Q4 2021 Akerna Corp Earnings Call

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Once again, ladies and gentlemen, thank you for standing by our conference will begin momentarily.

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Good morning, and welcome to <unk> fourth quarter and full year 2021 financial results Conference call. Today's call is being recorded at this time I'd like to turn the call over to Peter Salzburg Investor Relations for Kronos. Please go ahead.

Good morning and welcome to ACERNA's fourth quarter and full year 2021 financial results conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Peter Salzberg, Invest Relations for ACERNA. Please go ahead.

Peter Salzberg: Thank you and welcome to today's fourth quarter-ended December 31st 2021 conference call. On the call today are Jessica Billingsley, CEO and Chairman of Acurna and John Fowle, CFO of Acurna.

Thank you and welcome to todays fourth quarter ended December 31, 2021 conference call on the call today are Jessica Billingsley, CEO and chairman of the car to them and John Fowle CFO of a car.

Before management begins with formal remarks, I'd like to remind everyone that during this conference call certain statements will be made that are forward looking within the meaning of the safe Harbor provisions of the United States Private Securities Litigation Reform Act 1995 words, such as estimate project expect anticipate forecast plan.

Speaker Change: Before management begins with formal remarks, I'd like to remind everyone that during this conference call, certain statements will be made that are forward-looking within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, words such as estimate, project it, expect, anticipate, forecast, plan, intend, believe.

And believe.

Speaker Change: future growth and prospects for the future of the company. These may, will, should, future propose and variations of these similar expressions or versions of such words or expressions are intended to identify forward-looking statements. These statements include but are not limited to statements regarding the future growth and prospects for Aperna. Statements regarding expected future revenue recognition. These forward-looking statements are not guarantees of future performance, conditions or results and involve several known and unknown risks.

Seeks may will should future propose and variations of these words or similar expressions are versions of such words or expressions.

Funded to identify forward looking statements. These statements include but are not limited to statements regarding the future growth and profitability hurdle.

Regarding expected future revenue recognition. These forward looking statements are not guarantees of future performance condition or results and involve several known and unknown risks uncertainties assumptions and other important factors, which could cause actual results or outcomes.

Speaker Change: certainties, assumptions, and other important factors which could cause actual results or outcomes to differ materially from those discussed, including risks related to changes in the cannabis market and risks related to the impact of the COVID-19 pandemic.

Different materially from those discussed including risks related to changes in the cannabis market and the risks related to the impact of the COVID-19 pandemic.

Speaker Change: These risk factors are more fully described in the current filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. A kernel undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise except as required by law.

These risk factors are more fully described in our filings with the Securities and Exchange Commission, Paul looking statements speak only as of the date. They are made kernel undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.

Speaker Change: Now, without further ado, I'd like to turn the call over to Aparna's CEO , Jessica Billingsley. Jessica. Good morning.

Now without further Ado I'd like to turn the call over to CEO Jessica.

That's good.

Good morning, everyone. Thank you for joining us today.

Today, we reported our fourth quarter and full year financial results for 2021.

Jessica Billingsley: Today, we reported our fourth quarter and full year financial results for 2021. And I'm pleased to say we posted another year of solid top line growth, achieved improvement in gross margins, and closed two important acquisitions that boost our capabilities in the enterprise market.

And I'm pleased to say, we posted another year of solid top line growth achieved improvement in gross margin and closed two important acquisitions that boost our capabilities in the enterprise market.

Jessica Billingsley: We delivered software revenue growth of 59% for the year, with total growth of 49%. We improved our adjusted EBITDA loss by 32% year over year, and our revenue run rate is in excess of $25 million today.

We delivered software revenue growth of 59% for the year with total growth of 49%, we improved our adjusted EBIT to lock like 32% year over year and our revenue run rate is in excess of 25 million today.

Speaker Change: John will cover the specifics of our financials and his remarks shortly.

John will cover the specifics of our financials in his remarks shortly.

We continue to develop and acquire connecting technologies to provide real value to our clients and to drive our future growth are.

John Fowle: We continue to develop and acquire connecting technologies to provide real value to our clients and to drive our future growth.

Our growth drivers remain intact and largely unchanged since our Q3 report in which we noted the inevitable opening of new markets.

John Fowle: our growth drivers remain intact and largely unchanged since our Q3 report in which we noted the inevitable opening of new markets, continued consolidation of the industry,

Continued consolidation of the industry.

John Fowle: new regulations, and ultimately, legalization at the U.S. federal level.

A new regulation and ultimately legalization in the U S federal level.

John Fowle: Akrona has been at the forefront of preparing for these growth drivers.

Our credit has been at the forefront of preparing for these growth drivers.

At the heart of every decision we make is your executive management team. This question.

John Fowle: At the heart of every decision we make as your executive management team is this question.

John Fowle: Does this provide value to the cannabis industry of tomorrow?

Does this provide value to the cannabis industry of tomorrow.

We're committed to being the best software solution available to serve both the candidates industry of today and tomorrow accounting for every level of government regulation and every point in the supply chain we.

John Fowle: We are committed to being the best software solution available to serve both the cannabis industry of today and of tomorrow, accounting for every level of government regulation and every point in the supply chain.

John Fowle: We intend to expand and solidify our position as the leading enterprise solution for the cannabis industry and execute a plan to deliver economic, social, and other business value.

We intend to expand and solidify our position as the leading enterprise solution for the cannabis industry and.

And execute a plan to deliver economic social and other business value.

There are three central ways, you can measure our success in creating value.

John Fowle: There are three central ways you can measure our success in creating value. The metrics we use in report, the strategic

The metrics we use in laporte.

The strategic partnerships, we cultivate and announce.

John Fowle: and the way we structure our product offering to simplify the complexity of the industry.

And the way we structure, our product offerings to simplify the complexity of the industry.

Let's start with metrics.

John Fowle: The primary drivers of long-term value in our business include these three key performance indicators.

Primary drivers of long term value in our business include these three key performance indicators.

John Fowle: Committed Annual Recurring Revenue, CARR, growth in booking, and growth in client transactions.

Committed annual recurring revenue.

A R R.

And bookings and growth in client transaction.

John Fowle: I'll clarify what each of these metrics means, why they are important, and how we are performing.

I'll clarify what each of these metrics means why they are important and how we are performing.

John Fowle: Most of our revenue today is comprised of subscription revenue.

Most of our revenue today is comprised of subscription revenue as a result, most important metric we track to measure our present success is our total scare our or the total amount of contracted recurring revenue for which clients and signed contracts are.

John Fowle: As a result, the most important metric we track to measure our present success is our total CARR, or the total amount of contracted recurring revenue for which clients have signed contracts.

John Fowle: Our CARR was $20.9 million as of December 31, 2021, which represents a 51% increase year-over-year.

Our C. A R R with $20 9 million as of December 31st 2021 .

Each represents a 51% increase year over year.

John Fowle: Our growth in booking and growth in transaction metrics are both leading indicators of the future value we are building in the business.

Our growth in bookings and growth in transaction metrics are both leading indicators of the future value. We are building in the business.

Our current is reported bookings represent the dollar amount of new science software contracts.

John Fowle: A current reported booking represents the dollar amount of new signed software contracts.

John Fowle: the value of which will be recognized over the life of the contract.

The value of which will be recognized over the life of the contract.

John Fowle: we consider growth in bookings to be a near-term leading indicator of our performance.

We consider growth in bookings to be a near term leading indicator of our performance.

John Fowle: Our Q4 software bookings were $1.5 million, a record for Acurna, and more than a 50% increase over prior quarter, indicating increasing growth.

Our Q4 software bookings were $1 5 million.

A record for our Corona and more than a 50% increase over prior quarter, indicating increasing growth.

