Q1 2022 Akerna Corp Earnings Call

[music].

Good morning and welcome to Acerna's first quarter 2022 financial.

Good morning, and welcome to a current as first quarter 2022 financial results conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question answer session at that time. If you have a question. Please press the one followed by the four on your.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone keypad. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's conference is being recorded. At this time, I would like to turn the call over to Peter Stelzberg, Investor Relations for Acurna. Please go ahead.

Allophone keypad, if at any time during the conference you need to reach an operator. Please press star Zero as a reminder, today's conference is being recorded at this time I would like to turn the call over to Peter Yourself Burke Investor Relations Brook or not please go ahead.

Thank you and welcome to today's first quarter ended March 31st, 2022 conference call. On the call today are Jessica Billingsley, CEO and Chairman of Eterna and John Fowles, CFO of Eterna.

Thank you and welcome to today's first quarter ended March 31, 2022 conference call on the call today are Jessica Billingsley, CEO and chairman of <unk>, and John <unk> CFO of the card.

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 Security and Litigation Reform Act of 1995, words such as estimate.

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 1095.

Words, such as estimates.

projected, expects, anticipates, forecasts, plans, intends, believes, seeks, may, will, should, future, proposed, and variations of these words or 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 future growth and prospects for ACERNA and statements regarding expected future revenue recognition.

<unk> expects anticipates forecasts plans intends believes seeks may will should future propose and variations of these words or similar expressions are versions of such words or expressions are intended to identify forward looking statements. These statements include but are not limited to <unk>.

Statements regarding the future growth prospects for our Corona and statements regarding expected future revenue recognition.

forward-looking statements are not guaranteed as of future performance conditions or results.

Forward looking statements are not guarantees of future performance conditions or results.

and involve several known and unknown risks, uncertainties, assumptions, and other important factors which could cause actual results or outcomes to differ materially from those discussed, including risks-related changes in the cannabis market and risks related to the impact of the COVID-19 pandemic.

Involve several known and unknown risks uncertainties 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.

These risk factors are more fully described in the current filing for the Securities and Exchange Commission.

These risk factors are more fully described in <unk> filings with the Securities and Exchange Commission forward looking statements speak only as of the day. They are made of current 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 now without further.

Forward-looking statements speak only as of the day they are made occur and 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. Now, without further ado.

I'd like to turn the call over to a current CEO , Jessica Billingsley. Jessica, go ahead.

I do.

I would like to turn the call over to Ricardo <unk> CEO , Jessica Billingsley Jessica go ahead.

Good morning, everyone. Thank you for joining us. Today, we reported our first quarter financial results for 2022, and I'm pleased to state we have posted our fourth consecutive quarter of top-line growth, highlighted by software revenue growth of 71% year-over-year, total revenue growth of 73% year-over-year, and a current revenue run rate now in excess of $27 million.

Good morning, everyone. Thank you for joining us.

Today, we reported our first quarter financial results for 2022, and I'm pleased to say, we have posted our fourth consecutive quarter of topline growth.

Highlighted by software revenue growth of 71% year over year.

Total revenue growth of 73% year over year, and our current revenue run rate now in excess of $27 million.

John will cover the specifics for financials in his remarks shortly.

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

On today's call, I would like to first continue our emphasis on our key performance metrics.

On today's call I would like to first continue our emphasis on our key performance metrics.

Committed Annual Recurring Revenue, or CARR, growth in bookings, and growth in client transactions.

<unk> annual recurring revenue or CA or our growth in bookings and growth in client transaction.

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

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

Secondly, I'll provide an update on the three industry drivers we believe are propelling the cannabis economy forward.

Secondly, we'll provide an update on the three industry drivers. We believe are propelling the cannabis economy forward.

operator consolidation, U.S. federal actions, and finally, international countrywide legalization.

Operator consolidation U S Federal action and finally international Countrywide legalization.

I'll clarify each of these drivers and how they have progressed since we first discussed them a year ago in our 2021 Q1 earnings call. And I'll share how they've impacted our operations and target market.

Clarify each of these drivers and how they have progressed since we first discussed them a year ago, and our 2021 Q1 earnings call.

And I'll share, how they've impacted our operations and target market.

Starting with metrics, most of our revenue today is comprised of subscription revenue. 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 assigned contracts.

Starting with metrics 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 totals are for the total amount of contracted recurring revenue for which client to sign contracts. Our C. A R. R was $21 1 million.

Our CARR was $21.1 million as of March 31, 2022, which represents a 35% increase year-over-year.

As of March 31st 2022, which represents a 35% increase year over year.

In regards to bookings, this equates to the dollar amount of new signed software contracts, the value of which will be recognized over the life of the contract. We consider growth in bookings to be a near-term leading indicator of our performance.

In regards to bookings this equates to the dollar amount of new signed software contract the value of which will be recognized over the life of the contract we consider growth in bookings to be a near term leading indicator of our performance.

Our QM software bookings were $2 million, another record for Akerna, which represents an increase of 100% year over year, and 33% sequentially, indicating increasing growth.

Our Q1 software bookings were 2 million another record for our Corona, which represents an increase of 100% year over year, and 33% sequentially, indicating increasing growth.

Turning to our third metric climb.

client transaction growth, which we believe is the single most important long-term indicator of our true market share.

