Earnings Transcript for KERNW - Q1 Fiscal Year 2021

Operator: Good morning, and welcome to Akerna's Quarter Ended September 30, 2020 Financial Results Conference Call. Today's call is being recorded. All lines have been placed on mute. [Operator Instructions] At this time, I would like to turn the conference over to Kristen Naughton, with Akerna, for introductions and reading of the Safe Harbor statement. Please go ahead, Kristen.

Kristen Naughton: Thank you, and welcome to today's quarter ended September 30, 2020 conference call. Representing the company today are Jessica Billingsley, CEO of Akerna; and John Fowle, CFO of Akerna. Both will be available for questions during the Q&A portion of today's call. Before we begin our formal remarks, I'd like to remind everyone that during this conference call certain statements will be made that are forward-looking statements within the meaning of the Safe Harbor Provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as estimates, projected, expects, anticipates, forecasts, plans, intends, believes, seeks, may, will, should, future, propose, and variations of these words or similar expressions, or the negative versions of such words or expressions are intended to identify forward-looking statements. These statements include, but are not limited to, statements regarding the future growth and prospects for Akerna, and statements regarding expected future revenue recognition. These forward-looking statements are not guarantees of future performance, conditions or results, and involve several known and unknown risks, uncertainties, assumptions, and other important factors which could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements, including risks related to changes in the cannabis market and risks related to the impact of the COVID-19 crisis. These risk factors are more fully discussed in Akerna's filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Akerna undertakes no obligations 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, I would like to turn the call over to Akerna's CEO, Jessica Billingsley, for more in-depth discussion of company's quarter ended September 30, 2020. Jessica?

