MassRoots, Inc. (OTCQB:MSRT) Q2 2016 Earnings Conference Call August 17, 2016 4:30 PM ET
Isaac Dietrich - CFO
Good afternoon, thank you all joining MassRoots' Second Quarter Earnings Call. My name is Isaac Dietrich and I currently serve as MassRoots' Chief Financial Officer.
Before we begin, we'd like state that this call doesn't constitute an offer to sell or solicitation of an offer to buy securities or assets of MassRoots Inc. This presentation includes certain statements, estimates and projections provided by MassRoots with respect to anticipate in future performance. Such statements, estimates and projections constitute forward-looking statements within the meaning of federal securities laws. These forward-looking statements are subject to known and unknown risks which may cause actual results to be materially different than those contemplated by the forward-looking statements. The recipient of this information is cautioned not to place undue reliance on forward-looking statements.
No representations or warranties are made as to the accuracy of such forward-looking statements or whether any of the projections included herein will be realized. MassRoots does not expect to update or otherwise revise this presentation. I've prepared some brief remarks covering MassRoots' revenue growth, business model, user growth and product development. But the majority of this call will be spent answering questions from you, our shareholders. Questions may be submitted via email to email@example.com.
Now onto the call. I'm pleased to report that MassRoots generated $492,000 in revenue during the second quarter of 2016, more than all previous quarters and our corporate history combined. This took our cumulative year-end total to -- total revenue to $585,000, of which approximately $325,000 was generated from our core product of digital advertising. As a digital product MassRoots is able to scale rapidly with minimal additional cost. The only marginal expense associated with gaining additional users is an increase in server activity.
For MassRoots' main revenue generators digital advertising and a dispensary locator, the only marginal cost is a credit card processing fee. We believe that as the model continues to mature, we will be able to generate significant revenue with negligible cost of goods sold. We believe MassRoots can reach cash flow positive from its current user base and web traffic. The problem over the past year hasn't been our users. MassRoots sees more eyeballs than nearly any other cannabis Web site or app. The problem has been our products have lacked the core functionality to connect users with the dispensaries and products through which they're looking. We believe that our dispensary finder is a solid first step in fixing this deficiency.
With the core functionality now in place we aim to rapidly iterate and expand on its functionality to include menus with live pricing, product pages with reviews and top search placement for paid advertisers. We believe that each of these features will create new revenue streams for our business. WeedMaps reportedly generated over $20 million in revenue in 2015, off of such features.
Now onto the business portal, we originally introduced MassRoots for business in the early 2015 as an online portal for businesses to schedule posts and view analytics. While useful for businesses, it did not have the features or capacity to scale to millions of dollars in revenue. When fully developed, the revamped MassRoots for business portal will consolidate many of the online marketing functions for cannabis related business in one central platform. We expect businesses will be able to schedule posts on MassRoots, Facebook and Twitter, purchase advertising on both MassRoots owned properties as well as third party digital properties and view actionable, real-time data from MassRoots and third party sources in easy-to-read actionable formats. We believe that this will serve as a solid foundation for future business related features as we prepare to integrate dispensary point-of-sale data later this year.
As of June 30, 2016 we had total current assets of $140,000 and total current liabilities of $1.7 million which is not a great balance sheet. Subsequent to the close of the quarter we've closed $1.6 million and the registered offering at $0.50 a share with $0.90 warrants, which puts us within striking distance of being able to fully repair debt and rebuild our assets.
During the six months ended June 30, 2016 we incurred general and administrative expenses of $4,701,000, that's a lot of money. Now $293,956 of that was for common stock issued for services and $1,330,000 was for options issued for services which slightly dilutes the company's shares, but doesn't actually take cash out of the business. So, let's look at the remaining $3,076,000 in expenses. There is about 250,000 in one-time investment banking fees, there's 293,000 in cost of goods sold primarily for the one-time event of the 420 Rally and there's about $557,000 in advertising that we can significantly reduce because MassRoots has already build a great brand that can grow organically. So, there's about $1,976,000 in other expenses or about $329,000 per month.
During July 2016, the company eliminated $54,000 in monthly expenses by terminating relationships with certain vendors reducing our headcount from 33 to 24 full time employees and utilizing new technological tools to better achieve results with fewer resources. As many of these contracts and agreements had 30, 60 or 90 day termination clauses, we expect these expense reductions not to be fully reflected into the fourth quarter of 2016. Reductions and staffs were concentrated on the content, account services and sales teams. While team focused on our core product development remains fully intact. Even as MassRoots continues to scale its users base in revenues, we do not expect a significant increase in the size of our team as we plan to automate many of processes as possible in the self-service platform product the clients.