Client transaction growth, which we believe is the single most important long term indicator of our true market share.

We are pleased to report our transaction growth continued in the first quarter of this year with more of the industry running on Ekerna as we posted 16% growth in volume and 49% growth in amount. Our clients continue to scale.

We are pleased to report our transaction growth continued in the first quarter of this year with more of the industry running on a corner as we posted 16% growth in volume and 49% growth in amount.

Our clients continue to scale 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 for the first time, and they're also repeating their visits more frequently.

<unk> through acquisitions during the overall consolidation of the market and same facility growth for.

For example, more consumers are visiting a given retailer just said three for the first time and they're also repeating their visits more frequently.

These numbers demonstrate our footprint is growing and more of the industry is running on Acarna. Our transaction growth provides a future revenue catalyst as regulatory changes bring opportunities to monetize transaction volume, including through retail and wholesale payment opportunities.

These numbers demonstrate our subconscious growing and more of the industry is running on a carton our transaction growth provides a future revenue catalyst as regulatory changes bring opportunities to monetize transaction volume, including through retail and wholesale payment opportunities.

Having highlighted our continued performance as measured by key metrics, I'll move on to our industry drivers, starting with consolidation.

Having highlighted our continued performance as measured by key metrics I'll move on to our industry drivers starting with consolidation.

Consolidation is an inevitability in any emerging industry.

<unk> is an inevitability in any emerging industry.

And in the cannabis landscape, it's most directly related to operator expansion into new states and or their scaling of operations within existing.

The cannabis landscape is most directly related to operator expansion into new states.

Andrew are there scaling of operations within existing states, regardless consolidation among operators, who are also rapidly scaling drives the need for technology adoption and need for compliance within every market in which they operate and the need for robust accounting tax planning and reporting in a.

Regardless, consolidation among operators who are also rapidly scaling drives the need for technology adoption, the need for compliance within every market in which they operate, and the need for robust accounting, tax planning, and reporting analytics across all facilities.

Political across all facilities.

Simply put, consolidation drives the need for a Kernes ecosystem to reduce the complexity of managing their business.

Simply put consolidation drives need for Curtis ecosystem to reduce the complexity of managing their business.

Empowering operators in an increasingly competitive market with the most efficient and compliant tech platforms to support their rapid growth and expansion.

Empowering operators in an increasingly competitive market, it's the most efficient and compliant tech platform to support their rapid growth and expansion.

Additionally, we are often converting one or two locations at a time as operators implement across the organization, which translates into a healthy pipeline of backlogs for our carnet.

Additionally, we.

We are often converting one or two locations at a time as operators implement across the organization, which translates into a healthy pipeline of backlog for our carnival.

With 800,000 of CARR currently in backlog and understanding the existing footprint and purchasing nature of our clients, we feel confident that over time, if we did nothing else other than serve our existing market, we could grow our business by 30% on an annual basis by cross-selling and up-selling existing scaling clients into our mid-market and enterprise solutions.

With 800000 of C. A R. R. Currently in backlog.

Christy I think the existing footprint and purchasing nature of our clients, we feel confident that over time, if we did nothing else other than serve our existing market you could throw our business by 30% on an annual basis by cross selling and upselling existing scaling clients into our Midmarket and enterprise solution.

When making any forward-looking statements in the cannabis economy, we must consider our second industry driver, U.S. federal action. With public support for federal legalization continuing to grow in our country, I will highlight the latest regulatory actions and I'll reiterate how legalization impacts occur now.

When making any forward looking statements in the cannabis economy, we must consider our second industry driver U S Federal action.

With public support for federal legalization, continuing to grow in our country I will highlight the latest regulatory actions and I'll reiterate how legalization impacts of Corona.

Last month, on April 1st, the U.S. House of Representatives passed the Moore Act, a bill that would end the federal prohibition on cannabis by removing it from the list of banned controlled substances.

Last month on April 1st the U S House of Representatives passed the more act.

Bill that would and the federal prohibition on candidates by removing it from the list of banned controlled substances.

This is the second time this bill has passed the House, and this time it is joined by the introduction of the Republican-led Comprehensive States Reform Act in the House and Democratic-led CAOA bill drafted in the Senate.

This is the second time. This bill has passed the house and this time. It is joined by the introduction of the Republican led comprehensive state's Reform Act in the house and Democratic led C. E O a bill draft in the Senate.

while it is an important landmark achievement to have multiple such comprehensive bills proposed.

While it is an important landmark achievement to have multiple such comprehensive bills proposed including those ladder in both houses and by nature.

including those led in both houses and by both major political parties, I'll underscore our statement made in previous quarterly reports that legalization will most likely be passed

Major political parties.

I'll underscore our state and it stayed in previous quarterly reports it Lee.

Utilization will most likely be passed in pieces.

that will resolve specific issues within the industry instead of by sweeping legalization.

It will resolve specific issues within the industry instead of by sweeping legalization.

These bills will likely serve as a foundation from which pieces may be pulled and passed.

These bills will likely serve as a foundation from which pieces maybe pulled in past.

As of today, 38 states have legalized medical cannabis and 18 states have legalized recreational use.

As of today.

Eight states have legalized medical cannabis and 18 states have legalized recreational usage nearly every canvas related ballot measure put to voters as past, including those in Conservative States, Mississippi, Montana, and South Dakota. Additionally.

