Blue Calypso's (BCYP) CEO Andrew Levi on Q2 2016 Results - Earnings Call Transcript

| About: Blue Calypso, (BCYP)

Blue Calypso Inc. (OTCQB:BCYP) Q2 2016 Earnings Conference Call August 10, 2016 4:30 PM ET

Executives

Andrew Levi – Chief Executive Officer

Chris Fameree – Chief Financial Officer

Analysts

Andrew D’Silva – Merriman Capital

Operator

Good afternoon. Welcome to Blue Calypso’s Second Quarter 2016 Earnings Conference call. My name is Matt and I’ll be your operator for today.

Joining us for today’s presentation is Founder and CEO, Andrew Levi; and CFO, Chris Fameree. Following the remarks, we will open up your call for questions. Then before we conclude today’s call, I’ll provide the necessary disclaimers and cautions regarding the forward-looking statements made by management during this call. I’d like to remind everyone that this call will be recorded and made available for replay via the link in the Investor Sections of the company’s website.

Now, I’d like to turn the call over to Blue Calypso’s Chief Executive Officer, Andrew Levi. Please go ahead.

Andrew Levi

Thank you, operator, and thank you all for joining us today on our second quarter 2016 earnings conference call. Our focus in the second quarter of 2016 has been primarily around four areas. One, approaching and presenting our KIOSentrix platform to Fortune 1000 brands and retailers; two, refining and presenting our POPTrak solution to Fortune 1000 brands and partners; three, continuing to innovate and advance the state of our mobile consumer engagement solution and the intellectual property necessary to protect our competitive advantages; and four, realigning our organizational structure to prepare for the next phase in our strategy plan for growth.

We made significant progress in all four of these areas in the second quarter that will enable us to achieve the level of growth we’re targeting in the coming years. Before, I dive into all those exciting opportunities, I want to let you that our recently appointed Chairman of the Board of Directors, Hal Brierley, had a scheduling conflicts, he couldn’t rearrange and he’s unable to participate in today’s call, but he will be very active in future calls and communications to the market.

Now that Hal is taking over as Chairman. He and I will make ourselves available to speak with institutional investors and the sell-side analyst community for any follow-up questions you may have, if they weren’t answered and addressed on today’s call. Going forward Hal will be participating on future earnings call and we will look forward to his attendance in the third quarter.

The central theme of the second quarter was Hal’s $1 million strategic investment in Blue Calypso that marks his third investment in the company. Subsequent to the closing of the second quarter 2016, Hal joined our board as Chairman. His leadership positioned with the board now allows the management team more time to focus on the operational side of the business and ultimately to focus on near-term sales growth.

From a corporate governance perspective, Hal’s 30 plus years of sea level experience with Fortune 500 brands, strengthens our board and provides the strategic guidance necessary to add shareholder value wherever possible. Already in the third quarter, Hal has begun working with our directors to facilitate the company’s goals, while representing the interest of the shareholders.

He provides tremendous experience and knowledge to the company and we’re thrilled to have him in this role. Hal is a pioneer and visionary in the massive consumer loyalty market and we believe his skills and relationships will elevate our go-to market strategy over the next 24 months.

We believe both of these events signal and inflection point with the Blue Calypso’s story and today’s call we’ll take a deeper dive into the progress made with our mobile engagement shopper solution and our path to cash flow breakeven. As many of our shareholders know, in the first quarter of 2016, the company closed chapter on IP litigation front to focus solely on our two mobile consumer activation engagement and social advocacy solutions for product brands and brick and mortar retailers: KIOSentrix and POPTrak.

While we’re experiencing marked growth in our reported revenues, we’d like to look at other alternative metrics that provide us with insight into the future. One of those is with our growing sales pipeline. I can attest that the company is in front of some very large Fortune 1000 brands and retailers in the big box, specialty retail, consumer packaged goods, food and beverage and entertainment sectors. In fact, in today’s press release, we gave further insights into this pipeline, which even on a weighted basis would result in the company achieving positive cash flow.

We realized most investors are concerned with immediate revenues, quarterly burn and the company’s ability to grow without further dilution. However, we’re encouraged with the recent growth in our sales pipeline and believe it provides a roadmap towards cash generation. As a management team, we see a solution in its infancy that’s gaining traction quarter-over-quarter with large Fortune 1000 brands and retailers.