Jessica Billingsley: Thank you, Kristen. Good morning, everyone. Thank you for joining us, and we welcome you to our conference call for the quarter ended September 30, 2020. As the calendar year comes to a close, I'd like to take a moment to reflect on all we have accomplished this quarter. First, let me begin by addressing the historical action we have just witnessed. A total of seven ballot measures in five states were up for a vote this past election. Every single state approves their candidate's measure by a wide margin, and the only measures that did not pass were those competing with other cannabis ballot initiatives. We now have four new adult-use cannabis markets, two new medical markets, and far more opportunity for the cannabis industry and cannabis technology solution. Based on existing adult use in medical markets, we estimate these ballot measures passing represent approximately $18 million in new total adjustable market for our software offering. In addition to the states that just passed the ballot measure, there are many more state governments with pending legislative initiatives as they look for ways to generate jobs and tax revenue. We are delighted to see the cannabis industry playing a role in helping these states generate new revenue streams. We also look forward to assisting clients in new states to gain license there, as we did in Iowa, where 100% of the medical cannabis dispensary licenses were awarded to MJ Freeway consulting clients. We are pleased to report in this quarter our total revenue increased 16% when compared to the same period last year, to $3.7 million. We are on track to deliver strong year-over-year software growth in excess of 30%. Our software revenue increased 40% on a year-over-year basis, and our total SaaS ARR is currently $14.1 million, a 44% increase over the same time last year. These strong gains in software offset declines in our consulting revenue. As I noted several months ago in our annual earnings call remarks, narrowing our focus to client experience has increased our market share among the multi-state, international, and emerging enterprises in the $17 billion global cannabis industry, further illustrating the value of our technology to the important mid-market and enterprise client base. Our average MJ Platform deal size has also increased by 94% year-over-year. On average, MJ Platform client number of transactions tracked in our system has also increased by 180% year-over-year. Throughout 2020, we have doubled down on our existing client partnerships, and both our client and product experience, ensuring we are sticky as possible with our rapidly consolidating and growing client base. Our retention rates have improved significantly. MJ Platform delivered 99.99% uptime, and our average client satisfaction rating across all products exceeds seven on a sale of one to 10. 2020 has been a banner year for the cannabis industry. Product demand continues to grow with consumer sales increasing nearly 80% year-over-year. Nearly every state and country has declared access to cannabis essential, with new technologies employed to facilitate digital sales channels, direct-to-consumer delivery, and curbside pickup. The industry's growth has enabled us to continue to pursue our strategic objectives. In a time when investment capital is scarce among many sectors, Akerna successfully closed a $12 million public offering which positions us to capitalize on the enormous market share opportunity in newly opening cannabis markets in New Jersey, Arizona, Montana, South Dakota, and Mississippi. With pro forma $23 million in cash and a strong balance sheet, we are well-capitalized to deliver top line growth and drive towards profitability. In addition to the public offering, we also announced a series of strategic partnerships and acquisitions that will boost our revenue growth and expand our market share gains across the industry. As Canada's industry-leading seed-to-sale platform we enjoy a majority market share and serve some of the world's largest brands, including Aphria, Aurora, Cronos Group, Organigram, and several other large Canadian enterprise businesses. After closing our Ample acquisition, in early July, we fast-tracked our efforts to fully integrate Ample into our business. Under the leadership of Tom Ritchie, Ample Organics' President, the pace of integration has accelerated, brining the business unit to cash flow neutral ahead of schedule. We are now aligned and focus on revenue opportunity, in addition to the compelling opportunity to sell our retail offerings as provinces and territories continue to issue new licenses for adult-use, there is a significant opportunity to sell the Akerna ecosystem's GMP and accounting system integrations with Sage Intacct, NetSuite, and SAP into our significant Canadian enterprise operator base. We will also be pursuing opportunities to leverage our pharmacy-specific functionality in the U.S. In August, we signed an agreement with Priority Technology Holdings to provide CBD and hemp retailers that use Akerna's Point of Sale products with credit card payment processing. Through our agreement with Priority Technology, hemp and CBD brands now have a traditional credit card processing solution that is both affordable and seamlessly integrates with the rest of the Akerna ecosystem. With this agreement, we are positioned to also activate payment solutions through Priority for medical and adult-use cannabis sales, pending legislative action at the federal level. This quarter marks the launch of MJ Retail, a first-of-its-kind proprietary software technology designed to provide merchants and consumer with a flexible and mobile-friendly experience. Cannabis businesses are often faced with the choice of using an underpowered by easy to use system or one that is fully featured and requires sufficient training. MJ Retail represents the best of both worlds by offering a clean and lightweight Point-of-Sale solution that connects to the Akerna ecosystem without sacrificing critical features. MJ Retail positions us for even more robust growth among retail cannabis operators, where we can capture even more potential payment transaction volumes post federal change. As our bid market and enterprise clients increasingly focus on their competitive positioning and business fundamentals, we partnered with leading business intelligence firm, Domo, to release the next-generation of cannabis data analysis MJ Analytics. Leveraging Domo's cloud-based intelligence systems, MJ Analytics helps operators run their business by empowering users to perform self-served analytics on fresh data that can drive everyday decision. As our existing clients upgrade to MJ Analytics, this represents as much as 25% in upsell revenue across our B2B software suit. Before I hand things over to John, I would like to just once again highlight the opportunities opened by the election. Despite a tight presidential election, cannabis once again proves to be a bipartisan issue that unites our fellow Americans. Five states voted on cannabis reforms, and all five easily passed the respective measures. We now have four adult-use cannabis states in New Jersey, Montana, South Dakota, and Arizona. We are also proud to welcome Mississippi as the newest medical cannabis state, bringing the total medical only states to 35. These new states represent as much as $80 million in new available total addressable market for our products and services. Once again to proving to be more popular than either presidential candidate, cannabis reform has a clear and unambiguous national mandate. One out of three Americans now leave in states where adult-use cannabis is legal, and many more live in states where medical cannabis is legal. With the election in our rearview mirror, we now look forward to federal cannabis reform which opens new revenue streams opportunities representing orders of magnitude increase from where we are today as we begin to monetize based on transaction volumes. All of our work and achievements to-date have positioned us for the inflection point of U.S. federal legalization. Now, let's have John take us through the details of our financial results. John, please take it from here.

