Earnings Call Transcript - FORA Q1 2020

Operator, Operator

Good day and welcome to the Helix Technologies Earnings Call. 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. It is now my pleasure to turn today's conference over to the CEO, Zach Venegas. Please go ahead, sir.

Zach Venegas, CEO

Good afternoon and thank you for joining us today for the Helix Technologies Q1 2020 earnings call. And we hope that you’re all safe and well. Mirroring our 2019 annual report, our Q1 2020 was the strongest quarter in our Company's history and we are very excited to review last quarter's performance. We reached critical strategic and operational performance objectives to include largely completing the strategic and operational integration and turnaround of the BioTrack THC unit, accelerating the rollout of our data products, and substantially growing our sales and market share organically, while simultaneously improving operating margins. I'll turn it over to our intrepid CFO, Scott Ogur, to read the required disclosure and connotations. Scott?

Scott Ogur, CFO

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 risks 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 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?

Zach Venegas, CEO

Thank you, Scott. As usual, to 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 line with that, our 2020 objectives to support that mission are: number one, to continue to improve our operating performance and reach profitability, which is clearly happening quarter-by-quarter; expand our data offering by bringing our newest product Cannalytics Beacon to the market by 420; fully rolled out Helix Core into all state markets; expand our Delaware Hemp wholesale market into other states; continue to drive sales growth across all of our verticals; navigate the current COVID-19 pandemic in a proactive and rational manner; and continue to stay ahead of the negative outcome cascade; and to improve Helix's capital formation and capital markets capabilities with increased investor outreach and emphasis on market communication. Now that we've established the why and the how, let's move to the operational results for Q1, which were, despite the emergence of the COVID-19 epidemic, outstanding, with significant advancement of our 2020 goals. Some examples were: Number one, the near completion of the operational turnaround of the BioTrack THC unit, resulting in dramatic improvements to be outlined by our CFO in our financial and operational performance. Two, expanding our data offering by bringing our newest product Cannalytics Beacon to the market by 420, which did occur on time and to standard. We further delivered additional growth in our Cannalytics unit, which Garvis Toler, our Head of Data will highlight. And three, the full integration with Dama Financial, which gives our clients another option to seamlessly integrate a fully compliant banking solution into their operations and further expands our services ecosystem. I will now turn it over to our CFO, Scott Ogur to run through the financial impacts of these operational and strategic successes.

Scott Ogur, CFO

Thank you, Zach. In the first quarter of 2020, we generated revenues of $4.55 million, as compared with $3.37 million the prior year for an increase of 35%. This is yet another record quarter of revenues for Helix. Reflected sequential growth of 6% and represents an annual revenue run rate of more than $18 million. Gross profit was $2.29 million versus $1.45 million in 2019's first quarter, a 58% increase. Gross margin was 50% as compared with 43% in the prior year. We reported a loss from operations of $3.4 million as compared with $2.6 million in the prior year's first quarter. Our adjusted EBITDA, which excludes stock compensation and other noncash expenses was negative $79,000 in the first quarter of 2020 versus negative $1 million in Q1 2019, validating our efforts in the push to get Helix into the black on this cash flow metric during this calendar year. Looking at another cash flow measure, cash flow from operations were negative $362,000 in Q1 2020 versus negative $1.2 million in 2019's first quarter, a 69% improvement. This was a further 35% sequential improvement from the Q4 2019 cash flow from operations of negative $556,000, and again compares quite favorably to other ancillary service providers, some of whom are burning the same amount of cash from operations in an average week. On a segment basis, the two primary business segments are security guarding and monitoring; and software. The security guarding and monitoring business had revenues of $1.6 million in the first quarter of 2020, a 32% increase from the comparable period in 2019, driven by our client growth in California. The gross profit in Q1 2020 from this business line was $278,000 as compared with $264,000 in Q1 2019. This business line grew in the face of the COVID-19 pandemic late in Q1 and beyond, as many of our clients required additional security personnel to handle curbside pickup. Focusing on our larger and higher margin software business now. In the first quarter of 2020, this business line generated revenues of $2.8 million, as compared with $2.1 million in the prior year, or 30% year-on-year growth. Software gross profit was $1.96 million in Q1 2020, up 49% from the $1.31 million gross profit in Q1 2019. Software gross margin was 70% for the second straight quarter and up 8 percentage points versus 62% in Q1 2019. Recurring commercial revenues at BioTrack experienced 8% sequential growth in Q1 2020 and 40% growth year-over-year. As most of you know, this is a crucial metric for software companies. I'd like to point everyone to our 10-Q where we provide segment reporting results. I'd highlight the software business unit, which showed a loss from operations of $253,000. However, included in this GAAP figure was $1.09 million of depreciation and amortization. So, the adjusted EBITDA of our software business in Q1 2020 was positive $780,000 or 28% EBITDA margin. The management team has worked very hard with the current BioTrack business unit heads and employees to get to this point. And despite being the industry leader, we will not stop working to drive continual improvement of this business. We'd now like to take a moment to have Garvis Toler, our Head of Data, highlight Helix's Cannalytics product and what we've achieved so far.

