Akerna Corp. (NASDAQ:KERN) Q4 2020 Results Earnings Conference Call September 24, 2020 8:30 AM ET
Kristen Naughton – Corporate Controller
Jessica Billingsley – Chairman and Chief Executive Officer
John Fowle – Chief Financial Officer
Conference Call Participants
Brian Kinstlinger – Alliance Global Partners
Martin Toner – ATB Financial
Alan Brochstein – New Cannabis Ventures
Scott Fortune – ROTH Capital Partners
Good morning and welcome to Akerna’s Fourth Quarter and Year-End June 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 the reading of the Safe Harbor statement. Please go ahead, Kristen.
Thank you. And welcome to today’s fourth quarter and year-end June 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 a more in-depth discussion of the company’s fourth quarter and year ended June 30, 2020. Jessica?
Thank you, Kristen. Good morning, everyone. Thank you for joining us. Welcome to our 2020 fiscal year-end conference call. As we enter the fall season, I want to review what we have accomplished this year, and provide a recap for those of you who may not have attended our prior earnings calls or maybe new to the Akerna story.
Throughout the first three quarters of our fiscal 2020, we maintained growing operational traction and made several big announcements, including the acquisitions of Ample Organics, Trellis and solo sciences. Collectively, these acquisitions are accelerating our revenue growth and vast market share gain across the industry. And I will touch on these integrations throughout the discussion.
We implemented a multitude of new platform technology enhancements, announced PAX Labs as our cornerstone client for Akerna Insights product, and strategically shifted our focus to client engagement.
Client product experience is at the forefront of our innovations and we actively respond to the needs of our clients, continuing to enhance our leading first-to-market, seed to sale to shelf technology solutions.
Narrowing our focus to client experience has increased our market share among the multi state, international and emerging enterprises in this $17 billion global cannabis industry. We continue to set the standard for technology, supply chain transparency, and accountability that consumers and governments demand, and we are well positioned for growth. Having partnered with and integrated top tier service providers, such as Isolocity for GMP compliance, and Sage Intacct, Oracle’s NetSuite, and SAP for financials and tax planning.
With the acquisition of Ample Organics and Trellis, we have consolidated some of our best competitors and our scales offer more tailored product solutions that further establish cross channel sales opportunities. These results will lead to the solidification of our global leadership position.
When the COVID-19 pandemic unexpectedly struck earlier this year, we were pleased to see cannabis prove its economic resilience. Nearly every state and country declared access to medical and adult use cannabis essential, a significant shift in sentiment. And we have seen increased consumer demand throughout this year.
Overall product demand increased as businesses reprioritized operational efficiencies and explored various new sales channels to continue to serve their patients and consumer communities during the statewide and countrywide lockdown.
Cannabis industry adapted quickly, and new technologies were employed to facilitate digital sales channels, direct to consumer delivery, and curbside pickup.
I would be remiss if I did not mention there have also been challenges and significant impact in localized areas, particularly those that rely on tourism, as well as cottage industry and boutique operators who tend to be less well capitalized, and therefore, less able to spend to adapt to change.
Beyond the cannabis industry, we recognize what an extremely challenging time this is, particularly for those on the frontlines of the crisis. Our thoughts are with all of those most affected. As I say to our team at Akerna every week, we’ll get through this together.
We are pleased to share that our year-over-year software revenues are up 21%. While consulting bookings increased year-over-year, delivery delays in the fourth quarter due to COVID-19 caused consulting revenue to come in at a modest 3% increase. We expect to recognize the delayed revenue this coming fiscal year.
As expected, our operating expenses increased for the fiscal year as we digested our acquisition. Our cost structure is improving. And we expect it will continue to improve through this coming fiscal year as a result of our successful integration, realizing efficiencies and, of course, economies of scale.
COVID-19 has accelerated the cannabis industry’s consolidation and, therefore, its evolution into more enterprise tier businesses. At the peak of the crisis, cannabis companies lost on average 75% to 90% of their value, with smaller companies experiencing disproportional impact. Yet sales are up across the industry 78% year-over-year as the number of legal cannabis consumers increases.
Governments have taken notice of this and there are now 12 new pending state ballot initiatives up for vote in November. This is the most since our last presidential election year in 2016 when eight of nine measures passed. More governments are looking at cannabis legalization to shore up their balance sheets with tax revenue and to create jobs.