While they don’t move as quickly as we’d like, the fact that many of them are dedicating resources to evaluating our solution and potentially thousands of stores suggests that we’re moving in the right direction. One would also see the seismic shift in mobile engagement with customers and the huge addressable markets that are currently being underserved. This is what we see from the management and sales perspective at Blue Calypso. And we will provide more granular detail in all of these markets throughout today’s call.

Now, let’s review the second quarter in detail. During the second quarter 2016, our KIOSentrix platform made further progress as we are now deployed across approximately 4,000 U.S. retail locations and 33 product SKUs with our partner IntegraColor, Monrovia and several other customers. Our partnership with IntegraColor extends to all of the load stores in the United States as well as the Monrovia plant brand, one of the country’s premier wholesale plant growers.

The horticulture industry is generally not a tech innovator, but through extensive proof-of-concept research, we were able to sell loads in Monrovia that short code messaging was superior to QR codes when buyers of plants wanted real time care information beyond what is available on a traditional plant tag. Our plant tag focused offering of KIOSentrix is very well received last month at the horticulture industry’s premier trade show Cultivate. As a result of the show, we’re currently working with IntegraColor to deliver 10 proposals to growers for similar solutions as we’ve deployed from Lowe's and Monrovia. KIOSentrix is proving to give both Lowe's and Monrovia location based insights in to where people are when they are most interested in plant care information and it also provides Monrovia’s retailer network the ability to add companion product suggestions, reviews and trackable mobile coupons.

One final metric that demonstrates this stickiness of our solutions is the growth and activations across our platform. In the second quarter of 2016 activations grew 110% versus the first quarter of 2016. I’m also happy to announce that we have recently expanded our relationship with IntegraColor to include programmatic advertising. Programmatic advertising helps automate the decision making process of media buying by targeting specific audiences in demographics.

Programmatic ads are replaced using artificial intelligence in real-time bidding for online display, social media advertising, mobile and video campaigns. And is expanding into traditional TV advertising market places and is changing the way media companies and advertisers think about advertising. In 2016 U.S. programmatic digital display ad spending will reach $22 billion, an increase of 39.7% over last year and represents 67% of total digital display in ad spending in the United States.

The biggest driver of programmatic ad spending is mobile. Since there are approximately 1.5 billion plant tags printed every year, we couldn’t be more excited to work with IntegraColor to produce a new revenue stream which could be worth millions in annual revenue to the company. During the second quarter 2016, we also experienced progress with our POPTrak solution as elevated interest from our channel partners resulted in advanced discussions with several large CPG and retail chains.

We expect to make announcements in the third quarter as a result of adding new key partnerships who deliver in-store displays solutions for Fortune 1000 retailers. On the intellectual property front the second quarter 2016 we announced our first U.S. patent issued for our new mobile sponsored gamification family with a 11 patents pending across three patent families and more to be filed in 2016.

The newly issued patent covers the system and method for advertising through a social network by immersion of participants in a sponsored game. More specifically, it addresses the technology in Blue Calypso’s DashTAGG® product. When a game participant devices are geographically co-located the game is played by way of picture being taking of one participant of another and then confirming the picture as a tag by an intermediary monitoring in the game. DashTAGG is similar to the old game of tag or capture the flag we all used to play when were young but delivered via mobile devices.

In an environment where softer patents in the post Leahy-Smith America Invents Act era, are very difficult to attain from the USPTO. We secure this new patent as something we believe embodies the uniqueness of our gamification in electro property.

In fact according to Law360 the USPTO is denying over 90% of new software patent applications that have been filed in recent months. We’re committed to innovating technologies that enhance the ROI for a brick-and-mortar retail partners and consumer goods manufactures. And we believe this space is on the verge of evolution leveraging gamification to bridge the gap between physical and digital engagement and physical retail. The second quarter theme was noted with new capital and organizational change while Hal was at the center of that theme, another key hire made to accelerate our go-to-market strategy was filling the Chief Marketing Officer post.

After an extensive search we finally chose the well-suited fit to our team in Stephanie Carson. Stephanie is an 18-year marketing veteran for some of the biggest global brand, consumer brands and business brands we couldn't be more excited to have Stephanie join the Blue Calypso team. Previous to joining Blue Calypso, Stephanie was the Head of Retail Channel Marketing for Samsung Mobile U.S., where she led Samsung’s National Retail marketing team, spear-heading product rollouts, managing product and retail design teams as well as further developing the brand through the continuous creation and distribution of branded merchandising to more than 6,000 retail outlets. While in this position, she played a key role in the development and execution of the new Samsung Experience Shops in Best Buy stores nationwide.