John Fowle: Thanks, Jessica. Today I'll provide an overview of our financial results and key business metrics for the quarter ended September 30, 2020. As a reminder, these results are discussed in further detail in our form Q-10 which will filed shortly with the SEC. 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. Before we dig into the financial details, I would like to highlight one administrative change. In September of this year, our board of directors adopted resolutions to change our fiscal yearend from June 30 to December 31st, effective for this current year ending December 2020. We will cover the transition period from June 30 to December 31st, 2020 by filing an annual report on Form 10-K for the transition year ending December 31, 2020. We made this change to simplify and standardize our operations for enhanced comparative analysis and reporting for both internal and external benefit. As we reflect on both the activities of this past quarter and really all of calendar 2020, this has been a period of rapid transformation for Akerna. Throughout 2020, we've matured as a publicly-traded entity. We have completed three acquisitions that have expanded our footprint in provided additional TAM. We have completed two financings giving us the capital to accelerate our growth, and we have made remarkable progress on internal initiatives of building scale, developing our software ecosystem while continuing to focus on client experience. This past quarter, we had strong sales to net new clients. Despite impacts from COVID-19, we saw momentum with both lead generation and sales, recording another $1.2 million of new ARR booking. Our average booking amount is up 94% year-over-year, which reiterates the trust of the larger multi-location and multi-state operators to invest in our software platform. We continue to have a strong software and consulting pipeline heading into yearend. Additionally, our platform engagement continues to grow and reach new heights. As Jessica touched on, transaction volume is up 181% year-over-year. Retail order volume is up 68% year-over-year, and retail order value is up 127% year-over-year. As for our cost structure, in the past we have announced the series of small restructuring as part of our transformation into a leaner more focused enterprise. We continue to execute on that initiative and we'll look to deliver additional cost savings across the business in the periods ahead. I'll share more perspective shortly as we discuss operating expenses, but, overall, I'm happy with the progress we have made in just a few quarters. Let's turn to our financial results. As a reminder, our financial statements now reflect the results of operations of Ample Organics, which closed in July of this year and will impact comparative results for both revenue and expenses. For the quarter, total revenue increased 16% to $3.7 million, an increase driven primarily from growth achieved following the acquisition of Ample, offset by continued softness in our consulting practice, which I'll discuss shortly. Software revenue grew 40% to $3.2 million year-over-year. Excluding Ample, our core software business is roughly flat year-over-year due to the state of Utah moving from its implementation year to its go-forward run-and-maintain state. We currently have approximately $1.5 million of ARR backlog pending go live. We have seen a rise in backlog and delays in go live primarily due to COVID-19. We expect to see an increase in our B2B revenue recognition over the coming months as economies continue to reopen. We continue to see strong demand for our core platform offering as evidenced by our strong bookings and investments made in our platform are leading to improving attrition rate. Consulting revenue declined 60% to $300,000 year-over-year. Our consulting practice is important as it allows us to monetize our business development funnel in emerging markets to our software business. Consulting revenue was significantly impacted by the COVID-19 pandemic and related shutdown, which created delays in the delivery of our services. By comparison consulting revenue is up $200,000 from the previous quarter ended June 30, demonstrating our consulting practice is beginning to return. Many state ballot initiatives were passed for new medical or adult use cannabis. We expect we will see increased demand for our services following this past election cycle. Gross profit was $2 million for the quarter representing a 53% gross margin. This compares with a gross profit of $1.8 million and 57% gross margin in the same period last year. The decline in gross margin percentage is directly tied to the loss of consulting revenue in the quarter as the cost of sales for our consulting practice is largely fixed. As our consulting practice returns, efficiencies in our infrastructure are realized and software revenue grows. We expect we can expand our margin profile in the periods ahead. Incremental software revenue comes with margins in excess of 90%. Moving along to operating expenses, non-GAAP total operating expenses are up approximately $935,000, or 23% year-over-year. Non-GAAP operating expenses exclude a number of one-time non-recurring and non-cash expenses of approximately $2.5 million in the current period compared to approximately $180,000 in the prior year period mainly recorded as a component of general and administrative. These expenses include depreciation, amortization, stock-comp expense, business combination expenses and other non-recurring charges. Further excluding the additional impact of Ample Organics in our comparative results, total non-GAAP operating expenses would be down approximately $385,000 or 9% compared to the prior year period and down $1.1 million or 23% from the prior quarter ended June 30 of this year. The initiatives we were undertaking to normalize our expense base are starting to materialize in our financial statements and we expect continued progress in the future periods. Non-GAAP product development expense increased approximately $1 million, or 178%, as we continue to invest in our platform, including functionality and content to increase retention, drive sales growth efficiency and increased our competitive mode. This also includes the results from Ample Organics. As we continue our integration initiatives, we expect to realize further cost efficiencies across our development organization. Non-GAAP sales and marketing expense is up 10% compared to the prior year period. We have finalized our sales and marketing integration and expect to realize significant synergies in the future periods as we refine our go-to-market strategy across North America. Our non-GAAP sales and marketing expenses, excluding Ample, are down 12% compared to the prior year period as we have built a more focused and targeted sales organization. We are pleased with our sales and marketing efficiency as we continue to deliver in your record level of new business with improving customer acquisition costs. Non-GAAP general and administrative expenses declined 15% compared to the prior year period and would be down 34% compared to the prior year period if we exclude the impact of Ample. As I have shared previously, we are laser-focused on operating efficiencies across the organization, having completed a number of incremental restructurings that are starting to have favorable impacts to our financial result. In the quarter, adjusted EBITDA was negative $3 million, compared with negative $2.2 million for the prior year. By comparison, adjusted EBITDA was negative $3.6 million for last quarter ended June 2020, an improvement this quarter of 17%. The above referenced non-GAAP financial measures are reconciled to our GAAP financial results in the earnings press release that was issued before this call, and adjusted EBITDA will also be reconciled as part of our 10-Q filing, which we encourage you to review in detail. As of September 30, 2020, we had cash of approximately $14.3 million, and subsequently, in October, raised approximately $12 million in additional funding. Cash on hand and access to the capital market positions us well to execute on our strategy, which is a significant advantage over many of our key competitors. We expect continued improvements in our financial performance as we continue to scale and drive towards profitability. In closing, this past quarter, as we successfully integrated Ample Organics we did so under the continued framework of becoming a leaner, more focused organization with the human capital and financial resources to execute our growth strategy. We are keenly focused on our performance, and committed to delivering efficiencies across the income statement. This concludes our prepared remarks. We will be 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. Operator, please open [technical difficulty].