We built Akerna for this moment. Over the last year, the infrastructure improvements we’ve made and acquisitions we’ve closed and continue to pursue position Akerna to be one of the biggest cannabis technology winners as legalization expands to new states.
For the operators, the emerging industry leaders and enterprise businesses, whose values have now doubled or tripled off their bottom, are just now beginning to establish their market dominance and will only continue to expand. We anticipated and prepared for this emergence of enterprise level operators. And it is why years ago we strategically prioritized investing for the future by building MJ Platform with its micro service based, enterprise architected infrastructure. This infrastructure as a service has allowed us to create a true ecosystem with over 80 integrated products and more than a dozen strategic partners that make us stickier and help us maximize wallet share.
Our enterprise infrastructure has enabled integrations with large scale ERP cloud based solutions like NetSuite, Sage Intacct, and SAP. When we see an end to the current federal state conflict, which could come as early as the end of this year, with potential passage of the MORE Act following the presidential election, we’ve positioned ourselves so the large ERP players don’t go around us. Instead, they rely on Akerna as their channel and they become larger Akerna clients, reliant on our compliance-based ecosystem to rapidly penetrate the market with our cannabis specific solutions.
As we’ve grown and strategically prepared to the enterprise evolution of the industry and progressed with this important software integration, we have continued to serve many of the industry’s mid-market and small businesses. Through a natural maturity of the industry, these smallest businesses may contract, consolidate or be acquired to become part of the enterprise businesses we are best positioned to serve.
We tracked our growth trajectory with what we consider to be the client base of the future, and we are pleased to report our year-over-year transaction numbers are up more than 50% in both number of transactions and amount spent among this client base.
With the acquisition of Ample Organics now complete, we have further solidified our capacity to support enterprise businesses in both the Canadian and US markets. Aphria, Aurora, Cronos Group, Organigram and several other large Canadian enterprises currently run their businesses using the Ample’s seed-to-sale software and are continuing to expand their growth into new international markets.
Our fiscal year also marked our first contract for our next generation Leaf Data Systems in Utah, combining MJ Platform’s closed loop compliance technology with our solo*TAG, the world’s first cryptographically secure cannabis product authentication system exclusively for governments and only available with Leaf Data.
This alternative to expensive RFID tags is cheaper, more secure, and more flexible for diverse packaging applications. We believe our competitive positioning and cost structure for future government track and trace contract opportunities is extremely strong.
As we are now wrapping up our first quarter of 2021, I’m excited about our start to the new year. With the successful integration of our acquisitions, we have improved our cost structure and achieved larger scale, positioning us to capture even greater market share moving forward as the only scale technology provider to the industry.
With this in mind, I’m excited about the new developments we have in our pipeline and I want to share more about those to you today. In partnership with business intelligence firm, Domo, we recently announced the release of MJ Analytics.
MJ Analytics offers a suite of enterprise level data tools, providing users with unparalleled access and insight into the cannabis supply chain from seed-to-sale.
Towards the end of August, we announced an agreement with Priority Technology Holdings to integrate their traditional payment processing solutions into MJ Platform. [indiscernible] Priority is a leading provider of traditional merchant processing solutions.
This integration makes it possible for the CBD and hemp retailers that use MJ Platform to process credit card payments, ACH, card not present, recurring payments and automatically facilitate the credit card information updates. End users can enroll and use Priority’s payment processing without having to leave MJ Platform, transforming the future of payment transactions in a digital economy.
This positions us to activate additional payment solutions through Priority for traditional cannabis sales, pending legislative action at the federal level, and to bring a seamless payment and revenue activation experience to the CBD hemp and cannabis industry.
As part of this agreement, Akerna and Priority will share transaction payment processing revenue, which we expect to become a meaningful revenue generating line item for Akerna as existing and future CBD and hemp operator clients look for traditional payment processing solutions. We expect even more significant revenue generated through payment processing for cannabis operators following federal legislative change.
According to Brightfield Group, US CBD market sales are expected to reach $4.7 billion in 2020, representing a year-over-year growth of 14%. As one of the few companies offering merchant processing specifically for the CBD industry, Akerna is well positioned to expand its client base and carve out a significant stake in the market.
Our data shows consumer preference for an in-store shopping experience, as both delivery and curbside orders have declined more than 60% from their highs in the spring in favor of in-store orders as COVID-19 restrictions continue to ease and economies reopen.
