared by Everything's management and have not been audited.

Note that everything prepares its financial statements and accordingly, with FRS, one or two also known as U S. GAAP, our UK GAAP sorry.

These financial figures have not been reconciled to U S GAAP.

Everything uses the financial metrics annual contract value or ECB and product <unk> as leading indicators of future topline growth.

While ACB is very similar to the financial metric we used for the same purpose bookings, they're not the exact same.

For the first half of 2021, everything ADC ACB was $3 2 million compared to <unk> of $2 5 million during the first half of 2020 growth of 29% year over year.

For the first half of 2021 total revenue was $2 5 million of which product subscription revenue was $2 2 million and the rest of the service revenue.

Product subscription revenue for the same period in 2020 was $1 8 million or growth of 21% year over year.

As of September 32021 product <unk> was $4 9 million.

We believe product <unk> is the best indicator of the next 12 months or so of subscription revenue, but it may be conservative as it does not reflect revenue growth from new customers our expansion with existing customers.

It is simply an annualized snapshot of the current product subscription revenue line item.

Thus annualized in the first half of 2020 loans $2 2 million in product subscription revenue.

Comparing that to the most recently finalized product IRR number of $4 9 million.

And then looking out to everything is projected February 2022 product <unk> target of $10 million should give you a sense of the current growth rate and near term prospects of this incredible business.

Okay.

Subscription gross margins are in the low 70% before any revenue share payments from deals brought in by Everything's robust partner network.

While this is all preliminary we believe we can optimize our cost of sales and get subscription gross margins into the high seventy's at existing revenue levels.

As expected revenue growth subscription gross margins should further expand.

Everything is currently using around $2 million a quarter to fund its business.

They are able to increase their product <unk> the cash usage should declined significantly given the just mentioned high subscription gross margins.

Randy will now provide a business update and further details on the strategy behind the everything acquisition.

Thanks Charles.

I wanted to use the bulk of my prepared remarks to discuss everything acquisition and the results of our first annual product strategy meeting because both events at our company on a different trajectory.

And while we realize that it might only be through the passage of time and the marketing assistance travels that a true delta will be fully appreciated.

Not stress enough how wonderfully impactful we believe these events will prove to be.

As we say internally, we are not going through a transition of a transformation.

For those of you who have followed the <unk> story for a while everything is.

Our company you likely know well they have been a valuable go to market partner for five years, and we sure multiple customers who have realized themselves something we are today, primarily as juergen stone our two companies just makes so much types together.

For those of you not as familiar with everything they pioneered and are the market leader in the category of product cloud at its core the product cloud provides a cloud based digital twin for any physical item.

For versa rebirth. This digital twins interactive digital identity recorded an analog items journey, allowing a tremendous amount of knowledge and insights to be gained Dave.

Data here to foreign captured without easily accessible annualized both at actionable powering through digital transformation.

In items, <unk> and add an item to be born digital enabling it to enjoy all the informational and business transformation of advantages that digital items have enjoyed for years.

Some of the world's most respected companies are using the everything private cloud the gathering apply data from it about their products as these items moves through the supply chain pairing solutions, such as traceability product authentication and consumer engagement.

As adoption of the product cloud increases not only with the features within these three applications get more robust with a number of applications will grow similar to how the utility of the Internet has grown as more people have connected and more micro focused on unlocking value from the original cloud.

<unk> as you all well know provides a unique means by which to provide the same analog item as well as digital items, a deterministic identity we.

We separate ourselves from other means of Identic identification by a waterfall of three attributes.

We are co burden b.

Because we are covered we can be ubiquitous and C. Because we can be ubiquitous were redundant for solutions that require one two or three of these characteristics, we will either be the best or in many cases <unk> solution.

The synergies and logic of this combination are obvious today, we are combining our unique and advanced means of identification with the pioneer and most advanced supplier traceability business intelligence to any means about identification.

While we will always have customers that will want one or the other either solutions built upon our unique means of identifying an item or product cloud with a non watermark product identifier for those that want both which we believe will be a large part of the venn diagram, we are eliminating the hassle of having to stitch together their own solution.

We will have done that integration work ourselves, making our customers' business problems that much easier to solve and that's our value to those customers that was greater than <unk>.

Fortunately this isn't just a thesis as I mentioned before we already have shared customers that beat us to attach for those visionaries, we look forward to optimizing our combined solutions, making what you bought separately even that much better now that we are one for our future customers. We look forward to saving in the hassle of having to do this integration work yourself and to both groups.

