Boardwalktech Software Corp. (OTCQB:BWLKF) Q2 2023 Earnings Conference Call November 17, 2022 4:30 PM ET
Company Participants
Jonathan Paterson – Investor Relations, Harbor Access LLC
Andy Duncan – President and Chief Executive Officer
Charlie Glavin – Chief Financial Officer
Conference Call Participants
Mike Stevens – Echelon Wealth Partners
Ed Sollbach – Spartan
Operator
Good afternoon, ladies and gentlemen and welcome to the Boardwalktech Software Corp. Second Quarter Fiscal 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] Also note that this call is being recorded Thursday, November 17th, 2022.
And I would like to turn the conference over to Mr. Jonathan Paterson. Please go ahead, sir.
Jonathan Paterson
Thank you, operator. Good afternoon and welcome everyone to Boardwalktech’s quarterly conference call. This call will cover Boardwalktech’s financial and operating results for the fiscal second quarter ended September 30th, 2023.
Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by – Boardwalktech’s President and Chief Executive Officer, Andy Duncan, along with the company’s Chief Financial Officer, Charlie Glavin.
Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company’s plans, objectives, expectations or intentions.
These matters involve certain risks and uncertainties. The company’s actual results may differ significantly from those projected or suggested and any forward-looking statements due to a variety of factors which are discussed in detail in our regulatory filings.
Today, we issued our second quarter fiscal 2023 financial results, a copy of which is available in the Investor Relations section of our website, www.boardwalktech.com and posted on SEDAR. I would like to remind everyone that today’s call is being recorded on Thursday, November 17th, 2022.
I will now turn the call over to the President and Chief Executive Officer of Boardwalktech, Andy Duncan.
Andy Duncan
Thank you, Jonathan. I would like to welcome everyone to Boardwalktech’s quarterly earnings call to discuss the company’s financial results for the second quarter of fiscal 2023 ended September 30th, 2022.
Before I begin, please make note, that all dollar figures reported on today’s call are in US dollars, unless otherwise noted. We are pleased to report that our business continues to experience solid growth and a healthy amount of momentum driven by both our land and expand strategy, as well as our new business opportunity in the financial services market. This momentum is demonstrated by the continued growth in our annual recurring revenue, which now sits at $5.5 million, representing year-over-year growth rate of 66%.
Our actual license revenue reported in the September quarter grew 95% year-over-year. Total revenue of $1.5 million is up 36% year-over-year, though flat sequentially due to the timing and some professional services revenue, a temporary impact which we believe will more than correct itself in the next quarter and subsequent quarters. I will leave the rest of the financial discussion to Charlie Glavin to provide deeper insights in the financial aspects of the quarter after my prepared remarks.
I would like to touch on the continued success of our land and expand strategy in more detail, as it will continue to be a key growth driver for the business for the foreseeable future. Before I jump into the recent success of the strategy, I would like to remind everyone about how and about the how and the why behind the strategy and why this is working so well for us. When Boardwalktech signs a new client, we typically enter into that company to help them with a specific unit, business unit to solve a mission critical issue by transforming a current Excel based application process onto our Digital Ledger Platform.
Once we are on boarded with the new client and deliver that first application. The benefits of our platform are readily apparent as the ROI to our customers routinely exceeds 5x to 6x in the first year of our license. We have demos and case studies that show these compelling productivity gains. Workflows are also made easier, which leads to better and faster decision-making, improving the operational performance and profitability of many areas.
This is what makes our platform so powerful to our clients. This positive first engagement typically leads to internal discussions within the organization, which then leads to new incremental business opportunities for Boardwalktech with that client. As a client begins to experience and understand how our platform can drive better decision-making in the drastically shorter period of time, we start to become integrated into the overall technology stack of the organization become the engine that helps them transform and manage their unstructured data applications, ones that are still very dependent on Excel.
It is estimated that the typical enterprise has well over 100 of these separate, mission critical Excel-based applications that would benefit from our Digital Ledger solution. If that enterprise migrates just 10% of these to Boardwalk at roughly 100,000 per application, that would be $1 million of ARR per customer. Thus, we are looking for enterprises to switch everything to Boardwalk, at least not yet, but rather acknowledge that while their existing IT systems may be good, they are not good enough in this challenging and competitive market.
This is the essence of our land and expand strategy. And it’s working as evidenced by these results, helping us to increase the recurring revenue with every client based upon the ROI we provide. We had a few wins in the quarter that epitomize our land and expand strategy, starting with the expansion of our relationship with a long-term client, one of the top accounting and tax consulting firms in the world.