Turning to our client transaction growth.

John Fowle: Turning to our client's transaction growth, we can see they are the industry leaders of tomorrow. Collectively, both their transaction dollar amount and transaction volume consistently grow between 25 and 50% year over year, which has held true for every quarter since we began reporting our client's transaction growth. These clients are scaling up.

We can see there the industry leaders of tomorrow collectively both their transaction dollar amount and transaction volume.

We grow between 25, and 50% year over here, which has held true for every quarter. Since we began reporting our client's transaction growth.

These clients are scaling in two ways.

Expansion through acquisitions during the overall consolidation of the market and same facility growth. For example, more consumers are visiting a given retailer dispensary and they're also repeating their visits more frequently.

John Fowle: expansion through acquisitions during the overall consolidation of the market, and same facility growth. For example, more consumers are visiting a given retail or dispensary, and they're also repeating their visits more frequently.

John Fowle: These numbers demonstrate that more of the industry is running on Ekerna.

These numbers demonstrate that more of the industry is running on a corner.

John Fowle: We believe transaction growth is the single most important long-term leading indicator of our true market share, in addition to providing a future revenue stream once regulatory changes bring opportunities to monetize transaction volume through retail and wholesale payment opportunities.

We believe transaction growth is the single most important long term leading indicator of our true market share. In addition to providing a future revenue stream once regulatory changes bring opportunities to monetize transaction volume through retail and wholesale payments opportunity.

The next way, we create long term value is through our strategic partnerships such as those with the S. E T. Microsoft Oracle, not treat and domo, which enable us to leverage a pool of shared resources.

John Fowle: The next way we create long-term value is through our strategic partnerships, such as those with SAP, Microsoft, Oracle's NetSuite, and Domo, which enable us to leverage a pool of shared resources to help our clients solve their problems of today and tomorrow.

Help our clients solve their problems of today and tomorrow.

To illustrate how quickly these strategic partnerships can evolve to provide additional value as the industry grows.

John Fowle: To illustrate how quickly these strategic partnerships can evolve to provide additional value as the industry grows, let's look at our partnership with Hyper, an omni-channel digital payment and compliance provider for the cannabis industry.

Let's look at our partnership with hyper and Omnichannel digital payments and compliance provider for the cannabis industry.

John Fowle: This partnership stemmed from our shared understanding that the cannabis industry of today faces a major challenge when it comes to payment.

This partnership stemmed from our shared understanding the cannabis industry of today faces a major challenge when it comes to payments.

With Noncompliant payment solutions, such as the so called cashless ATM, taking advantage of cannabis stores across the U F.

John Fowle: With non-compliant payment solutions, such as the so-called cashless ATMs, taking advantage of cannabis stores across the U.S.

John Fowle: Securing this partnership with Hyper enables retailers to complete payments in a compliant manner.

Securing this partnership with hyper enables retailers to complete payments in a compliant manner.

Compliant pin debit solutions, such as hyper are gaining mainstream popularity, especially among independent operators.

John Fowle: Compliant pin-debit solutions, such as Hyper, are gaining mainstream popularity, especially among independent operators. We expect Hyper's solution to continue to be a valuable payment solution offering for a current post-federal legalization.

We expect hyper solution to continue to be a valuable payment solution offering for a kind of post federal legalization.

John Fowle: Lastly, we continue to build a product portfolio that provides value to the industry of today while ensuring relevance and a deep and wide moat tomorrow and post-federal legalization.

Lastly, we continue to build a product portfolio that provides value to the industry of today, while ensuring relevance and a deep and wide moat tomorrow and post federal legalization.

John Fowle: When architecting our ecosystem, we took care to use an approach that would not only address the needs of the small, medium-sized business segment, but also those of the growing enterprise market.

When architect our ecosystem.

Took care to use an approach that will not only address the needs of the small medium sized business segment, but also those that the growing enterprise market.

John Fowle: This decision allows us to grow with our clients as they scale from our starter business solutions into our larger business offerings.

This decision allows us to grow with our clients as they scale from our startup business solution.

Two of our larger business offering.

John Fowle: We focus on providing the network that connects applications with solutions for compliance, payments, and more.

We focus on providing the network that connects application with solution for compliance payments and integration.

This structure enables our client accustomed select the ecosystem connected suite of products and services right for them.

John Fowle: This structure enables our clients to custom select the ecosystem connected suite of products and services right for them at this point in their growth journey.

Disappoint in their growth journey.

This ability to customize becomes increasingly important as companies grow in complexity.

John Fowle: This ability to customize becomes increasingly important as companies grow in complexity.

John Fowle: Larger companies require tailored solutions that address needs specific to their organization and workflow.

Larger companies require tailored solutions that address needs specific to their organization and workflows.

John Fowle: The predefined, one-size-fits-all, regional, compliance-only solutions that suffice for smaller businesses just getting started can no longer be justified as these businesses scale.

The predefined one size fits all regional compliance only solutions, but suffice for smaller business is just getting started can no longer be justified as these businesses scale instead larger companies must evaluate their technology solutions based on their return on investment.

John Fowle: Instead, larger companies must evaluate their technology solutions based on their return on investment, gained by having superior reporting and analytics, and by knowing their compliance needs are met today in each market in which they operate, as well as any to which they might wish to expand.

Gained by having superior reporting and analytics and bi knowing their compliance needs are met today in each market in which they operate as well as any to which they might wish to expand.

As an example.

John Fowle: A large multi-site operator might contract with us for our enterprise cultivation and manufacturing modules, our mid-market retail solution with e-commerce and loyalty features, and their preferred back-end financial solution.

A large multistate, operator might contract with us for enterprise cultivation and manufacturing modules.

Our mid market retail solution with e-commerce and loyalty features.

And their preferred backend financial solution.

So this example.

Let us assume they choose the most popular mainstream tax and financial planning solution Microsoft.

John Fowle: Let us assume they choose the most popular mainstream tax and financial planning solution, Microsoft.

This client can learn shoes from a suite of other products cannot detour ecosystem to provide additional features and functionality, perhaps they will add payments a learning management system route planning or menu advertising from our ecosystem partners.

John Fowle: This client can then choose from a suite of other products connected to our ecosystem to provide additional features and functionality. Perhaps they will add payment, a learning management system, route planning, or menu advertising from our ecosystem partner.

John Fowle: Across all our products and services, we are equipped to serve operators across all verticals and in every phase of their growth cycle.

Across all our products and services.

We're equipped to serve operators across all vertical and in every phase of their growth cycle.

John Fowle: large regulatory agencies, and brands looking to expand their market share. The data is proving the success.

Large regulatory agencies and brands looking to expand their market share.

John Fowle: Our enterprise business is our focus and this line of business is growth.

John Fowle: In closing, we are very excited about the many value creation opportunities ahead and the business we have built to leverage the upcoming waves of growth.

In closing we are very excited about the many value creation opportunities ahead, and the business, we have built to leverage the upcoming waves of growth.

John Fowle: Our current, near-term, and long-term leading indicators all indicate good progress and positive momentum heading into 2022, and we believe we have secured and continue to secure the right strategic partnerships for the business while we have designed our system to solve some of our clients' biggest challenges by reducing their complexity.

Our current near term and long term leading indicators.

All indicate good progress and positive momentum heading into 2022.

And we believe we have secured and continue to secure the right strategic partnerships for the business.

While we have designed our system to solve some of our clients biggest challenges by reducing their complexity.

All our hard work and achievements to date have positioned us very well for this moment and we look forward to driving long term shareholder value is the path unfolds in front of us.

John Fowle: all our hard work and achievements to date have positioned us very well for this moment and we look forward to driving long-term shareholder value as the path unfolds in front of us.

