Forian Inc. (FORA) Q4 2019 Earnings Report, Transcript and Summary

Good day, everyone and welcome to the Helix TCS Inc. Earnings Call Fourth Quarter and Full Year Fiscal 2019. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [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. Please go ahead sir.

Thank you for joining us today for the Helix TCS 2019 earnings call and we hope that all of you are safe and well. 2019 was the strongest year in our company's history and we look forward to reviewing our last four months performance. We reached critical strategic and operational performance objectives to include acquiring Amercanex, the only fully complaint electronic wholesale cannabis and hemp exchange and Tan's International, a security service provider in California; launching our data business with the rollout of Cannalytics; substantial updates of our legacy products and accelerating sales growth throughout the year into 2020 and growing our market share while shrinking expenses. But before we get to the details, I'll turn it over to our CFO, Scott Ogur to read the required disclosure formula. 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, 2019, and other filings made by the company with the Securities and Exchange Commission. Zach?

As we begin our review, let's start by looking at our mission statement. The mission of Helix Technologies is to provide clients with best in class, critical infrastructure services through a single integrated platform which enables them to run their businesses more safely, efficiently and profitably. In order to support that mission, we formulated a number of objectives for 2019. One, add new feature sets and improve user experience in the legacy bio effects of our products. Two, launch our data business. Three, expand our ecosystems to include value add alliances and partnerships to deliver even more functionality and value to our customers and four, grow revenues organically and through acquisitions. The strategic and operational outcomes against those objectives were; one, the acquisition of Amercanex, which is now fully integrated and begins operations on April 1. Two, the launch of Cannalytics, which Garvis Toler, our Head of Data will speak to more specifically later in this discussion. Three, the acquisition of Tan's International, which marks our full launch into California with a dedicated office and team, which has enjoyed outstanding revenue growth, which our CFO will outline. Four, the conclusion of strategic partnerships with Dama Financial, Alt Thirty Six, I Heart Jane, Sprouts [ph], Strainapse [ph] continued partnerships with DataOwl and [indiscernible]. Five, we've received independent recognition of our performance in being named the 32nd fastest growing technology company by Deloitte Technology's Fast 500, which is a comparative survey of not just cannabis companies, but all technology companies and although the public markets don't recognize our value yet, any objective measure of value clearly puts the firm among the top performers in the industry as recognized by Deloitte. I will now turn it over to our CFO, Scott Ogur, to run through the financial outcomes of these operational and strategic successes. Scott?

Thank you, Zach. In the fourth quarter of 2019 we generated revenues of $4.28 million as compared with $3.45 million the prior year for an increase of 24%. We are excited to report that this is our first quarter of revenues in excess of $4 million reflected sequential growth of 14% and represents an annual revenue run rate of more than $17 million. Gross profit was $2.25 million versus $1.37 million in 2018 fourth quarter a 64% increase. Gross margin was 53% as compared with 40% in the prior year. We reported a loss from operations of $2.3 million as compared with $3.06 million loss in the prior year's fourth quarter. Cash flows from operations were negative $556,000 in Q4 2019 versus negative $589,000 in 2018 fourth quarter a 6% improvement. With our operations in Q4 2019 burning less than $200,000 per month, our push to get the cash flow positive continues and clearly sets us apart from other ancillary service providers who were burning 3 to 10 times as much cash as Helix. For the 12 months ended December 31, 2019, we generated revenues of $15.3 million as compared with $9.6 million for the 12 months ended December 31, 2018 an increase of 60%. Gross margin for calendar year 2019 was $7.1 million or 47% as compared with $3.6 million or 38% in 2018. This represented just under 100% growth year-over-year. As we've grown the company's existing operations and added new lines of business, we've prudently added the necessary infrastructure to support that growth. Despite that, our 2019 cash flows from operations improved by 7% from 2018 demonstrating our ability to fund that infrastructure from gross profit growth. On a segment basis the two primary business segments are Software and Security Guarding and Monitoring. In the fourth quarter of 2019 the BioTrack software business generated revenues of $2.6 million as compared with $1.9 million in the prior year or 34% year-on-year growth. Software gross profit was $1.82 million in Q4 2019 up 54% from the $1.18 million gross profit in Q4 2018. Software gross margin was 70% versus 61% in Q4 2018. Last quarter, I was able to report a 10% sequential increase in recurring commercial revenues at BioTrack. This quarter I'm proud to say that we improved this yet again to 11% sequential growth in recurring commercial revenues. As most of you know, this is a crucial metric for software companies. It was also a primary driver of the 9 percentage point year-over-year increase in gross margin percentages from the Software business for both the fourth quarter and the full-year. The power of our platform became increasingly clear in 2019 as we generated over $320,000 in revenue from third-party integrations in Q4 2019 a 70% increase from the first quarter of the year. The Security Guarding and Monitoring business had revenues of $1.33 million in fourth quarter 2019 which was slightly lower than the comparable period in 2018, primarily due to one large client closing operations. For the year ended December 31, 2019, Security Guarding and Monitoring generated revenues of $5 million, slightly higher than the $4.9 million recorded in 2018 while maintaining a gross margin of 20%. In Q4 of 2019, our California Guarding business began to see growth following the acquisition a few months earlier and that growth has continued strongly into 2020. We'd now like to take a moment to have Garvis Toler our Head of Data highlight Helix's analytics products and what we've achieved so far. Garvis?