Nearly every cannabis-related ballot measure put to voters has passed, including those in conservative states Mississippi, Montana, and South Dakota. Additionally, state legislatures in New York, New Mexico, and Virginia have approved bills to legalize cannabis for recreational use.

Additionally, state legislatures in New York, New Mexico, and Virginia have approved builds to legalize cannabis for recreational use.

As we look at the impact to a KERNA of legalization, either at the state or federal level, it's important to note how it positively impacts three areas of our business.

As we look at the impact to a kernel of legalization.

They're at the state or federal level, it's important to note how it positively impacts three areas of our business.

In order of when these opportunities become available, each new state generally does the following. First, it provides an opportunity for our track and trace product to become the official state system chosen by the state's regulatory agency.

In order of when these opportunities come available.

Each new state generally does the following first.

Provides an opportunity for our track and trace products to become the official state system chosen by the states regulatory agency.

Next, it opens the door for licensee candidates to use our professional consulting services to ready their applications and their business operations.

Next it opens the door for licensee candidates to use our professional consulting services to ready their applications and their business operations.

And lastly, it opens a new market for software sales to operate.

And lastly, it opens a new market for software sales to operators.

Bottom line, legalization creates regulatory complexity and a surge of operators, governments, and brands requiring leading compliance.

Bottomline legalization creates regulatory complexity and a surge of operators governments and brands requiring leading compliance.

scalable technology and a robust ecosystem such as Akernaz that has been methodically architected to ensure all players have the tech they need to scale success.

Scalable technology, and a robust ecosystem such as the current us, but it's been methodically architected to ensure all players have the tech they need to scale successfully.

Looking at the international landscape as our third industry driver, as we mentioned in our recent annual shareholder letter, we believe our existing clients headquartered in North America, with their experience and access to capital, are in a position to capture a large portion of the market expansion.

Looking at the international landscape is our third industry driver.

As we mentioned in our recent annual shareholder letter, we believe our existing clients headquartered in North America with their experience and access to capital are in a position to capture a large portion of the market expansion potential.

Akrona's technology systems are poised to expand with them as they extend their.

Curtis technology systems are poised to expand with them as they extend their footprint.

Innovation and a growth mindset have always driven the architecture of our ecosystem.

Innovation and a growth mindset has always driven the architecture of our ecosystem.

From our inception, we have taken care to construct a robust platform solution that would not only address the needs of the small to medium-sized business segments, but also those of the growing enterprise segments.

From our inception, we have taken care to construct a robust platform solution that would not only address the needs of the small to medium size business segment, but also those of the growing enterprise market.

This decision allows us to grow with our clients as they scale from our startup business solutions into our larger business offering.

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

Into our larger business offering.

We focus on providing the network that connects our applications with our solutions for compliance, payments, and integrations. 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.

We focus on providing the network that connects our applications with our solutions for compliance payments and integration.

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.

In closing, our current near-term and long-term leading indicators all indicate good progress heading into the second quarter and balance of 2022.

In closing.

Our current near term and long term leading indicators.

All indicate good progress heading into the second quarter and balance of 2022.

And we believe we have secured and continue to secure the right strategic partnerships for the business while we have designed our systems to solve some of our clients' biggest challenges by reducing their complexity.

And we believe we have secured and continue just sure the right strategic partnerships for the business. While we have designed our systems to solve some of our clients biggest challenges by reducing their complexity.

Now, I'll hand the call over to John , who will take us through the details of our financial results. John , please take it from here.

Now I'll hand, the call over to John who will take us through the details of our financial results. 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 first quarter ended March 31st, 2022. As a reminder, these results are discussed in further detail in our Form 10-Q .

Thanks, Jessica this morning, I'll provide an overview of our financial results and key business metrics for the first quarter ended March 31, 2022. As a reminder, these results are discussed in further detail in our Form 10-Q.

Financial results reported today are preliminary. Final financial results and other disclosures will be reported in our quarterly report on Form 10-Q 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.

Financial results reported today are preliminary and final financial results and other disclosures will be reported in our quarterly report on Form 10-Q 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 event or the discovery of additional information.

We encourage you to review the filing in detail.

Q1 was another solid quarter for Akerna. Total revenue was 7 million, another record for the company, up 73% year-over-year. Gross profit increased to 4.7 million in the first quarter, up 85% year-over-year. And gross margin increased to 68% in the first quarter, from 64% in the same quarter last year.

Q1 was another solid quarter for our current total revenue was 7 million another record for the company up 73% year over year gross profit increased to $4 7 million in the first quarter up 85% year over year and gross margin increased to 68% in the first quarter from 64% in the same quarter last.

We continue to invest in our technology platform, and we are prepared for what we anticipate will be another year of consolidation among the top players and continued growth in the industry.

Sure.

We continue to invest in our technology platform and we are prepared for what we anticipate will be another year of consolidation among the top players and continued growth in the industry.

We continue to experience improvements in customer retention and growing volumes to our platform.

We continue to experience improvements in customer retention and growing volumes through our platform churn has improved by 21% compared to prior year, while consolidation continues with many of our larger clients significantly increasing our footprint.

Return has improved by 21% compared to prior year, while consolidation continues with many of our larger clients significantly increasing our footprint. Our average B2B deal size has also increased by 40% year-over-year, B2B transactions tracked in our system increased by 49% year-over-year, and transaction volume was up 16% year-over-year, while retail order spend was up 6% against the same period in 2021.