The demand for customized point-of-sale retail solution has prompted our focus on innovative improvements to our retail offerings in the coming months. Our initiative is designed to provide merchants and consumers with a flexible, mobile-friendly experience where transactions can be completed at any time throughout the retail experience on any iOS or Android device.
We plan a proprietary software technology underpinned by MJ Platform’s back-end infrastructure, including our compliance SaaS and ecosystem of integration.
Our retail solution will accelerate and streamline the checkout process both in-store and remotely, providing the gateway to move customer experience and store conversion, while we maintain leading traceability via the MJ Platform API. When permitted, payment processing will flow seamlessly through the retail experience.
Finally, I’d like to remind every one of our ecosystem strategy encompassing integration, strategic partnerships and acquisitions. This strategy is built around solidification of our position as the essential technology infrastructure for the cannabis supply chain.
We target acquisitions in three categories – competitor, product tuck-ins and TAM expanding technology. Our first three acquisitions which are complete and operationally integrated are examples of each target category.
As we look ahead, our pipeline is similarly distributed and we look forward to sharing more details of our progress in the near future. Always with an eye toward expanding set of opportunities that are unlocked with the coming legislative changes.
Before I turn this conversation over to our CFO, John Fowle, who will provide a more detailed overview of our year-end financials, I want to underscore the opportunity and growth we expect following the November US presidential election.
So we can only make predictions at present. Many federal and state governments are looking for options to address substantial budgetary deficits, close economic gaps and create jobs.
In addition to the 12 state ballot measures already pending, many states and countries are also weighing the legalization of cannabis via legislative means. Federally, President Trump has publicly endorsed STATES act, Biden-Harris are favorable to legalization, and currently pending in Congress are both of the SAFE and MORE Acts. These ballot to potential legislative measures present transformational growth opportunities for Akerna in 2021.
Taking stock of where we are today. Revenue is up. Our recent acquisitions have expanded our client reach. Our ecosystem pipeline is full. And we are ideally positioned to capitalize on the tremendous opportunities the coming legislative changes will unlock.
Now, let’s have John take us through our financial results details. Take it away, John.
Thank you, Jessica. And good morning, everyone. Today, I’ll provide an overview of our financial results and key business metrics for the quarter and fiscal year ended June 30, 2020. As a reminder, these results are discussed in further detail in our Form 10-K, which will be filed next week with the SEC.
Financial results reported today are preliminary. Final financial results and other disclosures will be reported in our annual report on Form 10-K for the year ended June 30, 2020 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 filings.
As I’ve shared before and I’ll share again, fiscal year 2020 can be characterized as a period of having a meaningful progress on our key initiatives of building scale, developing our software ecosystem, while continuing to focus on client experience.
We delivered growth in total revenue of 16% and software revenue of 21% for the year ended June 2020, and we continue to experience accelerating market demand. We continue to invest in initiatives to build scale, fuel long term growth and new customer acquisition.
In our Q3 earnings call, we reported new ARR bookings of approximately $1 million. This past quarter, the momentum continued despite impacts from COVID-19 as we recorded $1.2 million of new ARR bookings. We continue to have a strong pipeline heading into this current fiscal year and the continued momentum further demonstrates the strength of our industry.
Additionally, our platform engagement continues to grow and reach new heights. Year-over-year, retail order volume has grown by 125%. And retail order value is up by 128%. Likewise, our year-over-year platform transaction volume has increased 70%.
As for our cost structure, in our last earnings call, we announced a small restructuring as part of our transformation into a leaner, more focused enterprise. Following our acquisition of Ample Organics. we executed on phase two of that initiative, delivering another $2 million to $3 million of annual savings.
Let’s turn to our financial results. Our fourth quarter and fiscal year 2020 results were highlighted by solid sales execution and continued market demand. In the fourth quarter, total revenue declined 17% to $3 million, a decrease driven entirely by a decline in our consulting revenue related to delays associated with COVID-19. For the year, our total revenue grew 16% to $12.6 million.
With regards to software revenue, in the fourth quarter, software revenue grew 36% to $2.8 million. For the year, our software revenue grew 21% to $10 million. The growth in the quarter and for the year was once again driven by increased demand from both new and existing customers, combined with strong sales execution across channels.
We continue to invest in a variety of client programs and initiatives, together with increasing adoption, have helped keep our attrition rates consistent compared to prior periods.