Garvis Toler, Head of Data

Thanks, Scott. As we've been discussing, the Cannalytics data suite of products and services has been a continued strategic focus as we move forward in 2020. And we're encouraged as investors and wider market participants begin to fully recognize data’s increasing importance for both our government and industry clients. This has never been more apparent than in the first quarter of this year, during which the industry was forced to adjust to an incredibly dynamic environment, understanding changing customer behavior, inventory flow throughout the supply chain, and shifting regulator reactions has given Cannalytics clients an edge as they seek to operate more effectively. In the first quarter, we surpassed well in excess of 100 clients across the U.S. and allowed them to use business intelligence insights to not only stay afloat but to unlock new opportunities to serve their patients and clients in new and creative ways. As Zach mentioned on the last call, we have been in development on an additional data service which allows our clients in specific geographies to take advantage of technology designed to attract new customers and increase sales. In the first quarter, we delivered Cannalytics Beacon to its first clients and the early feedback has been overwhelmingly positive. Within our ecosystem, we have a tremendous total addressable market for data, both the end users as well as third-party data consumers. Leveraging just a small percentage of our existing network could dwarf our nearest competitor in this space. It is in this easily and infinitely scalable ecosystem that we see our greatest potential to drive shareholder value. We will continue to build new capabilities into the Cannalytics product suite as well as develop relationships with high-quality partners to extend the power of the Helix platform. By some estimates, cannabis industry participants have planned to spend over $500 million on data and technology over the next 12 to 18 months, and Helix is certainly well-positioned to win a meaningful share of this market. Back to you, Zach.

Zach Venegas, CEO

Thank you, Garvis. In conclusion, I'd simply like to recognize the market-leading performance of the Company. Our operating leverage is clearly evident in our results, and we continue to create strategic value for our clients and real business value that we feel strongly is still overlooked by the Company's stock price. The leadership team is taking direct steps to address what we feel are the causes of that mispricing, and we hope to report success in those areas on our next earnings call. In closing, I'd like to thank, as always, our employees whose perseverance and skill are evident in this firm strong performance. We look forward to continuing to lead the market in operational performance day in and day out, and hope that you all remain healthy and safe. We'll now take some questions.

Operator, Operator

We'll take our first question from Dave Author.

Unidentified Analyst, Analyst

Yes. Hi. I have a question for Zach or Scott. When are you going to stop selling shares into the public market and flushing share price down the toilet? I guess it was like 210,000 insider shares sold in the last month by Scott and Zach and who else was it? It is three of them. You're just flushing the share price right down the toilet. And then, you claim that the market is mispricing it, but you're the one that's crashing it.

Zach Venegas, CEO

Thank you, Dave, for your question. This is Zach Venegas, the CEO. I want to clarify a couple of things right away. First, your totals are incorrect. Second, since Scott and I founded the Company five years ago, we have retained over 98% of our total shareholding, which is unrelated to the current share price. There has been a 10b5 program in place for very small amounts of insider shares over time, but nothing near what you've suggested. You're miscalculating the number of shares because you're not interpreting the reports correctly. Overall, the small amount of shares compared to the millions available is primarily from non-insiders in the last seven months, which we believe is the main reason for the stock price decline. It’s unreasonable to suggest that a few hundred thousand shares over five years are causing the stock price to drop. Moving on to your next question about our long-term plans for data and potential revenue streams beyond the business intelligence tool, we are engaged in advanced discussions with various third-party data aggregators and users to enhance usage and revenue for our product. We’re assessing where we can achieve the best returns for the data product outside of business intelligence. I also received a question regarding liquidity and the convertible notes. The question concerns why we took on convertible notes that have led to low stock price sales and when we will focus on improving our liquidity. In hindsight, it seems these converts were initiated at a low price, but at the time, the market was very tight for capital. We wanted to avoid substantial sales of equity at low prices, so we did the minimum necessary to keep our operations running, allowing us to focus on our turnaround and the improved results we've seen over the last two quarters. We are already noticing significant improvements in financing that we expect to discuss positively in the Q2 call. Regarding liquidity, we are not in a position where we need to raise large amounts of money to survive, unlike some others. Our business has strong operating leverage, and our model is not centered around fundraising. We are confident in our current position and will continue to enhance our liquidity as we move toward profitability. Is there another question on the line?

Operator, Operator

We'll take our next question from Jeff Miller.

Unidentified Analyst, Analyst

A while ago, I read that Vicente Fox had joined the Board. And I was curious if he was still on Board and what his role is in the Company?

Zach Venegas, CEO

Great. So, I’ll answer that. This is Zach again. So, we answered this one also on the last call, which is to say. So, he is on Board and we're going to continue to evaluate his role going forward, simply because as you know with the global pandemic and a few other things Latin America hasn't come online as fast as we thought this time last year. So, we'll continue to evaluate all the Board memberships and who adds the most bang for the buck again, so to speak, and at what time. And so, we'll make appropriate announcements when necessary.

Operator, Operator

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

Zach Venegas, CEO

All right. Well, thank you very much everyone for dialing in, and we hope that everyone continues to stay safe and sane. And we look forward to the next quarter's earnings call as well. Thank you for your time.

Operator, Operator

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