Thanks, Scott. As most of you are now aware, Cannalytics represents a major push for us as we continue to innovate in the data and intelligence services basis. It is especially important because it is an organic effort made possible by leveraging our existing technology and sales infrastructure, our in-house domain expertise and a couple of key hires in data science. We announced a few weeks ago that this relatively new product launched in Q4 of 2019 has now surpassed 100 clients, which is a significant milestone and validation of our strategy to take advantage of our unmatched depth from BioTrack's database, with over a billion records from over 20 billion in transactions over the last decade. While I can't go into our roadmap here, it suffices to say that we are excited about the innovation that the Cannalytics team is bringing to the market working directly with our client base, which most of you know represents the majority of the multistate operators and some of the smaller shops as well as about 40% of the state governments and other municipalities in medical and adult use cannabis today. At the risk of sounding like a commercial, let me take a minute to describe what is the first peak of Cannalytics platform development today. And as I mentioned earlier, this is currently on the laptops and phones and in use at over 100 clients with dozens more in the pipeline. As I've learned in the long career using software and data products from Wall Street, win and running businesses, creating and selling them to a variety of audiences, data for its own sake is useless it can be easily served up to drive decision making and action preferably in a visually appealing way and in a mobile first design. Cannalytics does just that. So to give you a handful about capabilities of Cannalytics, it provides automatic daily email alerts, single location and aggregate level sales views which are doable for on the fly analysis, customer and products data, and state-level customer heat maps driven by the best in the industry geographic model. So again, we've given you just a few functions, but we wanted to give you all an introduction to a new category for us that extends beyond BioTrack's platform and into what we expect to be a rich suite of business intelligence products that will drive growth and value in the coming quarters. Over to you, Zach.

Thank you, Garvis. In conclusion, I would simply like to recognize the strong operating performance of the company in a very difficult market environment. Helix Technologies achieved the business hat trick of growing sales while improving margins and improving cash flows with the minimum in investment capital. This is an indicator of what I believe the company will continue to do. We are always focused on delivering results to investors as we are to serving our customers and to that end we have set objectives for 2020 that will concentrate on driving value recognition and last step we are driving underlying company performance. Specifically, we aim to achieve the following 7 goals. Number one, focusing on improving Helix's capital formation and capital markets capabilities, with increased investor outreach and emphasis on market communication. Number two, continuing to improve our operating performance and reach profitability. Number three, expand our data offering by bringing our newest product, Cannalytics [indiscernible] sales enhancing data service to the market by 420 [ph] fully rolling out Helix core into all state markets. Number five, expanding our Delaware Hemp wholesale market into other states. Six, continuing to drive sales growth across all of our verticals. Number seven, navigate the current COVID-19 pandemic in a proactive and rational manner and continue to stay ahead of the negative outcome cascade specifically employee safety is and will continue to be our number one priority. Our software developers and client service teams have already been working from home over the last two weeks and will continue to do so for the foreseeable future, while working with clients to minimize negative impacts on their businesses and finding ways to improve their situation while our security personnel continue to stay in post where required. We have currently not had any substantial revenue or operational impacts from the COVID-19 outbreak and are monitoring the situation with the full attention that it deserves. In closing, I'd like to thank first and foremost our employees whose work, fortitude and intelligence make our success possible. We believe that the public markets have not properly valued the firm and therefore there is great opportunity for investors as they will compare our performance and stock price to that of any other firm in our space. We look forward to an outstanding 2020 and we wish everyone the very best. We will now take some questions.

[Operator Instructions] I will turn the program back to Mr. Venegas to take questions previously submitted.

