Forian Inc. (FORA) Q3 2019 Earnings Report, Transcript and Summary

Good day, everyone and welcome to the Helix TCS Third Quarter 2019 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please note this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Zachary Venegas, CEO and Executive Chairman.

Welcome to the Helix TCS Q3 2019 earnings call. I'd like to thank you for joining us and taking time out to hear what we have to say. I'm joined here by our intrepid CFO, Scott Ogur and we'll both be taking calls at the end of the call itself. So if you have any questions, please write those in at ir@helixtcs.com, that's ir@helixtcs.com, and we'll address all the questions as best we can with the time that we have. I'll now turn you over to Scott for all the fund disclaimer issues for a moment before I continue the call. Scott?

Thank you, Zach. This presentation may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934. Forward-looking statements describe future expectations, plans, results or strategies and are generally preceded by words such as may, future, plan, or planned, will or should, expected, anticipate, draft, eventually or projected. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risk that actual results may differ materially from those projected in the forward looking statements as a result of various factors, risks that we may not realize the anticipated benefits of acquisitions we may make or plan to make and other risks, as identified in the company's 10-K for the fiscal year ended December 31, 2018, and other filings made by the company with the Securities and Exchange Commission. Zach?

Thank you, Scott. So as we kick off, let's start with what we intended to achieve this quarter. And that was simply strong revenue growth, both by activating previous acquisitions and increasing organic sales, operational improvements that were largely focused on costs, but also focused on bringing new revenue verticals to the market, and making sure that we had, for lack of a better term, the right people on the box. So as Scott will illuminate a little bit later on in the call, we've done all of those things, but very specifically, we had a very strong uptick in our sales, especially in the monthly recurring revenue segment which is critical to the firm's health and financial well-being. There are lots of different ways that we're able to access revenue in the market and provide value to customers, but the monthly recurring revenue was most critical to our health as a firm. And so that went up considerably against -- I'll get into details there. We also had, again, operational improvements that were focused on cost cutting, and Scott will detail all those numbers but we've essentially cut a very large amount of cost out of the operating structure without hurting at all any of our operating capabilities. And in fact, we've been able to bring the data and wholesale market segment to bear while doing so. So that's a little bit of the very tricky double header of increasing revenue, while at the same time cutting cost. It sounds easy, but it isn't. And as I like to say it seems simple, it's just not easy. Then we've also had a very strong quarter in the sense that we were able to bring our data segment to bear in the market. That's led by Garvis Toler. We will talk about getting the right people on the box. And that has shown very strong promise in the market, was very well received among our Mexico clients. So to get to the next piece is to say, look, we spent quite a bit of time actually on the BioTrack transaction ensuring we had the right people on the team. We think that we're done with that segment. And to talk about the positive we've been able to bring on Garvis Toler, who we're sure that you saw in the press releases, if you've been following us, has a very impressive, for lack of a better term, Wall Street background, all the way up to and including being the Head of Capital Markets for the New York Stock Exchange as well as being the Head of Business Development and Sales for another data-driven business that's very large and a leader in its space Dealogic. So with him at the helm of our data segment, we feel very, very strong that we're going to be able to get into the market and achieve all the objectives on the revenue side that we've set out for ourselves just on that segment. There's another sort of benchmark that we achieved in the market. And I just want to talk about that, which is to say, we were selected for the Deloitte Fast 500, which is to say, the fastest growing technology companies in the United States. We were number 32. And that's not just for cannabis, that's not some award that you can just buy by subscribing or only being compared to your cannabis peers who have the same exact problems you have. That listing is no holds barred among all the small technology companies in the market. We're very proud of that. And that's a clear indication that we're driving value in the market. The one other piece I'd like to talk about before I turn over to Scott, to get into the details of the supporting details of what we're doing is just to say this. As the market has gone up and down over the last, let's say, six months, we really as a firm have held up better than others. And although we can't do anything about the market per se, anyone who's paying close attention, can see the clear trends where the market is not viewing us in the correct way. And I just want to make sure that, first and foremost in everyone's mind when they're evaluating our stock performance, vis-à-vis the company's performance is what I hope you'll focus on here. Scott?

Thank you, Zach. In the third quarter of 2019. we generated revenues of $3.74 million, as compared with $3.11 million in the prior year for an increase of 20%. Gross profit was $1.5 million versus $1.2 million in 2018 third quarter, a 23% increase. Gross margin was 41% as compared with 40% in the prior year. We reported a loss from operations of $2.86 million is compared with $2.74 million in the prior year's third quarter. Cash flows from operations were negative $973,000 in Q3 2019 verses negative $1.6 million in 2018, third quarter, a 39% year-over-year improvement. For the first nine months of 2019, we generated revenues of $11 million, as compared with $6.1 million in the first three quarters of 2019, an increase of 80%. Gross Margin for the first nine months of the year was $4.9 million, or 44%, as compared with $2.2 million and 36% in the same period of 2018. On a segment basis, the two primary business segments are software and security guarding and monitoring. In the third quarter of 2019 software, which is the BioTrack business, generated revenues of $2.4 million, as compared with $1.7 million in the prior year, or 43% year-on-year growth. Software gross profit was $1.45 million in Q3 2019, up 64%. From the $885,000 gross profit in Q3 2018. Software gross margin was 62% versus 54% in Q3 2018. The BioTrack business line continues to see strong growth as we added 300 new license customers and had our best quarter of new bookings ever, at $489,000. We are most pleased by the 10% sequential increase in recurring commercial revenues in Q3 2019 to $1.6 million As most of you know this is a crucial metric for software companies. The security guarding and monitoring business had revenues of $1.14 million in the third quarter of 2019, flat to Q3 2018. In the first nine months of 2019, security, guarding and monitoring generated revenues of $3.7 million up from $3.4 million in the same period of 2018. Zach, I'll kick it back to you to address items that have occurred since the end of the quarter.