Our average <unk> deal size has also increased by 40% year over year BW transactions tracked in our system increased by 49% year over year and transaction volume was up 16% year over year, while retail order spend was up 6% against the same period in 2021.

Now I'll review the financial results for the quarter. 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 quarter ended March 31st, 2022, contained in our Form 10-Q to be filed with the SBA.

Now I'll review the financial results for the quarter 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 quarter ended March 31, 2022 contained in our.

Our Form 10-Q to be filed with the SEC.

Total revenue increased to approximately $7 million, up 73% compared to prior year, driven largely by accelerating software growth.

Total revenue increased to approximately $7 million up 73% compared to prior year, driven largely by accelerating software growth software revenue of $6 5 million was up 71% year over year, representing 94% of total revenue compared to $3 8 million and 95% of total revenue from the same quarter last year.

Software revenue of $6.5 million was up 71% year-over-year, representing 94% of total revenue, compared to $3.8 million and 95% of total revenue from the same quarter last year. The bulk of the year-over-year growth was from the acquisitions of 365 Cannabis and Viridian Sciences, as well as incremental growth from our legacy platform. We currently have approximately 800,000 CARR in backlog.

The bulk of the year over year growth was from the acquisitions of $3 65 candidates and Viridian sciences as well as incremental growth from our legacy platform. We currently have approximately 800000 or are in backlog.

Consulting revenue was up 147% year-over-year to $427,000 and up 14% from prior quarters. Consulting revenue was 6% of our total revenue in the current quarter, compared to 7% of total revenue for 2021 and 4% of total revenue for the same quarter prior year. The percentage of consulting revenue over total revenue has varied from period to period, depending on whether state legislation has expanded to allow new entrants or growth of existing market participants.

Consulting revenue was up 147% year over year to 427000 and up 14% from prior quarter.

<unk> revenue was 6% of our total revenue in the current quarter compared to 7% of total revenue for 2021, and 4% of total revenue for the same quarter prior year.

Percentage of consulting revenue over total revenue has varied from period to period, depending on whether state legislation has expanded to allow new interest or growth of existing market participants.

Progress on new state initiatives continues to be mixed. 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 then some emerging states return to more aggressive licensing programs.

Progress on new state initiatives continues to be mixed some states have deferred the licensing process, while others have transitioned from application style to a lottery system a license award.

We are the clear leader in this space and are positioned well to capitalize a state issue their licenses and then some emerging states returned to more aggressive licensing program.

Gross profit increased to 4.7 million in the first quarter of 85% year-over-year, while gross margin increased to 68% in the first quarter from 64% in the same quarter last year and up from 58% in the prior quarter, 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 margin.

Gross profit increased to $4 7 million in the first quarter up 85% year over year, while gross margin increased to 68% in the first quarter from 64% in the same quarter last year and up from 58% in the prior quarter, primarily due to operating synergies realized from our acquired assets our ongoing initiatives.

Five 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.

We will continue to focus on increasing our subscription gross margin over time through ongoing investment in automation.

Moving to operating expenses, total operating expenses increased 318% year-over-year to $25.4 million compared to $6.1 million in the same quarter last year. This was primarily a result of an impairment charge of $15.5 million in the current quarter, which we did not have in Q1 of last year. There were also a number of other non-cash, non-recurrent items that I will discuss shortly.

Moving to operating expenses total operating expenses increased 318% year over year to $25 4 million compared to $6 1 million in the same quarter last year. This was primarily a result of an impairment charge of $15 5 million in the current quarter, which we did not have in Q1 of last year. There are also a number.

Other noncash nonrecurring items that I will discuss shortly.

Total non-GAAP operating expenses increased 58% year-over-year to $7 million, compared to $4.4 million prior year, primarily a result of the acquisitions of Viridian Sciences and 365 Cannabis, completed after the first quarter of 2021. Our non-GAAP operating expenses as a percentage of revenue improved 9% year-over-year as we continue to build scale and drive operating efficiencies across the business.

Total non-GAAP operating expenses increased 58% year over year to $7 million compared to $4 4 million prior year, primarily as a result of the acquisitions of Viridian Sciences and $3 65 candidates completed after the first quarter of 2021.

Our non-GAAP operating expenses as a percentage of revenue improved 9% year over year as we continue to build scale and drive operating efficiencies across the business.

non-GAAP product development expense increased 700,000 year-over-year to 1.9 million, up 56% primarily due to the 2021 acquisitions mentioned previously.

non-GAAP product development expense increased 700000 year over year to $1 9 million up 56%, primarily due to the 2021 acquisitions mentioned previously.

Total non-GAAP product development expense as a percentage of revenue improved 10% compared to prior year.

Total non-GAAP product development expense as a percentage of revenue improved 10% compared to prior year.

Salary related and contractor expenses increased 600,000 or 53% year over year. We continue to drive efficiencies in product development through better optimization of non-labor costs.

Salary related and contractor expenses increased 600000, or 53% year over year, we continue to drive efficiencies in product development through better optimization of non labor costs.