We – this deal grew our recurring license revenue by an additional $500,000 per year, and is a clear demonstration of the benefits that our low code Digital Ledger Platform provides to our clients. This client is now using our platform with several thousand of their global tax clients, which in our opinion, is quite the endorsement of our software solution. We expect to continue to announce more wins with respect to our land and expand strategy, as we are currently working on multiple initiatives with existing clients. And we’ll announce these deals when they’re finalized.
We also expanded our scope of services with HCL Technologies, a multibillion dollar New York Stock Exchange listed Information Technology Company with global operations. HCl is not only a client, but an important channel partner of ours in the banking and financial sector. And finally, we announced a new relationship with SiTime, also known as SiTime, a fabulous semiconductor company that has licensed our Digital Ledger Platform to streamline its demand planning across its organization. To better manage the information across its supply chain down to the unit level. The result will be a much more efficient way to manage inventories and to serve their clients.
Give them the supply chain challenges and problems faced by the global market. As a time this is one more example of new Boardwalk customers that recognize the need for our time-based Digital Ledger Platform is a struggle with managing structured and unstructured data and their supply chain for compliance for tracking for security, and in real time, accurate decision-making while still maintaining data quality and provenance.
With that, let me now make a few comments about our pipeline of new business. We acknowledge that concerns of an economic slowdown create perceived headwinds. However, it’s management’s belief that these are some of the reasons why we are seeing an actual increase in our business development pipeline. Since Boardwalk is providing a solution that improves productivity, and can even offer a distinct competitive advantage.
For example, a semiconductor customer improved its results or its response time to RFP/RFQ inbound requests by two days to three days which resulted in a 15% to 20% higher conversion rate, meaning, more deal wins and a higher ROI and revenue for that customer. To quote one of our other customers, a senior director and a top five US Bank, “what used to take me two days now takes me 15 minutes with the Boardwalk Digital Ledger”.
This customer testimony is representative of why our pipeline continues to replenish and grow, while our business growth remains resilient in the face of uncertain economic times. The reason for this ongoing growth is that our time-based Digital Ledger Platform not only enables better collaboration, but addresses and resolves the critical supply chain problems evident in the industry today. What excites us even more is that the pace of growth in new business can be attributable to several factors.
First and foremost, our software solutions provide productivity and material return on investment in the first year of implementation. As we have discussed in the past, and in our investor materials, unstructured data within an organization accounts for more than 80% of its overall data volume. And this unstructured data is doubling every two years, an astounding number.
This level of unprecedented data growth and complexity is very difficult for large enterprises to manage. The management of unstructured data is exactly the type of problem we are solving with our low code Digital Ledger Platform. There was not a product in the market that can do what we do today, and the market is really starting to recognize Boardwalk as being a leader in this space.
Looking forward, we are excited about the company and where it’s headed. We are on track to hit profitability next year without the requirement for outside capital. What also excites us is the future growth potential presented by two separate $100 million revenue market opportunities now being addressed by Boardwalktech, that would be our enterprise market, and the financial services market.
First, the first is our continued focus on Unstructured Enterprise Data Management Solutions specifically for the CPG, supply chain and manufacturing markets that continues to grow through the expansion of existing relationships and through the acquisition of new clients that will be announced as we convert new business from our growing pipeline.
The second and this new Financial Services channel or banking channel that we’re working on, we’re starting to see some terrific momentum. This is not a market that we chased, but was brought to us by an existing customer and partner.
Earlier this year, we announced our first client in the Financial Services channel, a top five global bank, who was beginning to ramp up the Boardwalk Digital Ledger velocity product across its entire organization to address end user computing compliance, a risk issue from Legacy Excel spreadsheets. This deal has drawn the attention of other large IT services companies that seek to engage us as a channel partner, and enter into a teaming agreement which will continue to build out an ecosystem for Boardwalk in the Financial Services space.
These new partners are very motivated to leverage our Digital Ledger into their large banking clients, whereby Boardwalk gets the direct license revenue and our partner gets the revenue from deployment of the professional services and consulting work without Boardwalk having to hire teams of employees. This means that we can scale and can be highly profitable in doing so.
I will now pass this over to Charlie Glavin, who will walk through the numbers with you and a detailed environment. Charlie, over to you.
Charlie Glavin
Thanks, Andy. Before I begin, I would like to take a moment to remind our listeners, that all figures today on today’s call are in US dollars, and their fiscal year ends March 31. With reported figures based on IFRS standards, unless otherwise specified. Additional details can be found in our financial statements and MD&A as filed on SEDAR.