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Brian Kinstlinger of Alliance Global Partners. Please proceed with your questions.

Brian Kinstlinger: Hi, good morning. Thanks for taking my questions. First, can you give a little bit more…

Jessica Billingsley: Hi, Brian.

Brian Kinstlinger: Hi, Jessica. Can you give us a little bit more detail on the drop in the Leaf Data revenue during the quarter? Maybe numerically, where were we today versus a year ago or a quarter ago, and just take us through, as we've talked about in the past, Utah, the end of implementation and how that impacted revenue?

Jessica Billingsley: Sure. So our government contracts with the State of Utah for our Leaf Data Systems product, it began in July of 2019, and so, we have concluded now our first year of Leaf Data Systems revenue for Utah, and generally the first year has a higher contract amount due to the fact that you're in implementation and there's a lot of support and training process involved, and then in subsequent years, so for years two through five, it will revert to a run-and-maintain state. John Fowle, do you have any specifics on the exact dollar amounts there or percentages that we could share?

John Fowle: I don't have the percentages, but we can think about the first year. The first year as it could be as much as several hundred thousand dollars a quarter, and certainly that can make meaningful impacts on a sequential basis quarter-to-quarter, but like Jessica said, sort of getting back into a run-and-maintain state is sort of where we start to normalize our Leaf Data business.

Brian Kinstlinger: Great, and then with the new state regulations and the $18 million addressable market, how quickly is this turn, first of all, into consulting opportunities, how quickly does the state typically take until they issue licenses? And then secondly, which is a little bit different, talk to us how you get to the $18 million, is that an annual revenue number if you won all the government and all the commercial contracts is that what $18 million represents?