Wait till you see where were taking our combined roadmap.

Now that a single company is taking ownership of that much more of your business problem, our ability to make your business better as increased dramatically more specifically the rationale for this deal was as follows first.

First and foremost is to people.

<unk> pioneered the private cloud market.

Nevertheless, the nimbly turned an idea into a product convincingly evangelize the need for this product and and succeeded in making Congress of some of the world's most respected companies. They are collaborative they are curious they are courageous and we are thrilled to form one team.

With our new colleagues so much so in fact all of the rest of the benefits I'm about to lift our peer upside if all we were gaining in this deal where these incredible likeminded teammates that alone would have been rationale at ups.

The second rationale for the deal is with products as I mentioned before everything isn't just the pioneer they are the market leader in the product cloud we are still in the very early stages of the world's inevitable March to true digital transformation and there is a need for a powerful product graph to enable this movement.

If the last two decades the building of the human graph is one of the most dominant tech trends.

We strongly believe one of the defining trends in the next two decades will be the building of the product grafts.

Compared to its human equivalent the product graphically factors larger just as CRM and ERP data cloud to become core business platforms. So too will the product data cloud as the data from the products themselves as a large role to play in providing transparency business integrity operational efficiency and sustainability impact measurement in response.

Yes.

The size and utility of the product cloud is still in its infancy. Today, we are combining with the market leader the opportunity ahead of us is enormous.

The third rationale is about the third rationale as the value of our combination will bring to our customers partners and prospects.

The best determinant of a technology products true value is how much of the customer's problem to consult as full ownership of the business problem is what enables a product to become a solution.

By providing an analog item with a unique means a deterministic identive identification.

Using that identification to connect the item to its digital twin applying an ever increasing amount of business logic, both program to predictive to that digital twin and then allowing for easy access to that business logic, we not only provide a complete solution to a customer's problem, but began to unlock solves two additional problems due to that item residing in excess of our dual platforms.

We will now not only be able to solve for the problems that brought the customers through our door, but also provide an easy sell to problems of customer was contemplating solving when their journey with us began.

Before the rationale rests on the edges of the above described solution as I mentioned early earlier everything is plenty of customers where today another form of IV works perfectly well as that bridge to a digital twin. Meanwhile, we have plenty of customers where today, they don't need a product line to benefit from our unique form of deterministic identification.

The solution, which these IV drives.

And while we will happily support customers and partners, who don't see the need for our combined solution.

Those close relationships across our newly combined company allows for future cross selling via today or in the future.

One of the many ways our two companies are complementary and geographic presence everything as a European company finding much success in North America <unk> market as a north American company with plenty of opportunities in Europe. Both companies just instantly built their international presence staff by Aps plus talent steeped in the same culture.

There are additional benefits from this combination to numerous dimension strategic as well as tactical but I wanted to add one last thought before we pick this back up during Q&A.

Of all the wonderful and synergistic logic for the deal. The one that does not factor in at all is head count reductions both companies are aggressively hiring in front of the massive opportunities ahead of them. As a result of this deal those opportunities are only going to be larger and more numerous.

And now that we and our customers can begin to imagine where we will take our combined solution there will be even more urgency from both sides to get there. So I wanted to be very clear there is room on this bus for both teams and in fact during it even post full integration, we're still going to be in hiring mode.

I want to end this part of my prepared remarks by going back to the first and most important rationale for this deal while speaking directly to all my teammates overdue.

Today, we are beginning our one team story, while everything about this combination excites me. It is a combination of these two teams into one team that excites me the most.

Outside of our newly enlarged four wells I don't expect this to be as fully appreciated as it is by all of us.

Because I don't know how anyone outside of our newly in March four walls can fully fab and where we will go let's go show them.

Turning now to the results of our first annual our first ever annual product strategy I am thrilled to share with you the output.

Which commenced our 700 pivot to being a product led company.

This is the first checkpoint in our journey, we discussed in our Q1 call in late April when we talked about the importance of owning our own future instead of allowing anyone with a logo and a small check the consumer valuable engineering resources by having US building bespoke solutions not supported by proactive market research.

Most technology companies start by identifying a problem and then work backwards to provide a solution to that problem.

That is so much easier than the alternative which is what we did starting with the technology of almost unlimited applicability and incredibly wide moats and deciding what problem to attack first.