For the year ending June 2020, our consulting revenue grew 3% to $2.4 million. Year-over-year, our consulting revenue increased despite a 91% decline in the fourth quarter to approximately $100,000. For comparison, our consulting revenue for the fourth quarter of 2019 was $1.5 million.
Consulting revenue in the quarter was significantly impacted by the COVID-19 pandemic and related shutdown, which created delays in the delivery of our consulting services. However, as Jessica mentioned, there are 12 new ballot initiatives to adopt medical or adult use cannabis set for the November election. We expect, despite the slowing of our consulting activity experienced during the pandemic, we will see increased demand for our services following the election.
Gross profit was $1.2 million in the fourth quarter, representing a 39% gross margin. This compares with gross profit of $2.5 million and the 70% gross margin in the same period last year. The decline in gross margin is directly tied to the loss of consulting revenue in the quarter as the cost of sales for our consulting practice is largely fixed.
For the year, our gross profit was $6.4 million, representing a 51% gross margin. Again, our full year gross margin impacted by revenue delays associated with COVID-19.
Moving along to operating expenses. In the fourth quarter, our total operating expense declined 12% to $7.4 million, partially a result of actions we have undertaken to become a leaner, more focused organization.
For the year, our total operating expenses increased 26% to $23.6 million. The increased level of operating expenses for the year ended June 2020 compared to 2019 was the results of our being a public company for the full year compared to 2019 and include investments made in personnel, technology and other infrastructure as we continue to position ourselves for growth and transactional costs associated with acquisition and financing activities.
In the fourth quarter, our research and development expense declined 57% to $1.1 million. For the year, our research and development expense declined 42% to $3.2 million. It’s important to note, prior to the fiscal year ended June 30, 2020, we expensed all costs associated with our development activities.
In fiscal year 2020, we began to capitalize costs associated with implementation and product enhancements when they can be distinguished from maintenance cost. As of June 30, 2020, we have capitalized approximately $2.6 million of software development costs. We continue to invest in new product, content and features to drive sales growth efficiency and increase our competitive moat. We expect to continue to capitalize a portion of our development costs in the future.
In the fourth quarter, our sales and marketing expense declined 35% to $2.1 million. For the year, our sales and marketing expense increased 4% to $7.8 million. Our sales and marketing expense was essentially flat year-over-year. During the past quarter, we have built a more focused, targeted sales organization. We are pleased with our sales and marketing efficiency as we continue to deliver near record level of new business.
In the fourth quarter, our general and administrative expense increased 20% to $3.1 million. For the year, our general and administrative expense increased 101% to $11.3 million. The increase year-over-year in both the quarter and full year are a result of a number of factors, including costs associated with being a public company, investments made to position ourselves for growth, acquisition related expense and costs associated with capital market transactions.
In the fourth quarter, our operating loss increased 6% to $6.2 million. And for the year, our operating loss increased 38% to $17.3 million.
In the fourth quarter, our net loss per share was $0.36, a 59% improvement year-over-year. And for the year, our net loss per share was $1.31, a 36% improvement year-over-year.
With the release of our 10-K, we are now reporting non-GAAP metrics, specifically adjusted EBITDA. We define adjusted EBITDA as operating loss before depreciation and amortization, non-cash expenses such as stock compensation, and non-recurring items such as costs incurred for business combination, debt issuance costs and restructuring costs. Adjusted EBITDA is reconciled to our GAAP results in the earnings press release that was issued before this call and is available on our website.
In the fourth quarter, our adjusted EBITDA was negative $3.6 million compared with negative $1.5 million for the quarter ended June 30, 2019. And for the year, our adjusted EBITDA was negative $11.5 million compared with negative $7.3 million for the prior year.
As of June 30, 2020, we had cash of approximately $24.2 million. We had a working capital balance of approximately $16 million as of June 30, 2020 as compared to $21.8 million as of June 30, 2019.
Cash on hand and access to the capital markets positions us well to execute on our strategy, which is a significant advantage over many of our key competitors. We expect continued improvement in our financial performance as we continue to scale and drive towards profitability.
In terms of the impact of COVID-19, we all realize there are near-term macroeconomic uncertainties. We are working to understand how this may impact our business long term and recognize that this is a dynamic situation that we are monitoring closely. However, as Jessica commented earlier, we are pleased to see cannabis prove its economic resilience.
In closing, as we reflect back on this past year, we focused internally on developing the infrastructure of a public company and on making internal investments to drive scale and efficiency as we prepare for accelerating growth.