Non-gap sales and marketing expense increased $1.7 million year-over-year to $3.3 million, up 103%, primarily due to the acquisitions mentioned previously. Total non-gap sales and marketing expense as a percentage of revenue declined 17% compared to prior year as we've invested in sales and marketing initiatives to drive growth in our enterprise business unit, which is leading to increased bookings numbers discussed previously.

non-GAAP sales and marketing expense increased $1 7 million year over year to $3 3 million up 103%, primarily due to the acquisitions mentioned previously total non-GAAP sales and marketing expense as a percentage of revenue declined 17% compared to prior year as we've invested in sales and marketing initiatives to drive growth.

In our enterprise business unit, which is leading to increased bookings numbers discussed previously.

Salary-related and contractor expenses increased $1.6 million, or 109% year-over-year, offset by small declines in other areas as we continue to improve sales.

Salary related and contractor expenses increased $1 6 million or 109% year over year offset by small declines in other areas as we continue to improve sales efficiency.

non-GAAP general and administrative expenses increased $200,000 year-over-year to $1.9 million, or 15%, again related to the acquisitions previously mentioned.

non-GAAP general and administrative expenses increased 200000 year over year to $1 9 million or 15% again related to the acquisitions previously mentioned.

Total non-GAAP general and administrative expenses as a percentage of revenue improved 33% compared to prior year as we continue to build operating leverage across the business through acquisition-related synergies.

Total non-GAAP general and administrative expenses as a percentage of revenue improved 33% compared to prior year as we continue to build operating leverage across the business through acquisition related synergies.

Salary-related and contractor expenses increased $200,000, or 23% year-over-year, while other general and administrative costs remain relatively flat.

<unk> related and contractor expenses increased 200000, or 23% year over year, while other general and administrative costs remained relatively flat.

Adjusted EBITDA was negative 2.3 million compared to negative 1.8 million for the same quarter last year. Adjusted EBITDA improved 23% compared to prior quarter as we continue to realize acquisition synergies. Adjusted EBITDA loss as a percentage of revenue improved 29% year over year. We believe adjusted EBITDA when considered with the financial statements determined in accordance with U.S. GAAP is helpful to investors in understanding and comparing our performance.

Adjusted EBITDA was negative $2 3 million compared to negative $1 8 million for the same quarter last year, adjusted EBITDA improved 23% compared to prior quarter. As we continued to realize acquisition synergies adjusted EBITDA loss as a percentage of revenue improved 29% year over year, we believe adjusted EBITDA when considered.

With the financial statements determined in accordance with U S. GAAP is helpful to investors in understanding and comparing our performance.

On a U.S. gap basis, our operating loss increased $17.1 million for the quarter to approximately $20.6 million, up from $3.5 million in the same quarter last year. While revenue was up $2.9 million, or 73% compared to prior year, the increase in operating loss was a result of a number of non-cash, non-recurring charges.

On a U S GAAP basis, our operating loss increased $17 1 million for the quarter to approximately $20 6 million up from $3 5 million in the same quarter last year, while revenue was up $2 9 million or 73% compared to prior year. The increase in operating loss was a result of a number of noncash nonrecurring charge it.

Appreciation and amortization was 2 million, an increase of 900,000 year over year, primarily a result of acquisition. We recorded impairment expense of 15.5 million during the three months that in March 31st, 2022, primarily due to a continued decline in market valuation from December 31st, 2021. We also recorded restructuring charges of approximately 560,000 related to our Las Vegas lease termination.

Depreciation and amortization was $2 million, an increase of 900000 year over year, primarily a result of acquisition. We recorded an impairment expense of $15 5 million. During the three months ended March 31, 2022, primarily due to a continued decline in market valuation from December 31 2021.

We also recorded restructuring charges of approximately 560000 related to our Las Vegas lease termination.

Turning to key figures from our balance sheet and cash flow statement, our cash and restricted cash was $10.2 million as of March 31, 2022. Net cash used in operating activities was $3.6 million. Net cash used in investing activities was $600,000. Capitalized software increased to $8 million compared to $7.3 million as of December 31, 2021, as we continue to invest in our technology stack.

Turning to key figures from our balance sheet and cash flow statement, our cash and restricted cash was $10 2 million as of March 31, 2022, net cash used in operating activities was $3 6 million net cash used in investing activities was 600000 capitalized software increased to $8 million compared to seven.

$3 million as of December 31, 2021, as we continue to invest in our technology stack.

Our goodwill balance decreased $17 million primarily due to the previously discussed impairment charge in the current quarter as well as working capital adjustments related to our 365 cannabis acquisition purchase accounting. Gross debt as of March 31st, 2022 was $16.7 million.

Our goodwill balance decreased $17 million, primarily due to the previously discussed impairment charge in the current quarter as well as working capital adjustments related to our 365 candidates acquisition purchase accounting.

Gross debt as of March 31, 2022 was $16 7 billion.

I'd like to take a moment to address the going concern disclosure incorporated into our 10-K files in March of this year. While we are pleased with the operating results this past quarter, especially our enterprise business unit, we recognize the continued downward pressure on working capital, the ability of the company to continue as a going concern is dependent on our ability to secure other sources of financing, reduce debt, and attain profitable operations.

I'd like to take a moment to address the going concern disclosure incorporated into our 10-K filed in March of this year. While we are pleased with the operating results this past quarter, especially our enterprise business unit. We recognize the continued downward pressure on working capital the ability of the company to continue as a going concern is dependent on our ability to seek.