Now I will hand, the call over to John who will take us through the details of our financial results.

John Fowle: Now I will hand the call over to John who will take us through the details of our financial results. John .

John Please take it from here.

Thanks, Jessica this morning, I'll provide an overview of our financial results and key business metrics for the fourth quarter and full year ended December 31 2021.

John Fowle: Thanks, Jessica. This morning I'll provide an overview of our financial results and key business metrics for the fourth quarter and full year ended December 31st, 2021. As a reminder, these results are discussed in further detail in our Form 10-K , which will be filed shortly with the SEC.

Minor if these results are discussed in further detail in our Form 10-K , which will be filed shortly with the SEC.

Financial results reported today are preliminary and final financial results and other disclosures will be reported in our quarterly report on Form 10-K and may differ materially from the results and disclosures today.

John Fowle: Financial results reported today are preliminary. Final financial results and other disclosures will be reported in our quarterly report on Form 10-K and may differ materially from the results and disclosures today due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information. We encourage you to review the filing in detail.

Due to among other things the completion of final review procedures, the occurrence of subsequent events or the discovery of additional information.

We encourage you to review the filing in retail.

Acquisitions continue to drive our revenue growth as we reported another quarterly record of $6 6 million in total revenue up 61% from prior year revenue and up 29% from prior quarter revenue.

John Fowle: Acquisitions continue to drive our revenue growth as we reported another quarterly record of $6.6 million in total revenue, up 61% from prior year revenue and up 29% from prior quarter revenue. Drilling into the highest growth area for Akrna, software revenue increased to $6.2 million, up 80% from prior year software revenue and up 36% from prior quarter software revenue.

Drilling into the highest growth area for our current App software revenue increased to $6 2 million up 80% from prior year software revenue and up 36% from prior quarter software revenue.

John Fowle: Growth in the quarter was primarily a function of strong performance from our October acquisition of three sixty five cannabis which along with Rudy and Sciences another twenty one acquisition forms our enterprise business unit. We continue to invest in our technology platform and we added further capabilities and functionality to deliver more value to the customer.

Growth in the quarter was primarily a function of strong performance from our October acquisition of $3 65 candidates, which along with Meridian appliances. Another 21 acquisition forms our enterprise business unit, we continue to invest in our technology platform and we added capabilities and functionality to deliver more value to the customer we are prepared for.

John Fowle: We are prepared for what we anticipate will be another year of consolidation among the top players and continued growth in the industry.

We anticipate will be another year of consolidation among the top players and continued growth in the industry.

John Fowle: We continue to experience improvements in customer retention and growing volumes for our platform.

We continue to experience improvements in customer retention and growing volume through our platform churn has improved by 24% compared to prior year, while consolidation continues with many of our larger clients significantly increasing our footprint.

John Fowle: Churn has improved by 24% compared to prior year, while consolidation continues with many of our larger clients significantly increasing their footprint. Our average B2B deal size has also increased by 15% year-over-year. B2B transactions tracked in our system increased by 23% year-over-year, and transaction volume was up 48% year-over-year, while retail order spend was up 42% against the same period in 2020.

Our average me to be deal size has also increased by 15% year over year.

He transactions tracked in our system increased by 23% year over year and transaction volume was up 48% year over year, while retail order spend was up 42% against the same period in 2020.

Now I'll review the financial results for the year as a reminder, some of the metrics are non-GAAP a reconciliation of GAAP to non-GAAP financials is included in our earnings press release and posted on our Investor Relations website. We encourage you to review the reconciliation there as well as our financial statements for the year ended December 31, 21 contained in our.

John Fowle: Now I'll review the financial results for the year. As a reminder, some of the below metrics are non-GAAP . A reconciliation of GAAP to non-GAAP financials is included in our earnings press release and posted on our Investor Relations website. We encourage you to review the reconciliation there, as well as our financial statements for the year ended December 31, 2021, contained in our Form 10-K to be filed with the SEC shortly.

Form 10-K to be filed with the SEC shortly.

Total revenue increased to approximately $21 million up 49% compared to prior year revenue of approximately 14 million driven largely by accelerating software growth. So.

John Fowle: Total revenue increased to approximately $21 million, up 49% compared to prior year revenue of approximately $14 million, driven largely by accelerating software growth.

John Fowle: Software revenue of $19 million was up 59% for the year and represented 92% of total revenue compared to $12 million and 86% of total revenue last year. The bulk of the growth was from the acquisition of 365 Cannabis and Verdean Sciences, as well as growth in revenue from our data and partnership initiatives. We currently have approximately $900,000 of ARR backlog pending go-live.

Software revenue of $19 million was up 59% for the year and represented 92% of total revenue compared to $12 million and 86% of total revenue last year.

The growth was from the acquisition of 365 candidates and Viridian sciences as well as growth in revenue from our data and partnership initiatives. We currently have approximately 900000 of air our backlog pending go lives.

John Fowle: Consulting revenue was down 13% for the year to approximately $1.5 million from $1.7 million last year.

Wholesale revenue was down 13% for the year of approximately $1 5 million from $1 7 million last year consulting revenue was 7% and 13% of total revenue for 'twenty, one and 'twenty respectively.

John Fowle: Consulting revenue with 7% and 13% of total revenue for 21 and 20 respectively.

John Fowle: Due to the nature of consulting revenue, our dependence on emerging market activity, as well as the ongoing pandemic as a driver of demand, the percentage of consulting revenue over total revenue has varied from period to period depending on whether state legislation has expanded to allow new market entrants or growth of existing market participants. Progress on new state initiatives continues.

Because of the nature of consulting revenue, our dependents on emerging market activity as well as the ongoing pandemic as a driver of demand the percentage of consulting revenue over total revenue has varied from period to period, depending on whether state legislation has expanded to allow new market entrants or growth of existing market participants.

First of all new state initiatives continues to be mix. Some states have deferred the licensing process, while others have transitioned from application style to a lottery system of license award. We are the clear leader in this space and are positioned well to capitalize as states issued their licenses and then some emerging states returned to more aggressive licensing program.

John Fowle: Some states have deferred the licensing process, while others have transitioned from application style to a lottery system of license awards. We are the clear leader in this space and are positioned well to capitalize as states issue their licenses and some emerging states return to more aggressive licensing programs.

John Fowle: Gross profit increased to $12.7 million for the year ended December 31, 2021 from $7.6 million for the prior year, an increase of $5.1 million or 66%. Gross margin increased to 61% for the year ended December 31, 2021 from 55% for the year ended December 31, 2020.

Gross profit increased to $12 7 million for the year ended December 31, 21 from $7 6 million for the prior year, an increase of $5 1 million or 66% gross margin increased to 61% for the year ended December 31, 21, and 55% for the year ended December 31 2020.

John Fowle: This improvement in gross margin was primarily due to operating synergies realized from our acquired assets, our ongoing initiatives to drive operating efficiencies, and acquiring additional B2B customers which have higher gross margins. We continue to focus on increasing our subscription gross margin over time through ongoing investments in automation.

Gross margin was primarily due to operating synergies realized from our acquired assets our ongoing initiatives to drive operating efficiencies and acquiring additional <unk> customers, which have higher gross margin. We will continue to focus on increasing our subscription gross margin overtime through ongoing investment in automation.

John Fowle: Moving to operating expenses, total operating expenses increased 34 percent to $45.9 million compared to $34.3 million prior year. This was a result of a number of non-cash, non-recurring items that I will discuss shortly.

Moving to operating expenses total operating expenses increased 34% to $45 9 million compared to $34 3 million. Prior year. This was a result of a number of noncash and nonrecurring items that I will discuss shortly.