But while the former is easier.

Either have the ladder because it means our ultimate opportunity set is virtually unlimited, whereas a limited scope limited ultimate prize.

Thus, starting where we started is by far the preferred option with.

With the very important disclaimer as long as you bring your own disciplined because the market instead of forcing that discipline. Upon you will do the exact opposite and try to pull you in 100 different directions.

Disciplined requires first spending the time to thoroughly research all of the potential problems, we could solve in order to understand among other things the market size and growth the competitive set both current and future our ability to provide a differentiated solution a full understanding of the market readiness into dependencies, which we cannot control and gaps in our offering and how best we can close.

Ma'am.

Disciplined and requires taking all of that research and applying an overlay to determine how to prioritize and sequence among potential opportunities.

And then even more importantly than that having the guts to say now whether that is a hard note are simply are not yet.

Is that a lot more directly disciplined requires taking the time to plan and having the fortitude to say no both of which are the result of having the mental clarity to realize the best way to get to everything has to start with some things where you run the real risk of delivering nothing.

This is the why behind Aps the realization, we must move with purpose to build their own solutions and thats build our own future.

Now, let's get to the what.

The criteria by which we measure and we will measure all potential solution candidates are as follows first as a solution target a large and quickly growing markets second while our solution be high margin and scalable and third is our technology provide a differentiated online.

This last one is key and in some ways is a reiteration of the second criteria just addressing our biggest fast growing market is that enough or technology must provide an incredibly wide moat as from that mobile come our ability to achieve high margins and shorter sales cycles.

We also added a nice to have something without with something without which we will not rule out a solution candidate.

But instead provides a tool for prioritization between viable candidates.

Does this solution candidates build out a network effect and augment our rates to ubiquity.

With that as our guide coupled with a prodigious amount of work for both our product and engineering teams. We have settled on our first solutions, one product authentication and anti counterfeit or pack.

<unk> online brand protection or OBP, three recycling and for product cloud.

To be clear this is where we are starting not topic. For example in addition to these four we have one solution, we hope to be able to talk about but not too distant future, but are not yet ready to publicly disclose.

Moreover, we have and always will have a pipeline solution candidates and it is very likely that one of the strongest sources of solution candidates will always be the market itself.

To that end as our partners deciding what businesses. We are in today. We are also formalized a process with which we will handle inbound interest as this can be a wonderful source of idea generation if managed appropriately.

Inbound requests scope correctly bring three clear benefits.

First as generation of revenue from customers or partners willing to work with our existing tools instead of our fitness solutions.

Understanding clearly they will have to make do without any support from our engineering team, who is busy building our future not theirs.

The second is alerting the product team to an area of potential market interest and thus acting as a source of for profit market research.

And the third is providing research and introduction to obtain partner if there are things out there to research list. This inquiry would allow them to cross off.

To be clear there are all sorts of checkpoints in place where any inbound interest can be shutdown as we stated on that April call, our engineers and their roadmaps are not for Rex.

But listening to prospects instead of turning off that voice of customer is a real key advantage the almost universal applicability of our technology will always provide.

In fact, the solutions above in addition to the solution, which we are not yet ready to disclose all came about by means of customer inquiry or in the case of product cloud needs of the customer actions.

This wonderful trend of having prospects provide the starting point for our market research process should continue for years, because the number of people who have thought about how our technology can make their company and their industry better is probably measured in the single digit millions that leaves seven 7 billion people yet to approach us with their problems they would like us to apply our generationally trans.

Information technology to dissolve.

Looking at years into the future I don't know what our final solution com will be but one thing that is clear to us is that our products go to market and technology strategies must be aligned to enable our customers to seamlessly take the next step in their journey with us regardless of where they began.

One of our key points of differentiation in value is that they will always be additional steps available for our customers to take exiting our first ever Aps. It is clear what we must and will do.

We will make it easy for customers to begin to realize value with us we will create long standing relationships that provide our customers exponential value by constantly providing additional solutions and is constantly addressing more of our customers' problems and we will always be there to guide our customers on the best way to achieve that laden exponential growth value.

Tying together these two seminal events a few points are worth making.

Everything is focused on product authentication will make our pack offering that much stronger and vice versa. We are now able to augment the unique benefits of our existing solution with a programmatic and importantly for this area of predictive logic everything is built into his authenticate module.