Prior to Samsung Stephanie held various product marketing roles with companies such as EDS, Essilor, Nokia, and Toshiba. We look forward to having Stephanie lead Blue Calypso’s brand strategy, product growth, communications, demand generation and customer engagement efforts. We made strong progress in all four areas in the second quarter, as a result are positioned in 2016 for significant growth in our business.

We look forward to other exciting developments in the third quarter of 2016.

I’ll have CFO Chris Fameree review the second quarter 2016 financial results. Chris.

Chris Fameree

Thanks Andrew. I will now run through the high-level second quarter 2016 financial results. First and foremost, the second quarter was highlighted by improved top line growth. Revenue for the three months ended then 30 2016 was approximately $504,000, as compared to 109,000 for the same period in 2015 or an approximate 360% increase year-over-year. The increase in revenue is derived primarily from project based revenue and is subject to timing of development projects and as a result the fees associated with the resolution of patent litigation matters.

Total operating expenses, including cost of revenue, for the second quarter of 2016, increased to approximately $1.1 million versus $805,000 in the second quarter of 2015. In addition to the higher cost of revenue the increase in operating expenses is due to a 20% increase in general and administrative expenses, primarily related to stock based compensation.

Our net loss in the second quarter of 2016 narrowed to $587,000 or approximately $0.09 per basic and diluted share, compared to a net loss of $696,000 or $0.14 per basic and diluted share in the same period a year-ago. The decrease in net loss resulted primarily from an increase in revenue of $395,000 offset by an increase in legal fees and stock based compensation.

Cash at June 30, 2016, totaled approximately $1 million, as compared to $730,000 at December 31, 2015. As previously mentioned, during the second quarter of 2016, the company raised an additional $1 million in a private placement with Hal Brierley. The Company’s recently appointed Chairman of the Board, which have plans to use for additional sales and marketing efforts and for working capital purposes.

On that positive note, I will turn it now back over to Andrew.

Andrew Levi

Thank you Chris. Our focus on mobile shopper engagement for product brands in multi-location brick-and-mortar retailers comes at a time when retailers are reporting eroding financial performance due to the Amazon effect. The disruption with today’s consumer purchasing habits is a result of new technologies, but also the lack of retailers creating more experiencial shopping journey when consumers are in-store engaging with their brands. We and our partners believe our KIOSentrix platform provides a rich and scalable platform that embraces product brands, retailers and consumers alike, while supporting all methods of activation such as beacons, short codes, NFC, Wi-Fi, and mobile apps, as well as distributing content.

We believe that our success in 2016 will be demonstrated with new partnerships and marquee customers and we expect to expand our roster to include additional Fortune 1000 brands in brick-and-mortar retailers in the near term. With Hal’s long-term vision in the loyalty market as our compass, we have never been more excited about the massive opportunity we’re attacking. Hal as the master consumer engagement and how incentives provided to a consumer can drive future engagement, incremental sales and strong brand affinity and loyalty.

As mobile devices are today standard for accessing any type of data, we believe that providing an activation and content agnostic solution, combined with loyalty is the next frontier to engage with the consumers in realtime, while they are in-store seeking their favorite brands. Our mission is to deliver a rich and seamless platform for retailers, and brands to connect directly with their consumers and to provide a tailored experience each time they enter a store and then track and provide loyalty rewards for visiting and spending.

These are things that I think about as we prepare for the future of mobile engagement with consumers. These are initiatives I see Blue Calypso technology addressing head-on and combined with strong loyalty component could be at the center of something very big in the very near future.

In conclusion, the second half of 2016 is setting the stage to achieve cash flow break-even as we have fortified our balance sheet, solidified our go-to-market approach, realigned our organizational structure and taped into new revenue streams. More over, our current pipeline continues to grow as we’re an active pursuit of major Fortune 1000 brands in the United States. The combination of these recent achievements positions Blue Calypso for significant growth in 2016 and beyond.

This concludes my prepared remarks. Now with that we’re ready to open the call for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Andrew D’Silva from Merriman Capital. Please go ahead.

Andrew D’Silva

Hi good afternoon. Thanks for taking my call, just a few quick questions here. At this point, have you been able to qualify or quantify what we should expect as an appropriate sales cycle timeline on average for some of the companies in your pipeline? Is it closer to the four-month to six-month mark in your opinion or could it longer or closer to the year mark, any data there will be great.