Yes, thank you. So we do have a few questions that were previously submitted as was mentioned. Number one, I'd like to address is, why is the share price so low in maintenance terms despite nothing but positive news. So the answer to that is simply to say that we can't intelligently speak about why the collective investment community has not recognized the value that we see in the company, but there are certainly non-company specific items that impact our share price, now least of which is the massive sell off and decline in all cannabis stocks over the last nine months. That accounts I think for quite a bit of the decline in our stock price. There may be other factors in terms of investibilty of the exchange [indiscernible] and other things, but we'll work on improving and increasing the share price over the next 12 months. Number two, why do insiders keep selling even when the price is [indiscernible] share. And it is simply this, we have a 10b5 program which is a stock sale program that we do not control, so we are making sure that we are staying away from any issue with the SEC in the firm quite a long time ago. And in reality we certainly buy some of these plans are much less on average than 3% right around about say 2%. In addition, the CFO and myself Scott Ogur and myself had well over 97% of the shares that we started with over five years ago. so there is no question that we do not believe in the firm or trying to profit or trying to hurt the firm and selling indiscriminately. So again the 10b5 program is not controlled by us individually and we do that to make sure that we don’t run foul of any rules, so that's that in a nutshell. The next question is, do you foresee the epidemic affecting your growth trajectory? So in the long term we don’t, but again we don’t want to be in the business of prognostication especially about something like COVID-19. So we do think there will be some short-term impact. What they'll be, it will lead a way. In fact, we've seen retail cannabis sales go up, so that would mean that a lot of our retail clients in any case meaning retailers as opposed to growers should be doing better. But we don’t know what this will mean over the long-term should federal shutdowns change and what is determined in essential and nonessential business. Should that change, that might also impact us. So over the long term we think we are still in a strong growth trajectory over the short term we'd rather not try and forecast. I have already mentioned the next question which has coronavirus affected your client base? It is essentially drive sales up, both in terms of the number of people going to retailers as well as the average purchase amounts. So that seems to be a short term ruse, but we'll see. The next question is, how have personnel changes affected growth? And my answer to that is largely in the positive. We've had a very good sort of upgrade in personnel in key roles and it is really driving performance at the firm and I think later in the year there will be some metrics coming out showing what our revenue per employee is and that's on a very, very good trend line. Do we have any callers on the line? All right, so if we don’t have any callers on the line, I'll address a couple other issues that – a couple of other questions that came in from before. So one is the addition of Vicente Fox to the Board. So Mr. Fox has agreed to be on our Board, but we haven’t empanelled him as yet because Mexico's cannabis program has slowed down significantly and we don't want to essentially get ahead of the curve by focusing a lot time and resources in Mexico when it's not quite ready for market development. So when that changes, we will make the appropriate entitlements. So there is that. And then the next question is, you said in the last earnings call that the market really hasn’t caught up with the full value proposition in our view, in spite of that, in the stock market and your direct competitor KERN, Akerna is at a $64 million market capital, Helix is at a $12 million market cap. Does company management believe that it is a peer of KERN and it should be valued in the same range? The short answer is yes and it is a very simple comparison. If you look at our revenues as of this report, we have 25% higher revenues and we burn approximately $200,000 a month as of this reporting. Akerna's apples-to-apples comparison would be again 25% less revenue and burning more than $1 million a month. In addition, if you look at our cash flow from operations trend line, I think it shows a very strong story and I expect it to continue. So that alone is a very straightforward comparison that we are in fact peer competitors in the industry. So there is that question. Anything else, is there anything on the line now?

Yes, there a few questions on the line. We'll take our first question from Thomas Clancy [ph]. Please go ahead, your line is open.

Yes, question, what is the strategy of a software company with a low, relatively low labor cost and high margins acquiring a security business which is high labor costs and low margins? Thank you.

Thank you for dialing in Tom. And so the answer is actually the answer is very straightforward, it is actually the opposite. We started our first business it was a security company, so in fact what happened was, low margin high personnel security business acquired a high-margin low personnel count software business and then proceeded to nearly double it over the time we've had it. So that's actually the answer to that, it's the other way around. Thank you. Next question?

We will take our next question from Wes Andres [ph]. Please go ahead, your line is open.

Hey there, how are you doing this afternoon?

Fine, yourself?

Good, very well. I had a question, I've been following you guys for a while now and I wanted to know if you had any plans of uplifts to a major exchange and if so, what's your target price?

So, thank you for the question. And I really, I can't speak to that directly, because again that's forward-looking, but what I'll tell you is, as the CEO and Chairman of the Board, we have a serious responsibility to make sure that we're maximizing shareholder value for all of our shareholders and given what our stock price has done where we are now, that's certainly something that we are looking at and considering all options, that really what I can say to that.

All right, thank you very much.

[Operator Instructions] We will take our next question from [indiscernible]. Please go ahead, your line is open.

All right, I hope everyone is doing well. I guess my question would be just in regards to the balance sheet. I've noticed recent activity taking on a sizable loan with steadily high interest rate, I was just wondering how does the balance sheet project into the next year's sales operations?

So thank you for the question, it's a great one. So again, we don’t speak to directly forecasting our balance sheet, but what we're trying to do is, given our cash flow trajectory we're trying to make sure that we use all forms of capital, especially those that are non-dilutive to our shareholders and employees because we are so close to cash flow breakeven, we don’t want to dilute ourselves anymore than we have to. So we will continue to manage our balance sheet very closely and based on the next couple of quarters make some decisions about what our capitalization should look like. But again, we're trying to make sure that we're using capital as minimally dilutive as possible. Thanks for the question.

Thank you.

And Tom, I think that's our last question, because we have a 5 o'clock deadline.

And there are no further questions on the line at this time.

Fantastic. Well we thank everyone for joining us on the line and we hope that everyone continues to stay safe and well and we look forward to speaking to you at the next quarter's earnings call. Thank you.

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