While we have leaned our operations in some respects, we’ve invested in others, including the capacity and security of our network in content, product development, product marketing and product management. Our team is laser focused on delivering a shared services operating framework across the company, resulting in Akerna becoming a lean and focused organization with the human capital and financial resources to execute our organic and inorganic 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 disclaimer discussed at the beginning of this call applies equally to the Q&A session. Operator, please open the phone line.
Thank you. [Operator Instructions]. First question is coming from the line of Brian Kinstlinger with Alliance Global Partners.
As it relates to the Priority partnership, will you be installing the Priority Holdings’ payments technology in all CBD and hemp customers for free? And how long will that take? And then, one more question on that. Can you quantify a rough estimate of the retail value of CBD and hemp that is sold through your operators in your platform last year?
In answer to the first question, whether we’ll be – we’ll certainly make it available. But traditional merchant processing, you do have to actually go through a process to sign up. So, we won’t be able to automatically turn it on for existing customers. But we’ll certainly make it available to all existing customers. And of course, offer it as part of an initial package with likely different discounts and pricing to prospective hemp and CBD customers.
As to how much we did last year, I’m going to happy to get back to you on that one. We are continuing to rapidly grow in the hemp and CBD area. And I’m not sure which would be the right benchmark to use. We put out a flash report about it a little while ago. So, we’ll have to get that number and get back to you.
I guess another way to ask, when you hear from your customers in the few weeks that you’ve had this priority announcement out, do you anticipate that the majority of your customers selling CBD and hemp are going to adopt this technology, making payments easier for them?
I’m sorry. Can you ask that one more time, Brian?
I’m just wondering if your install base, in the communication you’ve had since the announcement, are you feeling confident that most of them will want to adopt this technology?
For most of our existing customers and clients, they’re solving this in some way in order to be open and collect payments. So, they either have – they’ve adopted some cannabis specific closed loop type of technology or systems, something that allows the ability to take payments or they bought a debit card only solution or a cash solution. So, for most of them, if they have solved this in some way, we will certainly, though, have a campaign to target existing clients regarding the value and the value proposition of having traditional merchant processing like this. But I don’t expect to see a massive immediate conversion, I would look for that to be a little more slow going and rolling over the coming months as we certainly package it with any new clients and prospects as an option.
You talked about delays in the consulting projects. That’s in the June quarter. Can you talk about how consulting, if at all, has bounced back as we’re almost through with the first quarter? Has it been gradual? Has it happened at all? Have you returned back to where – previous levels?
Sure. We’re certainly seeing delivery and states pick back up into this quarter. I don’t want to say too much more as we haven’t put out any guidance for this out there. But we’re certainly seeing more of a return to normalcy and also quite an uptick in inbound from states and areas that are looking to cannabis as an economic drivers and things for creating jobs, tax revenue and convert – especially in the downturn that we’ve seen in the economy. So, we’re seeing actually quite a lot coming through the funnel and certainly starting to see some recovery.
And then, bookings is great to see, continued to improve in the June quarter. That’s quite dated. So, as economy has opened up during the last few months, are you seeing bookings accelerate from there in the September quarter? Do you think that is – there’ll be a tough comp this last quarter to be able to exceed? Maybe some sense of how current bookings are going as the economy opens.
So, our current bookings, for consultants specifically or for…?
For the overall business, sorry.
We are very consistent in our B2B software bookings. And those bookings have continued through the downturn in COVID. And also, we’ve continued to see that just in a very, very steady way. So, in our SaaS engine, the bookings just continue. We did see also some implementation delays, more minor, but we certainly saw some implementation delays affect the sort of the revenue recognition of our steady and continued software bookings. But the backlog is starting to go live, and we’re able to begin to recognize those revenues as well. So, I don’t think there’s more to say to that other than – we just have a very steady pipeline that has continued through.
In the last two quarters that were reported, your bookings were more than twice the first and the second quarter. Is this a function of winning more deals? Are average contract sizes much larger? I take it, it may be some combination, but which is weighing more on the stronger bookings.
As I speak about some of the bookings that perhaps have, we call it, a trigger date, go live, we’ve had some larger signups from some larger operators that may onboard part of their operations in month one, another part in month two, another part in month three. So, we’re certainly seeing some of that impact, as I mentioned in the prepared remarks, of a continued push toward the enterprise tier of businesses. And that’s reflected in our bookings and in some of the timelines for recognizing those.