John Fowle: Total non-GAAP operating expenses increased 7 percent to $20.6 million compared to $19.3 million last year. We note that our current year operating expenses include the addition of the 2021 acquisitions of Meridian Sciences and 365 Cannabis.

Total non-GAAP operating expenses increased 7% to $20 6 million compared to $19 3 million last year. We note that our current your operating expenses include. The addition of the 2021 acquisitions of Iridium <unk> and 365 candidates are.

Our non-GAAP operating expenses as a percentage of revenue improved 28% year over year as we continued to build scale and drive operating efficiencies across the business.

John Fowle: Our non-GAAP operating expenses as a percentage of revenue improved 28% year over year as we continue to build scale and drive operating efficiencies across the business.

non-GAAP product development expense increased 900, thousands of $5 4 million or 19%, primarily due to the acquisitions mentioned previously labor cost increased $1 5 million or 44% year over year. This was offset by declines in contractor expenses of 700000 and software and technology expenses of 300000.

John Fowle: non-GAAP product development expense increased $900,000 to $5.4 million, or 19 percent, primarily due to the acquisitions mentioned previously. Labor costs increased $1.5 million, or 44 percent, year-over-year. This was offset by declines in contractor expenses of $700,000 and software and technology expenses of $300,000. We continue to drive efficiencies in product development through better optimization of non-labor costs.

We continue to drive efficiencies in product development through better optimization of non labor costs.

John Fowle: Non-gap sales and marketing expense increased $900,000 to $8.6 million, or 12%, primarily due to the acquisitions mentioned previously. Labor costs increased $1 million, or 18% year-over-year, offset by small declines in other areas as we continue to improve the sales efficiency.

non-GAAP sales and marketing expense increased 900000 to $8 6 million or 12%, primarily due to the acquisitions mentioned previously labor costs increased $1 million or 18% year over year offset by small declines in other areas as we continue to improve the sales efficiency.

non-GAAP general and administrative expenses decreased 400000 to $6 6 million or 6% labor expenses decreased 300000, or 11% as we realized cost savings initiatives.

John Fowle: non-GAAP general and administrative expenses decreased $400,000 to $6.6 million, or 6%. Labor expenses decreased $300,000, or 11%, as we realized cost-saving initiatives.

John Fowle: Rent expense decreased $700,000 as we exited a long-term offset lease. These decreases were offset by increases in professional fees related to legal, tax, and audit of approximately $500,000 and increases in insurance premium of approximately $150,000.

Rent expense decreased 700000, as we exited our long term office lease. These decreases were offset by increases in professional fees related to legal tax and audit of approximately 500000 and increases in insurance premium of approximately 150000.

Adjusted EBITDA improved 32% to negative $7 9 million compared to negative $11 7 million last year adjusted EBITDA as a percentage of revenue improved 54% compared to last year.

John Fowle: Adjusted EBITDA improved 32% to negative $7.9 million compared to negative $11.7 million last year. Adjusted EBITDA as a percentage of revenue improved 54% compared to last year.

John Fowle: The improvement in adjusted EBITDA and adjusted EBITDA as a percentage of revenue was primarily due to higher sales and better operating efficiency, as we discussed previously. We believe adjusted EBITDA, when considered with the financial statements determined in accordance with the U.S. GAAP, is helpful to investors in understanding and comparing our performance.

The improvement in adjusted EBITDA, and adjusted EBITDA as a percentage of revenue was primarily due to higher sales and better operating efficiency as we discussed previously we believe adjusted EBITDA when considered with the financial statement determined in accordance with U S. GAAP is helpful to investors in understanding and comparing our performance.

John Fowle: On a U.S. gap basis, our operating loss increased 24 percent for the year to approximately $33.4 million from $26.8 million last year.

On a U S GAAP basis, our operating loss increased 24% for the year to approximately $33 4 million from $26 8 million last year, while revenue was up $6 8 million or 49% compared to prior year. The increase in operating loss was a result of a number of noncash nonrecurring charges.

John Fowle: While revenue was up $6.8 million or 49% compared to prior year, the increase in operating loss was a result of a number of non-cash, non-recurring charges.

John Fowle: depreciation and amortization was $5.7 million, an increase of $2.5 million, primarily a result of acquisition.

Creation and amortization was $5 7 million an increase of $2 5 million, primarily a result of acquisition.

John Fowle: We recorded impairment expense of $14.4 million during the year ended December 31, 21, an increase of $7.5 million compared to prior year, primarily due to a continued decline in market valuation and a flattening in the operating results of our non-enterprise reporting unit compared to acquisition assumptions.

We recorded an impairment expense of $14 4 million during the year ended December 31, 21, an increase of $7 5 million compares to prior year, primarily due to a continued decline in market valuation and a flattening in the operating results of our non enterprise reporting unit compared to acquisition assumption.

John Fowle: We recorded restructuring charges of approximately $1.9 million related to our lease termination. These increases were offset by declines in financing and acquisition-related expenses of approximately $3.6 million.

We recorded restructuring charges of approximately $1 9 million related toward lease termination. These increases were offset by declines in financing and acquisition related expenses of approximately $3 6 million.

John Fowle: Turning to key figures from our balance sheet and cash flow statement, our cash and restricted cash was $14.4 million as of December 31, 2021, a $3.9 million decrease from $18.3 million prior year. Net cash used in operating activities was $7.9 million, an improvement of 54% compared to prior year.

Turning to key figures from our balance sheet and cash flow statement, our cash and restricted cash was $14 4 million as of December 31, 21 of $3 9 million decrease from 18 3 million prior year.

Cash used in operating activities was $7 9 million, an improvement of 54% compared to prior year.

John Fowle: Capitalized software increased to $5.5 million, or 43% compared to prior year, as we continue to invest in our technology stack. We recorded a liability of $6.3 million of contingent consideration related to our acquisition. That can be settled in cash or shares upon the achievement of certain revenue targets.

Capitalized software increased to $5 5 million or 43% compared to prior year as we continue to invest in our technology stack, we recorded a liability of $6 3 million of contingent consideration related to our acquisition.

It can be settled in cash or shares upon the achievement of certain revenue targets.

John Fowle: Deferred revenue increased to $3.3 million, or up 320% from prior year. This was a result of the acquisitions of Viridian Sciences and 365 Cannabis. Given the profile of the enterprise client, most of the subscription revenue has received in advance of the quarter or year.

Revenue increased to $3 3 million are up 320% from prior year. This was a result of the acquisitions of Iridium <unk> and 365 candidates given the profile of the enterprise client most of the subscription revenues received in advance of the quarter or year.

John Fowle: Gross debt as of December 31, 2021, was $20 million. As we noted on last quarter's call, in October of 21, we announced we entered into a securities purchase agreement for a $20 million convertible debt financing with existing investors who held the company's then outstanding convertible notes. Net proceeds from that offering were approximately $14.6 million, which includes deductions for the original issue discount, the payment of approximately $3.3 million of outstanding amounts on the prior notes, and payment of expenses.

Gross debt as of December 31, 2021 was $20 million as we noted on last quarter's call in October of 'twenty. One we announced we entered into a securities purchase agreement for a $20 million convertible debt financing with existing investors, who held the company's then outstanding convertible note.

Net proceeds from that offering were approximately $14 6 million, which includes deductions for the original issue discount the payment of approximately $3 3 million of outstanding amounts on the prior notes and payment of expenses.

John Fowle: We continue to be prudent with our spending levels and we have maintained a healthy cash position to manage the business. We believe cash on hand and access to the capital markets positions us well to execute on our strategy, which is a significant advantage over many of our competitors.