Chris Fameree

Yes, thanks for the question. Because our technology appeals to have broader array of brand marketers and retailers, the sales cycle for each varies. As one would expect when you are dealing with large multi-location, national, international brand, some of these pursuits take quite a long time, particularly with retailers. But consumer – with large consumer package goods providers are they don’t seem to move faster. So all that said, it really depends on the size of the opportunity as to what the expected sales cycle of the timeline will be but I think from initial contact to closed deal is probably somewhere in the four to six month ranges is the right estimate.

Some that are going to take longer and the other thing the more accounts we bring on, we believe the more referenceability we have in the market, the more will be able to compress that timeline. And so for instance, the fact that we are doing so much work on these plant tags and we’ve really brought in two of the marquee plant brands in the market being the Lowe's branded plants in Monrovia. The Domino's are just seem to be lined up to fall with quite a few of the other plant growers that are some of them, some of them nearly as big as the ones we are working with but others smaller in. So it just kind of proof points the need for reference account in the space and it will shortcut the time to market.

Andrew D’Silva

All right. Thanks for the color on that. And then maybe describing some of the hurdles in the pipeline what are you seeing right now are the biggest hurdles for landing companies, is it the complexity of the model as in the way that the product cost is structured or is it need a better understand the ROI that could be generated from the product or is it even the chicken or the egg scenario where you need more critical reference customers and potential customers need better understanding of the technology and the integration process.

Andrew Levi

So there is no doubt that having more referenceability, we believe will certainly assist in the sales process. But I believe the problem is that the platform and model that we are bringing to both product manufacturers and retailers is something they’re still trying to wrap their head around, I mean they all know that they need to evolve to compete with online e-tail like Amazon, but they just don’t know how to do it. And so as we bring our integrated platform to market versus a point solution or a co-work of things that don’t really fit well, part of challenge has been that there is a market education phase. And so we – you will never know that you’re looking in a rears whether you’re beyond the market education phase of adoption. But I think we are pretty close to the point that people recognize the dire need for some evolution and so now they are really more actively exploring implementing something that’s going to help them compete better I guess the online retailers.

Andrew D’Silva

Great, great. And then just last question with Harold Brierley joining the board has that brought any more advance introductions your way. Obviously touched on that a little bit during the call, but he has been around the space for really, really long time and imagine that’s a huge value-add. Are the introduction he is bringing you’ve leading you further up the channel that maybe C-level guys that are the ones are decision makers.

Andrew Levi

Yes, so you got to keep in mind, Harold’s only been the Chairman of the Board for about two weeks. So while we’ve been working with him, he’s been a friend of mentor and active investor for quite a long time in this journey. Its really only the last little bit that he’s really gotten officially committed to the inactive part of the company, as Chairman and he’s been as an advisor. So that said, having him involved is just amazing. I mean he’s a rock star in the space. And so does he have a rich rolodex absolutely, can he help us with our go to market strategy, sharpening our focus on our messaging and positioning. No doubt about it and he is digging in across all fronts as well as bringing in some folks that he is worked within the past that have got rich rolodexes, really strong contributors to get involved and we will do, its not just about Harold, its about Harold and all the other people that will be active in help and grow the company which is great.

Andrew D’Silva

Great. Andrew, thank you very much. And good luck going forward this year.

Andrew Levi

Thank you.

Operator

[Operator Instructions] And if there are no further questions, I would like to turn the floor back over to management for any closing comments.

Andrew Levi

Great, thank you. Thanks to everyone for joining us on the call today. We’ve got many dedicated and hard working people throughout the company from our sales and marketing channel and business development folks to our BC Labs team to keep our solutions constantly evolving.

My sincere thanks from all of management to all of you; we could not do without you. I appreciate all of our shareholder community supporting as we shift into the second half of 2016, which we really feel great about. Lastly, if we aren’t able to address all of your questions on today’s call, please feel free to contact our investor relations firm, MZ Group, who would happy to answer them for you. Operator?

Operator

Before we conclude today’s call, I’d like to provide Blue Calypso’s safe harbor statement that includes important cautions regarding forward-looking statements made during this call.

Statements made during today’s call that are not statements of historical or current fact constitute 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, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other unknown factors that could cause the actual results of the Company to be materially different from historical results or from any future results expressed or implied by such forward-looking statements.

In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms believes, belief, expects, intends, anticipates, will, or plans to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company’s reports filed with the Securities and Exchange Commission.

Finally, I would like to remind everyone that a recording of today’s call will be available for replay immediately after the call and through September 10, 2016. Please refer to today’s press release for dial-in instructions.

Thank you for joining us today for our presentation. You may now disconnect.

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