Our other sources of financing reduce debt entertain profitable operation our corporate liquidity requirements, primarily include payroll costs corporate overhead expense and debt service costs and our current sources of liquidity include cash on hand, as well as proceeds we anticipate from the access to our ATM program.

Our corporate liquidity requirements primarily include payroll costs, corporate overhead expense, and debt service costs, and our current sources of liquidity include cash on hand, as well as proceeds we anticipate from the access to our ATM program. The board is addressing the working capital deficiency and considering all options available to the company in the best interest of our shareholders.

The board is addressing the working capital deficiency, and considering all options available to the company in the best interests of our shareholders.

As we move forward, we are the leader in a large market that is still early to adopt compliance automation technology. We've made great additions to the platform that can accommodate clients of any size as the industry continues its consolidation. The unpredictable nature of the capital markets and regulatory environment makes it a challenge for all participants in our sector. We will continue to react and respond in ways to address these headwinds while working diligently to build Akerna into the leader of tomorrow.

As we move forward, we are the leader in a large market that is still early to adopt compliance automation and technology. We've made great additions to the platform that can accommodate clients of any size as the industry continues its consolidation the unpredictable nature of the capital market and regulatory environment. It makes it a challenge for all participants in our sector we will.

To react and respond and ways to address these headwinds while working diligently to build a car in a 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 applies equally to the Q&A session. Now let's turn the call over to the operator for questions.

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 lets turn the call over to the operator for questions operator.

Thank you. If you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw, please press the 1 and the 3.

Thank you if you would like to register a question. Please press the one followed by the four on your telephone you'll hear with three tone to acknowledge your request. If your question has been answered and you would like to withdraw please press the one and the three.

And our first question is from the line of Max McAllis with Lake Street Capital Markets. Please go ahead, sir.

And our first question is from the line of Max Mccandless with Lake Street Capital markets. Please go ahead Sir.

Hey, good morning, guys, nice quarter. So I guess my first question here.

Hey, good morning, guys nice quarter.

So I guess question here.

I guess my first question here is, can you break out that revenue growth? I know it was a nice 73% year-over-year number. If you could break out what percentage of that was Viridian and 365 and what percentage of that was organic in the legacy business?

Yep, Hey, I guess my first question here is can you break out that revenue growth I know it was a nice 73% year over year number if you could break out what percentage of that was for radian and 36, five and what percentage of that was organic legacy business.

John do you want to take that one.

I will take that. Good morning. As we shared in our prepared remarks, the bulk of the revenue growth.

I will take that good morning.

We shared in our prepared remarks, the bulk of the revenue growth.

was from our 365 and Viridian business. You know, as we shared, we've shared multiple times, the enterprise business...

It was from our broad from our 365 and viridian business.

As we shared we've said multiple times the enterprise business unit is sort of the direction of the economy is growing and we are investing heavily in expanding that portfolio. The sort of on an organic basis I would say it was a bit of a mix.

sort of the direction the economy is growing and we are investing heavily in expanding that portfolio sort of on an organic basis. I would say it was a bit of a mix.

I think from the last quarter, if I'm looking at the numbers, we were up about 10% year over year in our legacy business, but we had some ins and outs as we move forward.

Resolved I think from the last quarter, if I'm looking at the numbers, we were up about 10% year over year, and our legacy business, but we had some ins and outs as we as we move.

As we move.

you know, and we shift some of our revenue streams around. But one thing I'll highlight is if you think about our booking number this quarter, we had a really strong booking number of 2 million. Again, that was highlighted by our growth in enterprise. And most of our resource and our pivot in the business is going towards expanding that business unit, which has much more stickier software sales, much larger contracts, much larger ARR, et cetera.

You know and we shift some of our some of our revenue streams around but one thing I'll highlight is if you think about our bookings number this quarter. We had a really strong bookings number of 2 million again that was highlighted by our growth in enterprise and most of our resource and our pivot in the business is going towards expanding that business unit, which has much more stickier soft.

Where sales much larger contract is much larger E R et cetera. So.

In summary, I would say that the bulk of the revenue growth came from the legacy, or sorry, from the enterprise business unit.

In summary, I would say the bulk of the revenue growth came from the the legacy <unk> sorry from the.

Our enterprise business unit, and we're going to continue to invest in that sector.

Okay, I guess, yeah, and then going off of just that last one, you said investing in that sector, do you guys expect this cash usage to be similar quarter over quarter, you think?

Okay, I guess, yeah, and then going off of.

Just that last point, you said investing in that sector. Do you guys expect this past you should so cash usage to be similar quarter over quarter either.

You know, this past quarter, I mean, like, like I shared again, in the prepared remarks, we recognize some of the downward pressure on working capital, you know, that are coming from, from, you know, macro level trends, and we are working very hard internally to be far more focused on our, on our,

You know this past quarter I mean like I shared again in the prepared remarks, we recognize some of the downward pressure on working capital you know that are coming some from macro level trends and we are working very hard internally to be far more focused on our on our.

on our cash and spend and, you know, looking at, you know, further cost control measures, accessing the ATM facilities should we need that, you know, and like I shared, obviously, in evaluating strategic options for the company. So I think over the next quarter, we should see some of that cash burn start to fall in line, I think, with where we're at in terms of revenue.