We continue to be prudent with our spending levels and we have maintained a healthy cash position to manage the business. We believe cash on hand, and access to the capital markets positions us well to execute on our strategy, which is a significant advantage over many of our competitors.

John Fowle: The narrative remains largely the same here. We are the leader in a large market that is still early to adopt compliance automation technology. We've made some great additions to the platform that can accommodate clients of any size and the industry's consolidation. The unpredictable nature of the regulatory environment makes it a challenge for all participants in our sector, and we continue to react and respond with products that provide the compliant automation required and increase the value we are able to deliver to clients.

The narrative remains largely the same here we are the leader in a large market that is still early to adopt compliance automation technology. We've made some great additions to the platform that can accommodate clients of any size and the industry's consolidation the unpredictable nature of the regulatory environment makes it a challenge for all participants in our sector and we can.

To react and respond with products that provide the compliant automation required and increase the value we are able to deliver to clients. We continue to invest in initiatives that allow us to win across all segments of the market, including key investments that drive significant value under federal legalization. We believe we're sitting well positioned to continue building this cut.

John Fowle: We continue to invest in initiatives that allow us to win across all segments of the market, including key investments that drive significant value under federal legalization.

John Fowle: We believe we are sitting well positioned to continue building this company into the leader of tomorrow.

Into the leader of Tomorrow.

This concludes our prepared remarks, we are happy to take any questions. You may have please keep in mind that the forward looking statement disclaimer discussed at the beginning of this call apply equally to the Q&A session.

John Fowle: This concludes our prepared remarks. We are happy to take any questions you may have. Please keep in mind that the forward-looking statement disclaimer discussed at the beginning of this call applies equally to the Q&A session. Now, let's turn the call over to the operator for questions. Operator?

Turning the call over to the operator for questions operator.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.

Operator: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

The star Keys our.

Speaker Change: Our first question comes from the line of Colin Rush with Oppenheimer & Company. Please proceed with your question.

Our first question comes from the line of Colin Rusch with Oppenheimer and company. Please proceed with your question.

Colin Rush: Thanks so much. Could you talk a little bit about the rate of organic growth and ARR and investments that you're making and driving that on a go-forward basis?

Thanks, So much could you talk a little bit about the rate of organic growth and a or are in and the investments that you're making in driving that on a go forward basis.

Sure Good morning, Colin.

Speaker Change: Sure, good morning, Colin. So I think it's important to think about the market conditions in 2021. There were little to no new markets, and we saw quite a wave of consolidation in the industry, which we had predicted.

So I think it's important to think about the market conditions in 2021, and there were little to no new markets and we saw quite a wave of consolidation in the industry, which we had predicted.

Speaker Change: And the way that we had prepared for that wave of consolidation was ensuring that we had enterprise offerings to move our S&P clients into as they scaled, as they consolidated.

And the way that we had prepared for that wave of consolidation at with ensuring that we had enterprise offerings that can move our S&P clients into as they scaled asked me consolidated.

And.

Speaker Change: I think importantly, as I shared in my prepared remarks, we've added more transactions running on Echerna. We've maintained our client base while adding two enterprise acquisitions that attract evaluations, which, as I just noted, we see is critical to our future growth so we can mine that existing client base into upsells and cross-sales in our enterprise offerings as our clients continue to scale.

I think importantly, as I as I shared in my prepared remarks, we've added more transactions running on a corner we've maintained our client base, while adding two enterprise acquisitions at attractive valuations.

You know as I just noted we see is it's critical to our future growth. So we can mine that existing client base into Upsells and cross sells and our enterprise offerings as our clients continue to scale now.

Now looking ahead to growth and expansion opportunities. This year and 2022, there are a number of new states with license deadlines now for this year and potential to open for meaningful software business and we will certainly be tracking at that ability to really scale into emerging markets for organic growth.

Speaker Change: Now looking ahead to growth and expansion opportunities this year in 2022, there are a number of new states with license deadlines now for this year and potential to open for meaningful software business and we'll certainly be tracking that ability to really scale into emerging markets for organic growth as well as organic growth through consolidation of our existing clients and moving them into our enterprise.

Both as well as organic growth through consolidation.

Consolidation of our existing clients and moving them into our enterprise offerings.

Speaker Change: That's super helpful. Thank you. And then, you know, looking at industry consolidation, can you talk about your, you know, how is that impacting your ability to go up the value curve and extract a bit more value from these clients as you see some of this consolidate into some larger players?

That's super helpful. Thank you and then you know looking at industry consolidation can you talk about your how.

How is that impacting your ability to go up the value curve and extracting more value from those clients as you see some of those consolidate into some larger players.

That's a great question too so we had shared in our Q3 earnings.

Speaker Change: That's a great question, too. So we had shared in our Q3 earnings remarks.

Earnings remarks that we have roughly 40% of public cannabis companies are clients of ours and in some some way shape or form until we're really pursuing a land and expand model there and we had shared a couple of anecdotal examples of clients that are.

Speaker Change: uh... that we have roughly forty percent of public cannabis companies are our clients bars uh... in some some way shape or form

Speaker Change: And so we're really pursuing a land and expand model there. And we had shared a couple anecdotal examples of clients that are in process. They've signed with us. They haven't onboarded, or they've done a big consolidation and haven't yet signed with us for that new business, but we're the incumbent and most likely to win it. And so I think it's just.

In process, they signed with us they have an onboard it or they've got a big consolidation and haven't yet signed with us for that business, but we're the incumbent and most likely to win it and so I think it's just.

Speaker Change: as we think about how those waves of consolidation.

As we think about how those waves of consolidation and growth.

Speaker Change: and growth are going to go for us and moving into those enterprise offerings.

We are going to go for us in moving into those enterprise offerings, we're going to see the consolidation happened and there we're going to see some type of a rollout over time into our solutions.

Speaker Change: We're going to see the consolidation happen, and then we're going to see some type of a rollout over time into our solution.

Speaker Change: And it's partly why we're continuing to share those transaction metrics, really, to share that we demonstrate that we are owning that client base of the future. Adding the two acquisitions that we added this past year.

And it's partly why we are continuing to share those transaction metrics really to share that we demonstrate that we are owning that client piece of the future I E. Adding the the two acquisitions that we added this past year for.

Speaker Change: Viridian and 365 both have been critical in being able to have some of those expansion offerings particularly in the financial side of things. So many times those clients will start.

For Radian and $3 65, and both have been critical I end and being able to have some of those.

<unk> expansion offerings, particularly in the financial side of things. So many times those clients will start with financials and then they will move into a full full implementation across their supply chain and when I say their supply chain I'm talking about cultivation manufacturing.

Speaker Change: financials, and then they will move into full implementation across their supply chain. And when I say their supply chain, I'm talking about cultivation, manufacturing, distribution, retail.

<unk> distribution retail.

That's super helpful. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Brian Kinsinger with Alliance Global Partners. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the line of Brian Kinslinger with Alliance Global Partners. Please proceed with your question.

Great. Thanks, so much nice to see the pickup in bookings can you add some details regarding the bookings did it leaning towards enterprise data analytics, and then what was customer churn in 2021.

Brian Kinslinger: Great, thanks so much. Nice to see the pickup in bookings. Can you add some details regarding the bookings? Did it lean towards enterprise data analytics? And then what was customer churn in 2021?

Speaker Change: Sure, so I will take the the bookings and and then I know John I think we're sharing percentages on turns Well, I'll flip to you for that. Good morning, Brian

Sure So and I will take the bookings and then I know John I think we're sharing percentages insurance I'll flip to you for that good morning, Brian .

Brian Kinslinger: For the bookings number, we don't actually...

But for the bookings number we don't actually.