And then lastly, can you tell me on the Canadian market, if that market has become a little bit stagnant? Where might you expect that market will strengthen for Akerna and Ample Organics?
Certainly, we have seen that Health Canada has issued very few new licenses since the start of COVID earlier this year, and provinces and territories have been equally on ice with issuing some of their retail adult use licenses. However, we are certainly seeing and hearing that – at least some of the provinces announcing and beginning to open up that funnel again. And we do expect some really nice growth opportunity north of the border. There’s cross sell opportunity, in that the historic Ample Organics software suite does not have a point of sale component. That’s one of our strongest modules in MJ Platform. So, there’s a really nice cross sell opportunity there.
And also, we’re getting a lot of interest in our integration to traditional accounting and tax providers like Sage, NetSuite and SAP. NetSuite particularly is only open for sale in Canada currently – well, Canada and outside of the US.
Our next question is from the line of Marty Toner with ATB Capital Markets.
Can you tell us how much of software revenue came from acquisition in the quarter?
John, do you want to take that one?
The last year, through June 30, we completed two acquisitions solo and Trellis. Trellis was closed in mid-April and contributed probably a couple hundred thousand dollars to the top line number. So, really not a material amount to affect our overall results for software for the period ended June.
What will the lack of consulting revenue this quarter mean for software revenue going forward? Will there be a bit of a hiccup given the delay in bringing new customers online? And then, when did that disruption end?
To your first point, I don’t think it should – I’m happy to take that, Jessica. I don’t think that consulting revenue will have too much of an impact on our software. It’s certainly a nice leading indicator and becomes a funnel for our software. But as Jessica commented a moment ago, we continue to have strong bookings for the core MJ Platform. And certainly, this is sort of a unique time in the world really and the consulting blip is certainly a part of that.
I think the disruption to the – to the question asked earlier, we’re starting to see software back – sorry, our consulting practice come back. It’s not as strong, of course, as it used to be, but it is trending back in the right direction. And I think we’ll have some positive momentum after the election.
And is it pretty easy to kind of catch up with if there’s sort of some pent up demand? Just based on like the resources you have?
Yeah, I would certainly hope so. We’re certainly not banking on that as being sort of the magic bullet. But it’s certainly something we look towards as an opportunity for us to capitalize in the early part of part of 2021, and are certainly prepared for that growth opportunity. As Jessica said, we’re starting to get some nice inbound that are giving us good leading indications that that’s sort of something to come.
And can you give us a little update on the Ample business? Just wondering, can you give us any color on the rate of growth? Has there been any customer churn? That kind of thing.
Jessica, you want to talk to that more strategically what’s going on in Canada there?
Sure. As I was mentioning to Brian, Health Canada has issued very few new licenses this year, really since the start of COVID. And the provinces and territories have also been on very, very slow roll and focused on the pandemic rather than moving and rolling out some of their additional adult use licenses. That is starting to modestly begin to increase.
The great news is that the Ample business has very, very sticky enterprise clients that are well suited to weather the storm and are great additions to our portfolio of large enterprise clients. And so, the revenue is very, very stable. And we do expect now that the economic and some of the COVID restrictions are starting to ease for that license flow to uptick again, and also for us to have that great cross sell opportunity, which was one of the most compelling things about the acquisition for us was this ability to sell retail into their client base. And also, there are some really great pieces to the Ample technology as well, particularly a very robust pharmacy module and some insurance adjudication that they’ve constructed.
And there hasn’t been any notable amount of churn?
Well, certainly, we have had a downturn. That’s always a part of having a software business. I would say that that what we have seen has been in line with historical patterns pretty much across our businesses. And as I mentioned in my prepared remarks, a bit of disproportional impact in the smallest and most thinly capitalized of our client base.
A couple of other questions. When will the analytics module begin to be sold?
We are taking sales for that now and getting some really great feedback from our clients who are using it, and really excited about our partnership with Domo there and continuing to market that.
Will that product come at about – at a similar gross margin as software revenue?
Well, all added as software revenue. Most of that doesn’t change, your underlying cost structure. So, any new module that we can sell into our existing client base that provides, of course, good software, provides more value than it costs. All of that is additive and begins to continue to improve your gross margin over time. Would you add anything to that, John?