Jessica Billingsley: So I can talk about the time to see some revenue from these new states, and we're excited about this catalyst to return our consulting revenue to pre-COVID levels, although some states will move faster than others, we often start consulting in new states in advance of applications for pre-application work, and can share that our pipeline of potential revenue in these new states is already building fast, and as to when we can expect government RFP and/or the licensing program for new B2B licenses, we really see this varies state by state. I expect we'll see a rolling thunder over the next 18 to 24 months. Some states license and implement their program and then afterward select a track and trace vendor for the state, and then some states want to have their vendor in place as the licensees being operation. So we really see that vary, and of course there's going to be probably a difference in ramp time for a state like South Dakota, that just passed both adult-use and medical at the same time that will be implementing a program from scratch, versus a state like Arizona, that has a very healthy medical program already, that will be adding adult-use and leveraging existing businesses already with their adult-use.

Brian Kinstlinger: And then in terms of the $18 million market?

Jessica Billingsley: John, do you want to speak to that? I know you worked on that with our BI team?

John Fowle: Yes, so that's a great question. We looked at the different states, and our market is really defined by how many licensees exist in any given market, and so, what we essentially did is looked at the states who coming on, whether medical or adult-use, and tried to estimate how many new licensees that would mean for the particular jurisdictions, medical or otherwise, and then certainly just back in what we know our average revenue per licensee is, and sort of in a very conservative way put out a number that we think the opportunity is for us in these states. So it's really a hypothetical mathematical exercise, but again it's -- unlike maybe other industries, our sort of limiting factor is how many licenses are actually issued, and obviously various states approach it differently, and so, like Jessica talked about Arizona, we can sort of see what they've done on the medical use side and sort of extrapolate what that might mean for adult use, but new states that are coming on for medical or like South Dakota, we might not have an estimate, and so, we can use population data, how large is the state's population and sort of estimate how many licensees that could mean and then what that means for us. We think $18 million, really over the next couple years, is a relatively conservative figure, but that's sort of how we want to, yes, start to frame that.

Brian Kinstlinger: All right, and Jessica, you mentioned…

Jessica Billingsley: And just to clarify, that number does that…

Brian Kinstlinger: Yes.

Jessica Billingsley: Sorry, I was just going to clarify. That number does not include the Leaf Data Systems or consulting revenue opportunity, it's really the B2B number, right John?

John Fowle: Correct, that is just for B2B.

Jessica Billingsley: Okay.

John Fowle: There's certainly consulting opportunities, there're potential government contracts, and that's also -- we don't even think about upsell opportunities, with Domo, or as we get into the MJ Retail and what that could mean as we roll out that. It's more using a conservative historical look of what our revenue per licensee is without getting too aggressive with some of the opportunities we're rolling out.

Brian Kinstlinger: Great. Jessica, you said normally on your consulting you're in ahead of these kinds of efforts, these kinds of changes in regulations, consulting revenue is pretty low. Do you have a handful of people that are driving that revenue in some of these states?

Jessica Billingsley: We certainly do. So, as John noted, we're beginning to see our consulting revenue return, and we have reported that our bookings have continued fairly consistently for our consulting practice, and I can share that anecdotally our pipeline had exploded following passage of these ballot measures, and we certainly expect to see a real catalyst to return our consulting revenue to pre-COVID levels there. Also, I just -- John touched on it, but I would love to just touch one more time on the opportunity presented from MJ Retail and the -- in new states especially to launch that product, and to have an option that is -- gets us more of that transaction volume as we prepare for coming changes, the federal -- resolution of the federal, say, conflict in the coming years.

Brian Kinstlinger: Great, and you mentioned mentioned 100% win rate in Iowa, so I am using the same math, what do you think that opportunity is long-term on an annual basis?

John Fowle: Are you talking about for how that would turn into B2B revenue, or -- I am sorry, or additional…

Brian Kinstlinger: Right, well, I mean -- I don't know -- I guess in didn't diagnosis into it, how many licenses do you expect in Iowa, and 100% win rate, what does that mean to your business in terms of revenue?

John Fowle: Jessica, do you want to touch on -- do you have any notes on how large is Iowa?

Jessica Billingsley: Yes. So, Iowa is a limited license state, and that probably represents in terms of our win rate as well as any existing licenses in the states where we are probably talking about an opportunity of maybe somewhere between $0.25 million and $0.50 million.

Brian Kinstlinger: Okay.