John Fowle: include our aggregate data product in that number that we're reporting. We do include, of course, the MJ Analytics that I think you're referring to there. The vast majority of that uptick is...

Include our aggregate data product in that number that we're reporting and we do include of course, the M. J analytics, either as I think you're referring to there.

We did the vast majority of that uptick is proving success at driving our clients into the our enterprise offerings and that enterprise business too.

John Fowle: proving success and driving our clients into the our enterprise offering and that enterprise

John Fowle: We're really cautiously optimistic about seeing that trend in increased bookings continue as we're continuing to mine our client base into those enterprises.

Where we're really cautiously optimistic about seeing that that trend in increased bookings continue as we're continuing to mine our client base into those enterprise offerings and John do you want to take what we share in terms of churn I know, we share a year for improvement there.

Speaker Change: And then, John , do you want to take what we share in terms of churn? I know we share year-over-year improvements.

John Fowle: Yeah, Brian , good morning. So I think in our prepared remarks, we we talked about how churn improved 24% year over year. And I think that, you know, for us is continued investment in the platform, really the maturation of our customer base, you know, I think is we talk a lot about the industry consolidation.

Yeah, Brian Good morning, So I think in our prepared remarks, we talked about how churn improved 24% year over year and I think that you know for US is continued investment in the platform really the voucher issuance of our customer base. You know I think as we talk a lot about the industry consolidation.

John Fowle: you're seeing more of our customers really understand the power of software and the value of software. And so we're happy to see that number and those retention metrics improve, certainly against 2021. You know, what also helped the number were the Viridian Sciences and 365 Cannabis products. Keep in mind, you know, being SAP and Microsoft products.

You're seeing more of our customers really understand the power of software and the value of software and and so we were happy to see that number and those retention metrics improve certainly against 2021.

What also helped the number where we're the viridian Viridian Sciences and 365 candidates products keep in mind, you know being SAP <unk> and Microsoft products, very very sticky infrastructure very large robust software systems. So they they tend to have really strong customer retention metrics and that is actually helping.

John Fowle: You know, very, very sticky infrastructure, very large, robust software systems. So they they tend to have really strong customer retention metrics. And that's actually helping, you know, helping to improve our own metrics. And I think we'll continue to see that trend in the future.

<unk>.

Helping to improve our own metrics and I think we will continue to see that trend in the future.

Sure.

Great and then on the expense side. It looks like you had some incremental losses from the acquisitions are there cost synergies you can achieve and how do you see the quarterly adjusted EBITDA loss trending from the $3 million in the fourth quarter over the next few quarters.

John Fowle: And then on the expense side, it looks like you have some incremental losses from the acquisitions, are there cost synergies you can achieve and how do you see the quarterly adjusted EBITDA loss trending from the $3 million in the fourth quarter over the next few quarters?

Yeah. So I think you know we knew going into this quarter with the acquisition of 365. This is the largest acquisition to date that we've done and it represents.

Speaker Change: Yeah, so I think, you know, we knew going into this quarter with the acquisition of 365, you know, this is the largest acquisition to date that we've done and it represents

Speaker Change: you know, almost half or at least 40% of our revenue today, we expected there to be.

Almost half or at least 40% of our revenue today, we expected there to be so.

Speaker Change: some, you know, some costs related to driving the integration of the two businesses. So, certainly here in the quarter, you know, we saw an uptick in that. But I think going forward, most importantly, as we look ahead, I think we'll, you know, we'll return to that trend of improving our adjusted EBITDA over time. We've done a great job of that the prior, you know, six or seven quarters sequentially improving that adjusted EBITDA every quarter, certainly this one.

You know some costs related to driving the integration of the two businesses. So certainly here in the quarter.

We saw an uptick in that but I think going forward. Most importantly, as we look ahead I think we will.

We'll return to that trend of improving our adjusted EBITDA over the time, we've done a great job about the prior.

Six or seven quarters sequentially, improving that adjusted EBITDA every quarter certainly this one.

Speaker Change: You know, here in the fourth quarter, we took a step back, but I think as we look ahead to Q2, or sorry, Q1 of this year, we should see, you know, that improvement really get back to what we would consider to be more normalized for this business and then continue to invest.

Here in the fourth quarter, we took a step back but I think as we look ahead to Q2, sorry Q1 of this year, we should see.

That improvement really get back to what we would consider to be more normalized for this business and continue to invest.

Speaker Change: you know, going forward. And as Jessica, you know, mentioned with with the growth and enterprise and the way that that platform sits relative to this consolidating market, I think we could see some some nice revenue growth there. That'll certainly help improve our, our job.

Forward and as Jessica mentioned with with the growth in enterprise.

And the way that that platform sits relative to this consolidating market I think we could see some some nice revenue growth there that will certainly help improve our our job though.

Okay, Great last one for Jessica.

Speaker Change: Great. Last one for Jessica. In terms of LEAF data, there's been four statewide government contracts, including since November , that have gone to competitors. So do you plan to invest more in this solution to improve your competitive position, or is it time to deploy capital elsewhere, faster-growing opportunities like enterprise, and just milk what you have on the government side?

A leaf data.

For statewide government contracts in place since November <unk>.

Gone to competitors. So do you plan to invest more in this solution to improve your competitive position or is it time to deploy capital elsewhere faster growing opportunities like enterprise interesting milk, what you have on the government side.

It's a good strategic question to there and so.

Speaker Change: Importantly, we do see the B2B opportunity as our best long-term growth opportunity for us, and especially as these businesses continue to scale, as the industry scales, and as we've really competitively differentiated ourselves in having the only connections to the major tax and financial solutions. And that's reflected in the lion's share of our revenue today and, of course,

Importantly, we do see the b to B opportunity as our best long term growth opportunity for us and especially as these businesses continue to scale as the industry scales and as we've really and competitively differentiated ourselves in having the only connections to the major.

Your tax and financial solutions, and that's reflected in the lion's share of our revenue today and of course much of our strategic focus.

We at as far as lease data goes do you have a stable team delivering on those existing contracts.

Speaker Change: As far as LEAF data goes, we do have a stable team delivering on those existing contracts, and that stable team will continue to bid new RFPs.

And that stable team will continue to bed new rfps.

Speaker Change: And the technology is built. There's a low incremental cost to continue to bid on these contracts, and they're a game of numbers, is the truth. And we remain optimistic at our prospects of adding to this line of business this year, as we believe there are a number of new RFPs that are coming.

The technology is built there's there's a low incremental cost to continue to bid on these contracts.

And error there a game of numbers is the truth and we remain optimistic in our prospects of adding to this line of business. This year.

We've had a number of new rfps that are coming up.

Great. Thank you.

Sure thing.

Speaker Change: Thank you. Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Please proceed with your

Thank you. Our next question comes from the line of Aaron Martin Newsy with Lake Street Capital markets. Please proceed with your question.

Eric Martinuzzi: Yeah, I wanted to talk about the upcoming, or I guess the quarter that we're pretty close to buttoning up here. Given the success that you had with the new business bookings in Q4 and starting from that Q4 revenue, I'm not looking for a specific number for Q1, but do we expect to be up sequentially Q1 versus Q4 on the revenue?

Yeah, I wanted to talk about the upcoming or I guess the core.

But we're pretty close to buttoning up here.

The success that you had with the new business bookings in Q4 and starting from the Q4 revenue.

Not looking for a specific number for Q1, but do we expect to be.

Up sequentially Q1 versus Q4 on the revenue.

Speaker Change: I think it's important to note, and I'll let John maybe answer specifics there. Good morning, Eric. It's important to note that... Hello, everyone. Good morning. Just wanted to let you know. We're still in the phase of getting sign language interpreters. They're really important for us. So, just wanted to let you know that we're just getting started. See you next week. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.