Overnight to differentiated offerings, just put another lap between themselves and the competition over time, even more space will be opened as we combine our solution roadmaps.

The same synergy holds true for recycling consumer education and engagement is a big part of solving for higher recycling rates and everything through its amplified module is a thought leader in automating business rose to optimize this engagement for both the consumer as well as the brands.

In addition to meet the diverse needs of all stakeholders brands and retailers sorters and recyclers.

And regulators among others. It is clear that the deterministic sortation system must be dynamically updated both via the cloud. It is the only way to build a system that is dynamic enough to accommodate the unknown requirements of the future. While at the same time is robust enough to handle the inevitable supply chain mistakes of the present.

In addition, it is the only way to provide real time improvements to both the efficiency and efficacy of the entire system.

<unk> will be true for all of our solutions, our recycling solution will not only benefit from the synergies unlocked via joint Roadmaps, but perhaps most importantly for those that want our combined solution. The friction of adoption will be reduced as we handle the integration work ourselves instead of forcing this integration work on our customers and partners.

Moreover, until today, the minds behind the largest and most trusted product cloud in existence have been absent from the cross value chain collaboration that is Holy Grail, two data, we believe whatever form and structure. The recycling cloud ends up taking having everything's input and experience not to mention the thought leadership and trusted relationships as part of the process.

Will benefit not just Holy Grail, too, but also the industry and this ultimately the planet.

The two seminal events, we are announcing today are forming one team with a long valued go to market partner and digit marks transformation to a product led company are not only each important in their own right.

They are also additive to each other.

I'm sure you all have plenty of questions. So we want to get to Q&A shortly but before we do I would like to spend a few minutes on recycling.

As is obvious to anyone on any form of social media Holy Grail, two is gaining more and more visibility. However, our focus extends beyond a successful trial to driving widespread adoption is only through cross value chain mass adoption can circularity be achieved and recycling rate targets and pledges be met.

That is why we were working with all stakeholders to convince and now is the time to pivot their thinking.

Due to the hard work of a lot of drilling and dedicated people inside our four walls, but importantly outside as well it is becoming obvious that our technology works and if adopted could help turn the tide of the plastic tsunami.

As we continue to fully support this project and are appreciative of the impact it is having on opening ice across the value chain.

For both an industry and a regulatory perspective, we believe the time is right to focus on how and how the value chain begins to move to adoption.

In addition, we are still focused on opening additional fronts for introducing the benefits that come with the adoption of digital watermark, especially outside of Europe.

We believe friction will be reduced once the first Domino falls and the necessity of additional programs will asymptote to zero.

So we are there. However, we are selectively pursuing other opportunities that will lead to the delivery of additional obvious proof points, we will raise through the finish line of global adoption. The stakes for our planet are just too high for us to do otherwise.

We all realize the world is watching to ensure words and test will turn into actions solvent for the end of life problem of plastics as a global imperative and we are firm in our belief that a digital water marking the industry now has a valuable solution to this problem.

It has been wonderful to see more and more stakeholders also come to that realization. We are trying to convey a sense of prudent urgency because every day of delay between here and eventual adoption comes at the price of the real environmental harm.

The benefits of any true value added additional proof of.

This is where our heads are and the message the message we're carrying.

Operator, we are now ready for the Q&A session.

Thank you Sir to ask a question you will need to press star one on your telephone to withdraw. Your question question Palanquin. Please standby will be compile the Q&A roster.

Okay.

Your first question comes from the line of Harvey <unk>.

He is a private investor.

Good morning, Ryan.

Hey, Harvey.

Can you discuss the.

Patents that are coming with everything.

Now you want to take that.

Good morning Harvey.

Yes.

Everything has.

Small.

Portfolio of patents.

Pertaining to the.

Yes.

Redirection of.

Digital content from physical identity salt products.

In various aspects of.

Digital syndication utilizing data science methods.

<unk>.

Patents, we believe are very complementary.

Complementary with the identification methodologies, but did you mark worthy hasnt its a substantial portfolio.

Thank you also are we seeing any new contracts with Walmart or Procter <unk> Gamble wegmans.

I haven't seen anything that indicates.

Some new additional cash flow.

You don't consider 60% growth in bookings.

<unk> for.

For the quarter, I guess, I guess I'm not saying it.

Yeah, I realize that.

<unk>.

There's not a whole lot we can.

Sure with names and logos.