On our cash and spend and you know looking at you know further cost control measure of accessing the ATM facility should we need that.

And like I shared obviously evaluating strategic strategic options for the company. So I think over the next quarters, we should see some of that cash burn start to start to fall in line I think with where we're at in terms of revenue.

Okay. Thanks, guys. That's it for me.

Our next question is sorry.

Our next question is from Brian Kisslinger from Alliance Global Partners. Please go ahead.

Sorry, our next question is from Bryan Kipp Springer from Alliance Global Partners. Please go ahead.

I have a few. It's great to see the record bookings in each of the last two quarters, actually, so I wanted to start with...

Great. Thanks, I have a few.

It's great to see the record bookings.

Each of the last two quarters actually so I wanted to start with.

Is it a few big wins, as you said, deal sizes were up some 40%, is it a factor of new states coming on board, is it acquisitions that now have you focused on enterprise, maybe rank some of the factors that are driving the last six months of bookings that have been much stronger than the past for Akerna.

Hmm.

Drivers is it a few big wins as you said deal sizes were up to 40% is it.

Doctor of New States coming on board as it.

Acquisitions that now have you focus on enterprise maybe rank some of the factors that are driving the last six months of bookings that have been much stronger than the past for a corner.

Hi, good morning, Brian . Sure, I'm happy to take that. The biggest factor is, as John noted, the drive into our enterprise business, and that includes upsells, cross-sells from our existing client base.

Hi, Good morning, Brian sure I'm happy to take that.

That's the biggest factor is as John noted the drive into our enterprise business and that includes Upsells cross sells from our existing client base.

So that is the largest factor, although we've also had some very nice bookings from our other business units as well in the past couple quarters. And that is the result of both expansion within our existing client base, winning some business in mature markets, and also starting to see some emerging market activity. And I can tell you that right now we have a really nice pipeline in some of these emerging markets as well.

So that is the largest factor. Although we've also had some very nice bookings from our other business units as well in the past couple of quarters and that is the result of this.

Hi, Bose expansion within our existing client base, winning some business in mature markets and also starting to see some some emerging market activity and I can tell you that right now we have a really nice pipeline in some of these emerging markets as well.

I thought the other highlight of the quarter was your three-year high gross margin. You mentioned, John , a lot of factors that drove that, but I think the key question here is, is that going to fluctuate quarter to quarter, or is that sustainable and you can improve upon that in each of the next few quarters going forward?

Great and then I forgot the other highlighted the quarter was your three year high gross margin.

You mentioned, John a lot of factors that drove that.

The key question here is.

Is that going to fluctuate quarter to quarter is yet is that sustainable and you can improve upon that in each of the next few quarters going forward.

I'm sorry, Brian , you're referring to our gross margin this past quarter. Your gross margin, yeah, 68%. You haven't had that in three years, 12 quarters. So and it's 400 basis points higher than any quarter in the last four or five. So I'm curious, is this...

Yeah, I'm sorry, Brian you are referring to our gross margin. This past quarter. Your gross margin you had a 68% you haven't had that in three years 12 quarters. So it's 400 basis points higher than any quarter in the last four or five so I am curious is this now the well your mixes.

Now where your mix is, you can build upon this, will it fluctuate or can go up and down in any given quarter, gonna take us.

You know you can build upon their swap fluctuate where it can go up and down in any given quarter, it's going to take us through that.

Yeah, I mean, I think I think you're thinking about it directionally. You know, we said for quite some time that our target is to be north of 70 in terms of gross margin. And our target this year was certainly to be in the mid to upper 60s. So we're happy that.

Yeah, I mean, I think I think you're thinking about it Directionally you know we've said for quite some time that our target is to be north of 70.

In terms of of gross margin in our target. This year was certainly to be in the mid to upper 60. So we're happy that that attainment was was here in the first quarter I think a lot of it again goes back to the enterprise business unit and some of the margin profiles of these particular customers the lower churn number of lower customer turnover.

that attainment was here in the first quarter. I think a lot of it, again, goes back to the enterprise business unit and some of the margin profiles of these particular customers, the lower churn numbers, lower customer turnover. It is a really, really healthy business sector. And I think that as we continue to expand,

It is a it is a really really healthy business sector and I think that as we continue to expand.

you know, really expand our business into the enterprise. I think maintaining that upper 60 number is more realistic as we go forward, certainly as we model out that business, you know, that business unit. I think that's a reasonable growth target for us to have. Now, again, we had some uplift from consulting that kind of swing back in the quarter, so that obviously helped.

You know really expand our business into the enterprise I think maintaining that upper 60 number.

Is more realistic as we go forward certainly as we model out that business that business unit I think that's a reasonable growth target for us to have now again, we had some some uplift from consulting that kind of swing back in the quarter. So that obviously helps.

a little bit, because a number of those costs tend to be fixed. But I think overall, as we continue to expand that enterprise business unit, the healthier margins are going to follow.

A little bit because of the number of those costs tend to be fixed, but I think overall as we continue to expand that enterprise business unit that healthier margins are going to are going to follow.

Great last question I've got is.

If you had to comment on the convertible debt and the contingent consideration, what are your plans for satisfying these obligations? Is refinancing the number one option? Are you looking at the value of some of your assets that you can sell? Just maybe take us through that, given where this stops.