Jessica Billingsley: In that state and in ARR.

Brian Kinstlinger: Yes, great, and then, you guys touched…

Jessica Billingsley: It's a small state. It's not New Jersey.

Brian Kinstlinger: Right, right, you guys touched on a backlog and COVID impacting implementations, just touch on the bookings have been really strong for the last nine months compared to historically where the business has been, speak to the conversion cycle, and how it's taking in specially these larger deals?

Jessica Billingsley: Sure. So, of course, John touched on our backlog that sitting at about $1.5 million in ARR currently, and we do expect to see that convert to revenue as economies continue to reopen. We don't publish specific conversion or retention numbers for competitive reasons given where they are only publicly-traded company on our competition, but I can share as I have shown in my prepared remarks that we are focused on both products and customer experience, and our retention numbers are improving. I noted our 99.99% stability for MJ platform and our customer satisfaction rating across all product lines of at least seven on a scale of one to 10. John, is there anything that you would add as specifically related to conversion from backlog?

John Fowle: No, I mean I think you touched on it. We mentioned in our remarks a couple of things that I think to note that our average booking size has grown pretty significantly year-over-year, and I think what we are seeing is, for instance, we might have had a single location go -- we sign a new customer; it's a single location. They go live. Now, we're seeing more multi-location, multi-state deals coming in, and so, we might sign -- and I'll just use numbers to talk of it. If we sign a deal for $1000 that might go live, well now we are signing deals that are $4,000, $5,000, $6,000, but they'll have multiple go-live spots, and so, we'll take that booking on a particular quarter, but one location goes live today. The next location is live in 60 days. The location after that is live in 120 days and so forth. So, that's a positive sign for us we see that we are signing large deals more multi-location, multi-state deals. It's just taking awhile for them to get live. Certainly -- obviously the COVID pandemic has impacted that, and there was a lot of delays, of course, related to the election. People were sort of sitting tight on what to do, and then, certainly, COVID not just the economic impact but as states have shut down, the ability to -- people were expecting license applications to be processed sooner, and so, those have been delayed. So, we are overall happy with the types of deals we are taking in now, but they are -- the backside of that is that it's taking longer for them to go live, but we think will actually be more meaningful long-term.

Brian Kinstlinger: Okay. Thanks so much, guys.

Jessica Billingsley: Thank you.

Operator: Our next questions come from the line of Martin Toner. Please proceed with your questions.

Martin Toner: Good morning, guys. How are you?

Jessica Billingsley: Good morning, Martin. We are well. How are you today?

Martin Toner: I am great. Thanks for my question. So, question about organic growth. I think I can guess the Ample contribution based on your comments about last organic growth ex-Ample. I guess can you kind of just walk me through the impact of Utah go-live dynamic? And then, any comments you can make about organic growth rate at MJ specifically would be helpful.

Jessica Billingsley: Sure, so first I'll touch on the impact of our government contracts, and they are, certainly have swung our revenue with it more in the past, they tend to be lumpy, and now that we have more of them, we do see less of an impact from the lumpiness or the variability. At Utah, our first year of that contract concluded in June of this year, and we're now in a run-and-maintain state, and we do the way that the government contracts are structured, they generally have a higher first year revenue, and then they convert to a run-and-maintain state moving towards over the next two to five years. Of course, there's always opportunity for change requests and additional services and revenue throughout the life of the contract as generally there is a change between year one and year two. As for our growth of course, John reported our bookings number, again, extremely strong continued bookings, very consistent B2B software bookings, and those have continued at a similar rates, as we were just discussing with Brian, of course, we do have an increase in backlog. These are committed year long contracts where deposits paid and we'll continue to see more of that convert into revenue here over time both as economies reopen, and also as these larger multi-locations are staggering there go lives, location by location, state by state.

Martin Toner: Great, so on most of the B2B deals that go in from backlog are annual?

Jessica Billingsley: All of our contracts are at least annual contracts and often multi-year contracts, and some of this is a function of revenue recognition, and certainly collect, as I said, a deposit and sign a contract.

Martin Toner: And can you comment on the growth rate of the health of the growth rate in Ample?