I think that goes for almost every company in the world. So.

Okay.

Thanks for the questions.

Thanks Ravi.

Okay.

And again, ladies and gentlemen, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.

Your next question comes from the line of Robin Knipp with Janney Montgomery.

Good morning, Thanks for taking the call.

I have been on a number of Webinars of late Paul involved call involving digital watermarks. So I must confess I cannot remember, which one it was that I heard this but rallied.

Can you talk a little bit about how digital water, marking can be incorporated with artificial intelligence.

With this most recent acquisition may take us in that capacity.

Sure. Thanks, Robert for the question as always so.

Depending on so so artificial intelligence is a big area.

Artificial intelligence is trying to do is take inputs and cockpit answer right, we have a deterministic input.

So we can make any artificial intelligence system better by providing as opposed to looking for a three or five or seven probabilistic inputs. We provided deterministic we allow artificial intelligence to be easy when were present.

There is also an application of our technology because one of the areas of artificial intelligence one of the difficulties of building.

Artificial intelligence system is training that system.

A lot of the time, that's done through human means actually looking at 10000 photos of an item and trying to determine what it is.

We can provide that.

Z mechanism for training, our artificial intelligence and im going to turn it over to Niall cycle is machine learning and predictive business intelligence.

<unk>.

Everything brings to us.

Thanks, Roddie so yes.

The product cloud is able to collect data point strong physical items using the deterministic identities on those items as they are.

Moves through a value change for example, and then apply real time analytical technologies, including.

Machine learning methods.

Those data points to derive application conclusions.

And the combination of.

Trustable.

Put data points from the.

From that from a tracking of items.

Yes.

And then predictive.

Or analytical analysis all of those elements in real time is able to create powerful application benefits from.

Current application point of view.

Everything is in a preproduction.

Mode in a variety of predictor method, specifically applying traceability data.

Data points in the supply chain, we want gains partial data samples from a subset of products in the supply chain for example to build.

Predictions of that potential for example, integrity threats parallel trade within that within our supply chain and so these techniques are currently in test mode not in production Budd.

But if you think about that.

Obviously, theres a lot that <unk>.

<unk> learning can do in supply chain, but when youre dealing for example, bad actors and product authentication predictive staying ahead of what they might be.

Coming up with next is huge and that's just I mean.

If I were to list every single complementary overlap.

Between these two companies it would be a five hour conference call Robert but this is just another area where it.

As we were both digging into each other really good outlook another fit.

Thanks.

Sure. Thanks for the response I appreciate it.

Yeah.

Of course.

Your next question comes from the line of Jeff Bernstein with Cowen.

Yes, hi, Thanks for taking my questions can you just talk broadly about.

The pack and OBP offerings.

Give a little color around why those.

Or ones that you are particularly interested.

Customer interest or the problems to be solved that are at the forefront et cetera, any color you can add.

Sure. So I mean as I mentioned.

All of our solutions were things that ideas generated by the customers. Then we then did the research we're going to have a lot more.

As we.

We began to start marketing the solution. So gentlemen, ask you to bear with us to get our product market.

Market research out in.

Yeah.

Out of the World and show them why we are so valuable solution Eric.

Both of these were areas where customers came to US I think I've mentioned this on the April call, where customers would come to us in tech.

I think if I understand new technology this could be an unlock for us.

And we have multiple customers on the spot that have already started they havent waited I mean, what's amazing about this where pre version one that we're still in beta I guess you could call. It we have paying customers fortune.

At a very high up I'm not going to get into specifics with very large customers, who have come to us as Ed said you guys have a differentiated solve here and what we've done is said.

You are right, we do and let's go product type visits will make solution out of this and let's go.

Let's go to this market. It is a large market I mean, it's in the billions of dollars per year.

Area in which we play is growing I believe from these numbers, 30%, 40%, but all of that market research I take with a little bit of grain of salt because it's sort of like what was the online book market before Amazon got into it right. We are differentiated solved by ourselves us plus everything is a double differentiate itself so whatever the market reach.

<unk> numbers and we'll share all of these.

With you and again as we get through to get our marketing behind all this out.

Taken with a grain of salt because I think we're going to be adding.

We are going to be growing the market simply by our presence.

Gotcha, Okay, Great and then just on everything so just assuming.

This is a cloud native.

Capability elastic et cetera et cetera.

Yes, absolutely, yes cloud.