No, I would agree. Like you said, most of our cost of sales today are largely fixed for an enterprise of our size. The real marginal cost for new business, whether it’s our core platform or the Domo component is the marginal cost is de minimis. And so, there’s a really nice margin for every new piece of business we add.
Your bad debt level went up in this year. Could you comment on the driver there and if you think that’ll keep going up going forwards?
Yeah, I’m happy to comment on that. I think it’s a great question. This past year, I think we’ve seen a real transformation in our sales org. And we’re focused on better clients, better deals, better structures, et cetera, and sort of we’re washing through that, I think, today. And that’s why I think we’re starting to see really strong results in our bookings number. These are better bookings, more quality clients. And so, I think like any company, there comes a point when you need to pivot and shift. And then this was a big year for us, no doubt. And we’re really excited about where we’re going with sort of how we’re addressing our new clients. Nina, our chief Commercial Officer, has done a fantastic job sort of restructuring the sales org and really focusing on quality clients, quality markets, where can we succeed, et cetera. And I think that is something we’re laser focused on as an organization is, is sort of that concept around retention in customers and so forth. In the last three to six months, we’re starting to see those metrics really change in a favorable direction. And I think it’s all a result of this dramatic shift in the profile and sort of the service level of our customers. So, I would expect that in over the next quarters and the year that we’ll see that number dramatically improve.
And you’re not giving any guidance. Perhaps I just want to make sure I didn’t miss it.
That’s correct. We don’t publish really any formal guidance. Correct.
The next question is from the line of Alan Brochstein with New Cannabis Ventures.
The first one is on solo sciences. You guys moved Alex out of your CTO role into solo sciences. I thought maybe that was a signal that your business was picking up there, but it wasn’t broken out. I’m just curious if you can break out approximately what solo sciences was? How much of that do you think is coming from cannabis?
Really, solo is about gaining these large channel partners and distributor contracts and then we recognize that revenue more slowly over time. The vast majority of solo revenue is related to cannabis either through the solo tag government tagging option that we have installed in Utah or through the solo code which is the product available to the brands. We do have some excellent large partners, some of whom we’ve announced such as 14th Round, which gives us access to over 40% of the California vaporizer market through channel partners such as that. But really, it’s a play to get in and then to see some nice revenue over time from it.
So, let me ask it another way. Just based on that move, it seemed like you guys were exited. Are you getting some traction in your sales pipeline in terms of these channels partners and is any of that outside of cannabis?
We are. We are very excited. There are some opportunities and some meaningful opportunities outside of cannabis. One in particular that I have spent some time and discussion on with some prospects is the potential to use the solo anti-counterfeit tags on personal protective equipment, which has been a big discussion area during the pandemic. But it has been more – we certainly have seen even more pipeline, I would say, in cannabis and really expect to see some of our brand partners who have the solo code in place begin to promote that more to their consumer base as well. So, look for some more from us on that trend over the next few months.
Last question is just on the state business. It seems like – I know you all won Utah, but it’s been a while since you won any of [indiscernible] in other states. Do you expect this to be a big part of your business? Is it important to your business going forward?
We certainly like our prospects with solo*TAG compared to expensive RFID tags, which are in place in many states and the tagging method of choice from our largest competitor in that arena. We went after solo and after the solo tag technology specifically to have less expensive and better option for state contracts and governments. And I can tell you that our conversation with some of these states have been extremely positive. So, we may not – there haven’t been many contracts that have been up for bid over the past year. We’re certainly going to see an uptick as we see focuses begin to shift and more passage of the ballot measures, hopefully, in November and additional legislative initiatives, many of which are up as well. Some of those ballot measures have already kicked to legislative initiatives. And all of that, though, results in demand for track and trace, as well as sell tracking.
And my next question is on Canada. And I know Ample was focused really just on the LPs. Obviously, that retail market is developing rather rapidly. And I know that you guys are trying to penetrate it. Do you have any retail business yet in cannabis from [indiscernible]?
We do. We do. We have some retail business in Canada and we have integrated our sales and marketing into a shared service in Akerna. And we’re seeing some business uptick there for MJ Platform to focus as well into in Canada.
I know you haven’t filed a 10-K yet. Last when I asked about if it’s possible to give any sort of breakdown on the amount of business you’re doing – software business you’re doing with MSOs. I don’t know if you have that detail yet, but I just wanted to follow up and put in that request and see if you can answer it this time. In terms of not just necessarily MSOs, but just breaking out kind of your software revenue by type of clients beyond just Canadian and American, large, small.