Like other leaders in the technology field, our plan is not to scale through staff and overhead, but through automation and technology. We believe these expense reductions could result in significant savings for the Company currently estimated to be approximately 648,000 annually.
MassRoots management will continue to review unnecessary expenses on a weekly basis and believe the Company can reach cash flow positive on a monthly basis by the end of 2016. MassRoots currently has 24 fulltime employees working out of the headquarters in downtown Denver. The majority of these employees are engineers and designers focused on developing new features for the MassRoots platform. We believe that over the long run a small talent team of A players will outperform larger teams of B and C players. We believe we have found talents individuals at every level. Sales representatives who can outperform expectations, managers who can make architectural decisions that prevent costly and timely consuming blunders and engineers developing new features that have the potential to provide significant long-term returns.
One of MassRoots top priority in 2016 has been recruiting and retaining some of the top talent in the cannabis and technology industries. In June 2016, we hired Lance Galey as MassRoots Chief Technology Officer, previously Mr. Galey has served As Chief Software Architecture of cloud service for Autodesk and Vice President and principal architect as Sales Force, where the lead the architectural and development of numerous core infrastructure and platform services underlying a large portfolio of sale force SaaS applications. In 2013 he was selected as the executive MVP for the technology division of salesforce.com.
While MassRoots is consumer facing network launched in July 2013, we did not start generating advertising revenue until we crossed the half million users in mid-August 2015. Our clients have primarily been ancillary businesses marketing their products to cannabis consumers through endorsed posts on MassRoots, sponsored content on our blog, and mentions in our email newsletter. It is not necessary for a user to join MassRoots in order for us to generate revenue from them. We are finding that many people will visit our Web site, join our email newsletter, or view a dispensary’s profile without registering for our MassRoots network.
During the second quarter of 2016, we signed advertising contracts with a total value of $259,000 with 32 of the leading cannabis brands in the industry. As many of these contracts were for 3, 6 or 12-month campaigns, only a portion of the value was realized during the second quarter of 2016, and the rest will be realized over the coming quarters, building a solid foundation on which we can expand. While the vast majority of MassRoots’ advertising revenue to date has come from brands within the cannabis industry, we have started to see significant interest from mainstream brands and advertising agencies looking to market to cannabis consumers.
Uber and Fusion, a division of Univision, became the first mainstream brands to advertise with MassRoots and have opened the doors for other major brands to evaluate the space. We believe that as the regulated cannabis market continues to expand, mainstream brands and advertising agencies will begin to allocate portions of multimillion advertising budgets towards outreached to the millions of cannabis consumers in the United States especially food, lighter and agricultural brands. We are positioning MassRoots to be one of the first companies to receive these budget allocations.
Up until the beta watch of our dispensary finder on August 8, 2016 we didn't really have a product for local dispensaries or stores limiting our market. We now have over 175 dispensary location paying for a basic listing. With the core functionality now in place, we aim to rapidly iterate and expand on its functionality to include menus with live pricing, product pages with reviews, and top search result placement for paid advertisers. We believe that each of these features will create new revenue streams for our business with WeedMaps reportedly regenerating over $20 million in revenue last year off of dispensary services.
MassRoots believe the 2016 elections have the potential to significantly increase the size and scope of the regulated cannabis industry. According to the Marijuana Policy Project, campaigns in Maine, Nevada, Arizona, California, Michigan and Florida are expected to succeed in placing initiatives on their states’ ballots for this year’s election.
Historically speaking, the demographic make-up of the electorate during presidential election years tends to be younger and more diverse than in off-year elections, groups that are generally more supportive of the legalization of cannabis. We believe a number of the state initiatives on this year’s ballot stand a significant chance of becoming law. A 2016 ArcView Market Research Report projects the regulated cannabis industry could grow to $10 billion by 2018 as a result of this year’s elections.
Our business model is designed to benefit from this trend. When a new state passes a medical or recreational cannabis law, we are able to start registering users and businesses in that state with minimal marginal cost. Because MassRoots is not involved in the production or sale of cannabis, we do not have to build or grow operations, open retail stores, or have a significant physical presence in the state in order to generate revenue. At the same time, MassRoots’ financial model is not tied to the success of a particular location or brand, we believe we will have a significant percentage of all dispensaries and all brands on our platform, making MassRoots a play on the industry as a whole. Sitting at the intersection of healthcare on the medical side and a vice industry on the recreational side, we believe the cannabis industry can continue to grow in any economic climate.
Thank you all very much for time and have a great day.
End of Q&A
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