I think it's important to know and I'll, let John maybe I answer specifics there and good morning, Eric and its important to note that most of those bookings as we just mentioned are in the enterprise portion of our business and that generally does have a little bit.

John Fowle: Most of those bookings, as we just mentioned, are in the enterprise portion of our business. And that generally does have a little bit.

Longer implementation cycles.

John Fowle: longer implementation cycle. We'll be continuing to report bookings. Of course, our deferred revenue is reported in our filings, and then we'll look to see some incremental progress, but I'm expecting that we'll see the bulk of the trend in adding this increase in bookings come just a little bit later in the year as most of them are enterprise.

We'll be continuing to report bookings of course.

Our deferred revenue is reported in our filings and <unk> and then we'll we'll look to see some incremental progress, but I'm expecting that we'll see at the bulk of the trend in adding this increase in bookings are kind of just a little bit later in the year as most of them are enterprise.

John do you want to add to that.

Yeah, No I would agree that was that was great enterprise, they're they're significantly larger contracts significantly longer term contracts, but the go live and the implementation processes a lot longer and so I think I think the success. We had in Q4 will probably start to see some of that trickle in.

Speaker Change: No, I would agree. That was great. Enterprise, they're significantly larger contracts, significantly longer-term contracts, but the go-live and the implementation process is a lot longer, and so I think the success we had in Q4 will probably start to see some of that trickle in in Q2.

Q2.

Of this year.

Got it Okay and then on the expense side, obviously, we're you're typically would drive some efficiencies from.

Speaker Change: Got it. Okay. And then on the expense side, obviously we're, you're typically would drive some efficiencies from

Speaker Change: know, at that higher scale. But I also know, you know, 365 cannabis is something that's

The higher scale, but I also know.

365.

This is something that.

Speaker Change: not necessarily standalone, but you don't get as much synergies from that as say, you know, find another platform that we're operating.

Not necessarily standalone, but.

You don't get as much synergies from that and say you know buying another platform that were.

Operating on let's say a prayer.

Enterprise platform like a kind of a pretty insightful to Dod Doe, but as far as the operating expenses go.

Speaker Change: enterprise platform, like a kind of a Viridian Sciences 2.0. But as far as the operating expenses go, I'm looking at the non-GAAP expenses in Q4 at around $6.8 million. Do we see any synergies there for the coming quarter? Anything that we should call out as far as maybe

I'm looking at the non-GAAP expenses in Q4 at around $6 8 million do we see any synergies there for the coming quarter anything that we should call out as far as maybe.

Speaker Change: one-time or seasonal expenses that we should layer into Q1 versus that $6.8 million non-GAAP number in Q4.

One time or seasonal expenses that we should layer into Q1 versus that $6 8 billion non-GAAP number in Q4.

Yeah, I think it's really tough to do quarterly comparisons here is as you mentioned, Eric with the size and scale of that 365 is.

Speaker Change: Yeah, I think it's really tough to do quarterly comparisons here, as you mentioned, Eric, with the size and scale that 365 is at acquisition, you know, when you like you said, when you when you bring in smaller acquisitions, like we did, for instance, in 2020, with Trello Solutions, that was a really small token acquisition where, you know, cost synergies were almost realized from day one.

Ed acquisition, you know when you like you said when you when you bring in smaller acquisitions like we did for instance in 2020 with trial a solution that was a really small tuck in acquisition, where cost synergies were almost realized from Q1.

Speaker Change: You know, we've talked a lot about the enterprise business, you know, both on our Microsoft and SAP platforms sort of being the future growth areas. These are substantial businesses that require a lot of integration with.

We've talked a lot about the enterprise the enterprise business, both on our Microsoft can that be P platform sort of being the future growth areas. These are substantive substantial businesses that require a lot of integration with.

You know I think so it's it's difficult in the fourth quarter to compare because you're sort of comparing your not really comparing apples to apples sort of on a normalized basis. Our expenses were up just a few hundred thousand.

Speaker Change: You know, I think so it's difficult in the fourth quarter to compare because you're sort of comparing, you're not really comparing apples to apples sort of on a normalized basis, our expenses were up just a few hundred thousand.

Speaker Change: in the fourth quarter, and that was really just primarily a result of, you know, some marketing spend in the Q4 period for, you know, our annual industry conference. You know, aside from that, I would say expenses were sort of flat on a non, you know, sort of acquired, you know, basis. But I think going forward, we're going to realize.

In the fourth quarter and that was really just primarily a result of.

Some marketing spend into Q4, and the Q4 period for our annual industry Conference. You know aside from that I would say expenses were sort of flat.

On a non sort of acquired basis, but I think going forward, we're going to realize.

Speaker Change: cost synergies, maybe a little bit in labor, but certainly early on in more of the hosting and infrastructure costs. That's a big expense for software companies that we tend to share right now. We've got a huge initiative here in the first quarter to drive that. I think we're starting to see some of that materialize already and we'll continue to focus on that throughout Q1 and Q2 of this.

Cost synergies, maybe a little bit in labor, but certainly early on and more of the hosting and infrastructure costs that the big expense for software companies that we tend to share right now we've got a huge initiative here in the first quarter to drive that I think we're starting to see some of that materialize.

Already and will continue to focus on that throughout Q1 and Q2 of this oh.

Speaker Change: of this year. But, you know, overall, as we've shared every, you know, every one of our calls, we are very prudent, you know, with our spending, we're making sure we're

This year, but overall as we've shared every you know every one of our calls is we're very prudent with our spending and we're making sure we're.

Speaker Change: You know, very, very closely monitoring how we're spending. And as we reported in our prepared remarks, you know, our percentage, our operating expenses and percentage of revenue are up or improved 28% year over year. And so we're really focused on driving that scale to the organization. I think we'll see that really pick up here in Q1.

Very very closely monitoring how we're spending and as we reported in our prepared remarks, our percentage our operating expenses as a percentage of revenue are up or improved 28% year over year.

So we're really focused on driving that scale to the organization I think we'll see that really pick up here in Q1 and Q2.

Okay.

Speaker Change: Okay. And then lastly, while it is satisfying to see the unit and sales transactions numbers rise, that's not translating into top-line for, top-line improvement for Okurna. What, what should we be looking for to see that kind of organic growth rate? What are the big drivers for you guys in 2022 that you're trying to accomplish aside from any inorganic?

Lastly, well it is satisfying to see the the unit and sales transactions numbers rise.

That's not translating into top line for topline improvement for our current or what.

What should we be looking for to see that kind of organic growth rate what are the big drivers for you guys in 2022 that you're trying to accomplish.

For many.

Inorganic activities.

Speaker Change: I think it's maybe important to talk about some of the new emerging markets. Of course, we feel very good about our ability and our positioning, our strategic positioning to continue to win this consolidating enterprise business, to incrementally add, and of course, to upsell, cross-sell, mine our existing client base. However, there are also a number of new markets.

I think it's maybe important to talk about some of the new and emerging markets and of course, we feel very good about our ability and our positioning and our strategic strategic positioning to continue to win that's consolidating enterprise business to incrementally add.

And of course to to upsell cross sell minor existing client base.

However, there are also a number of new markets.

Speaker Change: that at least license deadlines and some license.

And at least license deadlines, and some license I issuing debt that we are tracking and and and watching very carefully because of course, new emerging markets are going to create even even more opportunity for us in 'twenty two.

Speaker Change: uh... issuing that that we are tracking and and and watching very carefully because of course new emerging market

Speaker Change: are gonna create even more opportunity for us in 22. New Jersey began accepting applications for dispensaries last week. Alabama is going to accept applications September 1st, so probably not a ton in this year, but it's nice to see that deadline. New Mexico has open licenses right now. They'll begin for operations sometime in Q2. We've got Mississippi, which is now moving forward.