Thank you, Scott. So, as you can see we set out and achieved all of the goals that we have set for the quarter and I would even argue a little bit and then some. And in terms of not just non-financial goals, we closed the Amercanex transaction, which we had said in the previous call will be closed during that quarter. We expect to begin onboarding clients soon. And in addition, but under the auspices of that business we will continue to serve not only commercial, but big government in terms of their expanding cannabis needs, which will eventually include the hemp market. In addition Analytics [ph], which is our data arm has already begun onboarding clients, and we expect that business to take off strongly in the quarters to come. That's all the announcements that I have, that we can look forward to and we can speak about but I encourage everyone to watch closely because if everyone remembers what we've always done in the past, is we've said little and done much. And I think that trend will continue going forward. And if there's nothing else we will now move to the question.

[Operator Instructions]

So we have some email questions here that are already in the queue. And I'll start with those. So the first question is, I'll leave out the name but they say, I own almost 40,000 shares of your stock and I'd like to keep purchasing more as I believe in the software, but I'd love to have a conversation about the mega dive that happened over the last few months. So we're not surprised that that's actually the very first question. And to be frank, it's simply a sector decline. So right around the May-June time period we were expecting and it actually came to pass what we call risk off which is to say, lots of investors who view cannabis and the cannabis sector as a sort of frontier market which you've heard Scott and I mention many, many times, decided to pull back on their risk allocation and start to sell. So given the fact that that timing occurred, and the summer is also a seasonally light period for volume, I think this sort of exacerbated the effect. And given all the other things that are going on with the economy expectations, people were just what we call in the risk off mode. So there was a significant pullback and that's really what happened. If you look at that pullback in time, in terms of the data that we were putting out, and with regard to our performance, there's no real correlation. They were and it wouldn't surprise us today, with even the great results that we produce, we may sell off. It's very hard to know what the markets going to do and how it's going to interpret things. But what's clear is that as the writer observed, the market really hasn't caught up with the full value proposition in our view. And so there's nothing more I can say to within that but, the market often overcorrect, I believe for risks that are, that it sees by the sector. And I think that's all that happened then. So I have another question. The next one is how has the addition of Garvis Toler impacted the company as a whole? So I'm very pleased to report that it's had a great impact, both in terms of our operational capabilities with the launch of Analytics and getting that vertical up and running in a quality way with deep collaboration with clients in record time, but also Garvis has made impact in other areas as the capital market expert. Having him on-board has really allowed us as a leadership to look at the market -- actually to look at the market and almost ignore to a degree and really focus on the metrics and measures that are going to make the company valuable over the long-term, because just like everyone else as we see the ups and downs happen, it does produce a sense of urgency and annoyance in that the market doesn't recognize what we do. But again, having an experienced and seasoned hand like Garvis gives us the perspective on all of that. So the next write-in question is what advice would you give investors who are thinking about cannabis companies in their portfolio? So that's could be a very wide ranging question. But what I'd say is really understand the business model of the firm you're investing in and really understand where they fit in the ecosystem of cannabis. And when I say that I mention that also includes hemp, right? So again, we'll have some things to say about the hemp market in the weeks to come. But really, I think when people talk about cannabis everyone talk thinks and speaks about growers, potentially retailers. But there's a much larger ecosystem and just keep this in mind. Cannabis as an industry is really not new. It's new and exciting from the legal point of view. But it's not a new market. It's essentially an organic -- it's the plant that we grow harvest, it goes broken down, it's cooked to its component parts for whatever it's going to be used for. And then an ecosystem of service providers have evolved around it. Well, that's existed for a very long time, I would say, probably thousands of years. And so look at it in a historical context, when you have that type of situation, who wins and who loses. I don't look at that first. And in that situation in the market, consolidate commodity pricing gets driven down. Now they'll be winners in almost every segment. But what are the characteristics of those winners on a larger scale? Are the first to market, or is it simply the best product which it often is not? So I would say really understand your own investment thesis and look at what you're trying to get at, where you think the value will be from a macro perspective, and then start to drill down on to individual names. And then you always have to add in the wrinkle of federally legal, but legal on a state-by-state basis within the U.S. And then seemingly gaining much greater acceptance internationally as a legal product. That wrinkle will also I think, produce some good insight on who might be the winners and losers. So that's my take on that from an investment perspective. I don't know if Scott, in particular would have anything to add to that.

No, no, I think you summed it up perfectly that.

Great. So that concludes the write-in portion of the Q&A. Do we have any live questions?

There are no phone questions on the line at this time.

Okay. Well, thanks again, everyone for joining us on the call today and we wish you the best and we'll see you in another quarter.

This does conclude today's program. Thank you for your participation and you may now disconnect.