Sure. John, do you want to just speak generally to some of the – and I know some, we were able to publish in our press release in the non-GAAP metrics that you’ve worked to publish with your team.
Yeah. I’ll comment briefly. I think the best way to answer that is we don’t have a significant concentration of revenue really with any customer, with any particular customer stream. You asked about Leaf Data in MJ, I think we’ve got sort of a nice blended mix. We certainly have relationships with the big MSOs that are certainly important partners for us, but then we’ve got your average size and certainly small. So, we’ve got clients that are $10,000 a year in revenue and we have clients that are in the $100,000 a year revenue. The best way to answer that is we don’t necessarily have a strong concentration in one area. I think we have a nice sort of derisked distribution of our revenue stream.
And then last, you guys did give out guidance in the past. I hear that you don’t want to provide it today. Clearly, a lot of factors are going to mean that you won’t meet that guidance that was provided for calendar year 2020, I assume. I guess, as we look forward, when will you feel comfortable giving guidance again? What are the factors there? You gave it in the past and you’re not giving it now. I’m just curious what it would take to make you confident enough to be able to provide guidance.
I think there are a couple pieces there, Alan. So, first, as a company, we have generally not provided guidance. Certainly, I know we have implication with some of our transactions, we’ve published some numbers. Those can change, of course, dramatically, not just with us, but potentially with the acquiring company. And we’re really looking to – we’ve made three significant acquisitions. We’ve integrated those. And we’re going to continue to track our revenue and ensure that we’re continuing to grow, and we’ll evaluate guidance at a future date.
So, is COVID the main factor? I’m just wondering, because when you bought Ample, there wasn’t that and there were numbers that were forward-looking. So, I’m just wondering, is it just COVID or is there another factor?
Yeah, I’ll comment here. Alan, I think it’s a great question. We get that quite frequently. I think there’s a few ways to answer it. COVID is really not a factor in the ability to provide guidance. I think it comes down to a number of things. Certainly, like Jessica said, when you go through the acquisition stream and we’re in that sort of emerging growth phase, it’s really difficult to provide guidance. It’s not a function of we want to beat it or not beat it. It’s we really want to make sure if we’re giving something to the investors, it’s meaningful and it’s valuable.
I think, really, the message I would share is sort of how we see our business. We think of ourselves as a traditional SaaS company. And so, we are going to target those traditional SaaS growth rates, 25% to 30% organic growth, investments in growth that expands our margin. We’re certainly targeting at 65%, 70% gross margin profile in the years ahead and then certainly getting to that EBITDA positive scenario. And so, that’s how I would sort of align it, how we think about our business and developing growth strategies. We’re sort of in that, I guess, sphere.
Next question is from the line of Scott Fortune with ROTH Capital Partners.
Thank you for taking the questions. A lot of them have been answered. But real quickly, can you kind of touch base on the M&A environment through 2021? Kind of what you’re looking at? I know you have this three pillars that you’re looking for strategically. But from a valuation standpoint, are you going to see more consolidation in the space? How are you guys looking or seeing the M&A environment for you guys?
Well, I can tell you that our pipeline is very strong with acquisitions and/or partnerships adding to our ecosystem strategy in each of those categories, the TAM expanding, competitor or market share and product tuck-in or bolt-on. And it’s been a time of economic challenge and a time of economic challenge for cannabis businesses. They’re still not recovered to where they were in terms of market capitalization a year ago. And so, there’s a lot of opportunity for us. Capital has been more scarce in the private markets. And we will certainly be opportunistic in each of those categories. Also, of course, very strongly focused on growing our core organic business, focusing on our infrastructure as a service with the acquisitions that we’ve acquired, tying them into our ecosystem, and really seeing the network and value effects of that.
Thank you. At this time, I’ll turn the floor back to Jessica Billingsley for closing comments.
Thank you, operator. We continue to do what we say we’re going to do. We create trust between product creators and product consumers. Our ecosystem strategy and strategic investments are focused on locking up the tech spend of the enterprise cannabis businesses and solving the technology, the growing demands for increased supply chain transparency among consumers and governments. You can depend on us to continue to execute. We believe our greatest opportunities lay just ahead. Thank you for your continued support. We look forward to sharing continuing progress with you in the future.
This concludes Akerna’s conference call. Thank you and have a great day.