New Jersey began accepting applications for dispensaries last week, Alabama is going to accept applications September 1st so probably not a ton of this year, but I bet, it's nice to see that deadline.

In Mexico.

It has open licenses right now they'll begin for operation some time in Q2 at least gotten Mississippi, which is at now moving forward and South Dakota, New York's applications are open and there's some.

Speaker Change: South Dakota, New York's applications are open. There's some movement in Michigan, Arizona, Connecticut, so actually quite a lot that we'll be tracking. Of course, we won't expect to see every single one of those markets open for.

Submit Michigan, Arizona, Connecticut, So I'm actually quite a lot them that we'll be tracking of course, we wont expect to see every single one of those markets open for <unk>.

Speaker Change: uh... for software opportunity uh... but certainly a couple of those big markets will be meaningful for a current and then it just it just note that uh... for the upcoming twenty-two u.s. midterm elections uh... there's a another handful of states uh... they're all working toward adult use cannabis initiative on their ballots and then a couple states are working toward medical

First off for opportunity.

Certainly a couple of those big markets will be meaningful for our current App and then it just it just to note that at the upcoming 20, Q U S. Midterm elections, there's a another handful of states that are all working toward and adult use cannabis initiatives on their pallets and then a couple of states are working.

Worthy medical cannabis and all of that is big momentum for us because our biggest growth drivers are new market expansion consolidation in the industry and then of course, our U S federal but isn't it.

Speaker Change: All of that is big momentum for us because our biggest growth drivers are new market expansion, consolidation in the industry, and then, of course, U.S. federal movement.

Got it thanks for taking my questions.

Thank you.

Speaker Change: Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad.

Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.

Speaker Change: Our next question comes from the line of Scott Buck with HC Wainwright. Please proceed with your question.

Our next question comes from the line of Scott Buck with H C. Wainwright. Please proceed with your question.

Hi, good morning, guys.

Scott Buck: I'm curious, I hope I didn't miss it, John and Jessica, did you mention what 365 revenue was for the quarter?

No.

I'm curious.

I hope I didn't Miss it John and Jessica did you mentioned, what 365 revenue was for the quarter.

John did we break that we did yes.

Speaker Change: Yeah, we didn't break that out separately, but you could sort of assume they're probably in that $2 million run rate. Today, we've actually filed audited financials for them as part of the acquisition process. So that'll give you a sense of sort of what their trends have been historically and then sort of what they did here up and through the acquisition.

Yeah, we didn't break that out separately, but you could sort of assume they're probably in that two plus two $2 billion run rate. Today. You know you, we've actually filed audited financials for them as part of the acquisition process. So that'll give you a sense of sort of what their trends have been historically and then sort of what they did here.

To up and through the acquisition.

Okay. That's helpful. I appreciate that John and then the sequential decline in gross margin is that due to mix from the addition of $3 65 and is that something that we should see kind of work.

Speaker Change: Okay, that's helpful. I appreciate that, John . And then the sequential decline in gross margin, is that due to mix from the addition of 365? And is that something that we should see kind of walk higher here over the next, you know,

Higher here over the next three or four quarters.

I would say so you know what one thing that is important to note is the enterprise business unit. Our S. E T at Microsoft product offerings are incredibly robust and and they're sort of margin profile.

John Fowle: I would say so. One thing that is important to note is the enterprise business unit, our SAP, and Microsoft product offerings are incredibly robust.

John Fowle: And their sort of margin profile when they get into the mid to upper 60s and low 70s is probably at a higher revenue volume.

Get into the mid to upper sixties in low Seventy's is probably at a higher revenue volume than would be for our legacy business and so yeah that that business sort of took a had a little bit of an impact here in the fourth quarter, but as they start to grow their business as they get their scale up and running I I would expect them to be back into the upper <unk>.

John Fowle: than would be for our legacy business. And so, yeah, that business sort of had a little bit of an impact here in the fourth quarter, but as they start to grow their business, as they get their scale up and running, I would expect them to be back into the upper 60s, you know, mid to upper 60s here in short order. But again, just the size and scale of that sort of business and that product offering.

Steve you know mid to upper sixties here.

In short order, but again, just the size and scale of that sort of business in that product offering.

John Fowle: you know, their scale, where they really start to hit their scale is going to be a higher revenue tick. And so we're certainly, you know, pushing that direction. And certainly with, as Jessica shared, with all of the consolidation in the industry and the demand for more robust enterprise level solution, we think we can, you know, execute on that pretty rapidly.

They're they're scale.

They really start to hit their scale is gonna be a higher revenue ticket. So we're certainly pushing in that direction and certainly with Jessica shared with all of the consolidation in the industry and the demand for more robust enterprise level solution. We think we can execute on that pretty pretty rapidly.

Yeah.

Okay. Thanks, that's very good color and then last one for me just on sales and marketing you know, obviously, a pretty meaningful sequential uptick.

Speaker Change: Okay, thanks. That's very good, Cole. And then last one for me, just on sales and marketing, you know, obviously a pretty meaningful sequential uptick. How should we think about that line moving forward? Is this kind of the new run rate? And if so, you know, curious how those dollars are being spent.

How should we think about that line moving forward is this the kind of the new run rate and if so I'm curious how those dollars are being spent.

So really great question, Scott follow up to kind of the first call that the business model of enterprise.

Speaker Change: So really great questions. Scott, follow up to kind of the first comment, the, the business model of enterprise.

Scott Buck: you know, while we're providing sort of the same products and services and cannabis.

You know, while we're providing sort of the same products and services in Canada as you know.

Scott Buck: you know, compliant software, their, the majority of their expenses fall, I would say into the, what we, we would think of as account management and customer support and, and so forth. And so the, the, the majority of the growth in sales and marketing expense in the period was really just specific to our enterprise, enterprise product offerings. So a way to think about it going forward is that.

Compliance software there the majority of their expenses fall I would say into the what we would think of as account management and customer support and and so forth and so the the majority of the growth in sales and marketing expense in the period was really just specific to our enterprise enterprise.

Offering so a way to think about it going forward is that.

Scott Buck: that uptick quarter to quarter is a reflection of 365. And that's probably sort of our normalized state going forward.

Uptick quarter to quarter is a reflection of $3 65, and that's probably sort of art normalized state going forward. There were there was no new initiatives or outside marketing spend or conferences. It it sort of just where that sort of business unit and some of those labor cost fit within the framework of the income statement.

Scott Buck: There was there was no new initiatives or outside marketing spender conferences. It's sort of just where that sort of business unit and some of those labor costs fit it within the framework of the income statement. All right, that's perfect. I appreciate the

Alright, that's perfect I appreciate the time guys. Thank you very much.

Thank you.

Yeah.

Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Ms. Billingsley for any final comments.

Speaker Change: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Ms. Billingsley for any final comments.

Thank you operator.

Jessica Billingsley: We are the technology ecosystem for cannabis, serving operators, governments, and brands.

We are the technology ecosystem for cannabis surveying operators governments and brands.

Jessica Billingsley: Our ecosystem strategy and strategic investments are focused on locking up the tech spend of the enterprise cannabis businesses and solving with technology the growing demand for increased supply chain transparency among consumers and governments.

Our ecosystem strategy and strategic investments are focused on locking up the tech spend of the enterprise cannabis businesses and solving with technology the growing demand for increased supply chain transparency among consumers and governments. We thank you for your interest in a corner and we look forward to sharing our progress with you as we move forward.

Speaker Change: We thank you for your interest in Akrna, and we look forward to sharing our progress with you as we move forward.

Speaker Change: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.