Jessica Billingsley: Sure, so in Ample for this year throughout 2020, Canada has been pretty locked down with COVID and there was quite a delay on beginning to issue new licenses and certainly all of our existing clients have done very well and being declared essential throughout this year 2020 and have seen nice increases, often across the board in their incremental sales to consumers or to patients, but we have seen, we have seen a delay in the issuance of new licenses, which is our largest driver for new incremental revenue. Also, as I touched on in my prepared remarks, we're beginning to focus on our mutual revenue opportunities, and there's certainly opportunity to add more provinces and territories issue retail licenses to sell MJ Retail, MJ Platform into those new licenses that are being issued, and also there's a significant opportunity to begin to visit with our existing clients and talk about upsell opportunities with GMP integration and our accounting system integration through the ecosystem to Sage to NetSuite SAP, and we announced a big NetSuite client actually in Canada, not that long ago rolling in the green, one of our NetSuite cornerstones there.

Martin Toner: Okay, super. Thanks. Can you give us any anecdotes or updates on the pace of adoption of analytics and or recap?

Jessica Billingsley: I said they should look for us to be issuing some updates on that moving forward, I can share that anecdotally, we're in beta with MJ Retail now with some existing clients, and we have had really great reception to MJ Analytics and I noted in my prepared remarks based on what we're seeing so far that we see this representing as much as 25% upsell opportunity for us among our existing client base for MJ Analytics and of course, that amount of incremental revenue across any new potential clients as well.

Martin Toner: So I understand Domo is a usage based model? Are you guys going to pass those costs along, or are you going to price it more as a traditional subscription product?

Jessica Billingsley: So that's a great question, and our pricing is not the same, and our structure is not the same as the retail pricing and structure. So for us, we have a different arrangement as part of our strategic partnership with Domo for this product, and to OEM and then also with our clients, we have structured it, much like our other reporting packages with levels of reporting, and across which locations and to user packs rather than usage.

Martin Toner: Okay, great. One, last one; what is developed software additions, on the cash flow statement, it's $600,000 this quarter, $500,000 a quarter year-ago?

John Fowle: Yes, I can go ahead, Jessica. Yes, that's basically our -- I think what you're referring to is our capitalized software. So, early-stage companies like us will capitalize our internally developed software and then amortize those over expected useful life. So, it's just the accounting treatment for some of those activities.

Martin Toner: Okay, super. Great, thanks very much.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Brian Kinstlinger of Alliance Global Partners. Please proceed with your questions.

Brian Kinstlinger: Great, thanks. I have one follow-up. Can you talk about the M&A pipeline? What are the size deals with your improved balance sheet you're looking at? Are they Ample size, say, $5 million to $6 million in annual revenue? Are they more Trellis size at $1 million plus or minus and then can you speak to what valuations looking like in the market today?

Jessica Billingsley: Sure. Thanks, Brian; great question. We continue to have a strong pipeline of potential technology in each of the three categories we've shared, where we focus on inorganic opportunities. So those are our TAM expanding technology, product tech, and market share, and I can share with you that we have a full pipeline in each of these categories, and therefore we can afford to be very opportunistic with anything we pursue. Since one of the largest shareholders of course, I'm focused on ensuring any opportunity as accretive to us, and also we're only interested in opportunities whether it's positive cash flow synergy. We certainly -- as you look at the competitive landscape, there are more Trellis-sized opportunities than there are larger opportunities just in terms of what is out there and available.

Brian Kinstlinger: Great, thank you.

Jessica Billingsley: Sure, thanks.

Operator: Thank you. There are no further questions. At this time, I would like to turn the floor back over to Jessica Billingsley for any closing comments.

Jessica Billingsley: Thank you, Operator. We continue to do what we say we're going to do. Our ecosystem strategy and strategic investments are focused on locking up the text fence of the enterprise cannabis businesses, and solving with technology, the growing demand for increased supply chain transparency among consumers and governments. You can depend on us to continue to execute. We know our greatest opportunities lay just ahead. Thank you for your continued support. We look forward to sharing our continuing progress with you in the future.

Operator: This does conclude Akerna's conference call. Thank you for your participation, and have a great day.