If you asked to comment on the convertible debt and the contingent consideration what are your plans for satisfying. These obligations is refinancing the number one auction how.

Are you looking at the value of some of your assets that you can salaries, maybe take us through that given where the stock is.

I'm happy to take that one. As John mentioned in his remarks, as a board, we are actively evaluating all options available to us and certainly do have a number of levers that we can pull.

And I'm I'm happy to take that one.

As John mentioned in his remarks, and as a board we are actively evaluating all options available to us.

And certainly do you have a number of levers that we can Paul.

Okay. Thanks.

As a reminder, if you'd like to register for a question, please press the 1 followed by the 4. Our next question is from Scott Buck with HC Wainwright. Please go ahead.

As a reminder, if you'd like to register for a question. Please press the one followed by the four <unk>.

Our next question is from Scott Buck with H C. Wainwright. Please go ahead.

Hey, good morning, guys.

First question for me, just I want to be clear on the backlog. Is that signed business or is that some, you know, weighted percentage of what you think is realizable out of a pipeline?

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First question for me just wanted to be clear on the backlog is that signed business or is that some you know weighted percentage of what you think is realizable out of our pipeline.

Hi, good morning, Scott. Thanks for the question. No, that is that is signed contracted business for in all of our contracts or at least in

Oh, Hi, good morning, Scott Thanks for the question.

That is that is signed contracted dismissed them for in all of our contracts are at least annually.

Okay, perfect. That's great. Thank you, Jessica. And second, can you remind me, is there seasonality in the sales and marketing spend in the business? I mean, I know we kind of ran this quarter where about where we were in the fourth quarter, but curious going forward whether or not we'll see some meaningful fluctuations in that expense line.

Okay perfect that's great. Thank you Jessica.

Second can you remind me is there seasonality in the sales and marketing spend in the business I mean, I know, we kind of rate in this quarter, we're about where we were in the fourth quarter, but curious going forward, whether or not we will see some meaningful fluctuations in that expense line.

Yeah, yeah, of course. You know, I think when we brought in the Viridian, one thing to consider is sort of the profile of an enterprise business unit. They tend to have, because it's really heavy traditional ERP, they tend to have a larger focus.

Okay.

If you want to weigh in there yeah, yeah, Yeah of course, I think when we when we brought in the viridian, what one thing to consider it.

The profile of an enterprise business unit.

They tend to have because it's really heavy traditional ERP they tend to have a larger focus.

of internal resources that would fall into the sales and marketing bucket. And so that's why you would see sort of a significant step up there in the fourth quarter and this quarter, this past quarter, compared to prior year. It's just sort of the nature of that type of business. But I think if you sort of look at the last quarter, December , in this particular quarter, we've probably normalized our sales and marketing efforts. And I don't think you're going to see any particular step up or step down. Those are probably normalized to support the business today.

Of internal resources that would fall into the sales and marketing bucket and so that's why you would see sort of a significant step up there in the fourth quarter and this quarter. This this this past quarter.

Compared to prior year, it's just sort of the nature of that type of business, but I think if you sort of look at the last quarter December in this particular quarter, we probably normalize our sales and marketing efforts.

And I don't think youre going to see any particular step up or step down those are probably normalize to support the business today.

Okay, that's great, John . And then last one for me, as we think kind of more broadly and the world starts talking about potential recession in 2023, how should we think about your business as being, you know, recession resistant, recession proof? What is the right way to think about it?

Okay, that's great Jon and then last one for me.

As we think kind of more broadly in the world starts talking about potential recession in 2023, how should we think about your business as being you know.

Recession resistant recession proof what are what is the right way to think about it.

Yeah.

Hi, Scott. Good message. Good question there. So, we certainly believe that cannabis proved its recession resilience.

Hi, Scott good message I good question there so.

We certainly believe that candidate proved its recession resilience at the beginning as Covid.

at the beginning of COVID, and we expect that we would see that further in a recession, like another set of vice and comfort and health and wellness categories, things that tend to do very well in recession, like potato chips and makeup and alcohol. I imagine that we're going to see cannabis fall into that category as well. And certainly, that's what our prior results in terms of the data show from our client.

And we expect that we would see that further in a recession like and another set of device and in comfort and health and wellness categories and things that tend to do very well in recession like potato chips and makeup and alcohol I imagine that we're gonna see candidates fall into that category as well.

And certainly that's what our prior results in terms of the data show from our clients.

All right, perfect. I appreciate the time guys. Thank you very much and congrats on the quarter.

Alright, perfect I appreciate the time guys. Thank you very much and congrats on the quarter.

Thank you so much.

Yeah.

And we have no further questions at this time. You may continue with your presentation or closing remarks.

And we have no further questions. At this time you may continue with your presentation or closing remarks.

Thank you, operator. We are the technology ecosystem for cannabis, serving operators, governments, and brands. 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 Akerna, and we look forward to sharing our progress with you as we move forward.

Thank you operator, we are the technology ecosystem for cannabis serving operators governments and brands our ecosystem strategy and strategic investments are focused on locking up the tech spend at 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 the corner and we look forward to sharing our progress with USB missile or.

Okay.

And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day everyone.

And that does conclude the conference call for today, we thank you all for your participation and kindly ask that you. Please disconnect your lines have a great day everyone.

Thank you for watching!

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