Cloud based platform operates multiple.

Infrastructure is.

Please be dynamic basis.

Around the world.

Our global customer needs.

<unk> handled a pretty large volume of favorable transactional data.

That's great. Thanks.

Thanks, Jamie.

Again that is star one if you would like to ask a question at this time. Your next question comes from the line of Jeff Van <unk> with Craig Hallum capital.

Hey, guys. This is Aaron on for Jeff just a few questions here for us.

So first on the everything deal.

Yes.

Curious to get a sense of the visibility to the growth rate acceleration. Thank you.

You mentioned kind of 2025% range over the first half of the year, obviously, assuming that that goes materially higher so what's the conviction and confidence there.

From our side of the beverage side.

I will tell you that we have done customer diligence calls we have gone through the pipeline what.

What the ultimate close rate is I guess, the future will tell us.

But this is this is a this is a high growing business that is growing that has inflected what that ultimate rate ends up being real estate.

And I would say I think that I don't want to speak for now, but this is a target that they set.

Is it <unk> so Dave.

Again, it's impossible to predict close rate haran.

The world's most here that just on a spreadsheet trying to forecast these things out.

But obviously you have some comfort in getting there and we validated that by going through their pipeline of talking to customers.

Yes.

Second your comments.

I think that the market space for Digitization of physical items.

Global consumer brands appetite to be able to build this competence into their into their operating models as Andy accelerating recently see healthy level of demand in the pipeline.

Yes, 70 factors already to conversion.

And I.

I guess, we will see but we feel we feel good about our outlook, yes sure.

But acquisitions are a risky right.

Wiring and other business I can tell you that.

As I mentioned, we've been a go to market partner with everything for five years, we have plenty of share customers we know it.

The trajectory for those businesses are when they're sharing with both of us.

Independently now I guess were sharing with us together at once the acquisition closes.

The customer calls that we did with everything's customers growing I mean, it was incredible to hear these well well respected gigantic companies talking about what.

So everything team has done.

So we shall see.

And I guess, one more thing not just what they've done but also the increasing need they have for more of what everything is done.

Got you that's definitely helpful. And then on the bookings number obviously material acceleration sequentially and year over year, just any more color you can give on kind of use cases, where the strength is in those bookings numbers.

Sure Yes.

Probably the biggest component there is the work that we're doing with wholly grill. So that work continues to increase and then we're also seeing is related indicated some increased interest in the pack area.

Product that dedication those are the two primary contributors to the growth, which is again just highlighting that we haven't even officially launched version one <unk>.

Beta and it's already it's already showing up.

Inflection.

Got you and then last for us any update on thermal.

Deployed until silicon to move ahead with them.

Packaged marking to be checkout.

I assume you.

Walmart.

Yes that thermal is that what youre talking about when you talk about thermal in general.

I'm sorry.

Hey.

Largely that yes that product offering.

Yes, so as you heard thermal was not wanted to be.

Products <unk> solutions that we talked about going forward.

Now.

So we have.

<unk>.

Yes.

We have with the Walmart as was originally said in that original contract thermal was part of that contract they have what they need.

If they want to roll it out of course, we're all of our existing customers. We will support everything that we have sold them.

Wonderful about all of that work at our existing customers for all the products are existing customers that they are all synergistic with where we were going.

So we will standby export when we're talking about going forward.

Post Aps is where were focused going forward our go to market strategy going forward.

And so a thermal is not an area that we are going to be proactively style and go forward, we will support any customers.

We have our current customers in that area.

And like I said this is.

What we are building going forward our solutions are really just different ways of putting together our tools, we need to advance our tools for all of our existing go forward solutions. So any existing customer will be brought along.

Because we will continue that work with thermo is not an area. We're focused on going forward go to market strategy.

Got you Okay deal.

Okay.

At this time. This concludes our question and answer session I would now like to turn the call back over to Riley Mccormack Sir. Please proceed.

Well. Thank you everybody I know this is a different day and a different time slots and we normally do these calls, but we had a.

Couple of things, we had to get signed before we could do our calls. So we appreciate you guys bearing with us, but hopefully you guys share the excitement that hopefully you heard from us today I think.

These both the Aps, but also this combination with everything is truly transformative.

And we can't wait to show you guys are the result of that so thanks, everybody have a great rest of your day.

This concludes today's call. Thank you, ladies and gentlemen for joining us today for our presentation you may now disconnect.