As Andy mentioned, total revenue for the first quarter of fiscal 2023 was $1.5 million. This is a 34% increase from last year’s revenue of $1.1 million, but a slight 2% sequential decline from the $1.1 million we report – from the $1.5 million we reported in the prior quarter. And Andy mentioned earlier, this sequential decline was due to the temporary timing of certain professional services milestones, which we believe will have that temporary impact, as we expect both the current third quarter and fourth quarters to be as high, if not higher than the $416,000 level we reported in the prior June quarter.
As I’ve mentioned in prior filings and conference calls, the company expects the contribution from professional services will continue to grow in absolute dollars over time, but decrease as a percentage of total revenue. The levels are expected to fluctuate on a quarter-by-quarter basis, with this second quarter being one of those such quarters. The total revenue growth we reported came both from the addition of new customers and the expansion of existing licenses as the portion of our revenue from new and recurring SaaS licenses in the quarter grew to 81% of total revenue, up from 56% last year.
In absolute terms, this means, that revenue from new and recurring SaaS licenses grew over 95% year-over-year. Since the company implemented its SaaS business model in 2018, total revenue from new contracts signed since 2018 now comprises 84% of our total revenue in the current quarter compared to 65% in the prior year, while total revenue from these customers has now grown at a 42% compounded annual growth rate since 2018.
The company defined annualized recurring revenue, ARR as a non-IFRS metric, as the recurring revenue expected based on annual license subscriptions and recurring services. As a result of new license closing, ARR as of September 30th, 2022 came in at $5.5 million, which is a 66% improvement from the $3.3 million ARR level in September of 2021. We note that this ARR growth has increased each of the last four quarters, as expected do so in the upcoming quarter too. As we exited – as we are exiting the month of November, we projected ARR already in excess of $6 million level.
Gross margin for the second quarter of fiscal 2023 reached another historic high of 90.3%, which is the 4.3 percentage year-over-year increase from the fiscal second quarter of 2022 levels, and the slight increase from the 90.2% level we reported last quarter. These gross margin improvements were due to both higher revenue levels as well as a higher mix of license revenue.
Even as the company continues to make investments in its hosting sub-processor in upcoming quarters to support future growth, investors should continue to expect comparable margins to the 90% level we’ve reported in recent quarters. Net loss for the second quarter of fiscal 2023 was $1.2 million or loss of $0.03 per basic and diluted share versus a loss of $900,000 last quarter, as well as a loss of $700,000 last year.
Non IFRS net loss as defined in the adjusted EBITDA and non-IFRS Financial measures section of our MD&A. For the second quarter of fiscal 2023 was $695,000 or a loss of $0.02 per basic and diluted chair versus $450,000 non-IFRS loss in the second quarter of fiscal 2022. Adjusted EBITDA for the quarter was a loss of approximately $680,000 versus a $430,000 loss last year, and $260,000 loss in the June quarter.
Adjusted operating expenses did increase sequentially by $400,000 this quarter, in line with what we projected and stated in our last two filings. This came from a combination of select hires in our US and India offices, needed to support growth in the upcoming projects, as well as salary increases to match wage inflation and stay competitive, plus the commencement of teaming fees and the amortization associated with those with our recent banking client deal.
Again referred to the NDA for a more detailed description on these. As a refresher, Boardwalk is using this new partner sales ecosystem to recruit new teaming partners such as HCL that can build and manage solutions for their financial services clients by leveraging the Boardwalk velocity product for financial services’ customers running on the Boardwalk Digital Ledger Platform.
This way Boardwalk gets the full license with each financial client, while deployment and financial services will be largely handled by that partner. Thus, this enables us to close deals quicker, lower our cost of acquisition and reduce Boardwalk need to hire staff headed opted to go this route alone.
Our goal continues to be to achieve both profitability and accelerate growth, not as n either or scenario. The company finished the second quarter fiscal 2023 with the solid balance sheet. The company continues to have no debt and for the first six months of the year. Cash inflows from operations as the positive $700,000 in the company finished the quarter with $1.4 million of cash. This reported cash level does not include an additional $350,000 of cash.
The company received from the exercise of warrants subsequent to the closing of the September quarter. The company does have another batch of warrants set to expire in late January, which we do not expect to provide, which we do expect to provide some additional positive optics and growth equity. Those warrants include approximately 1 million warrants and an exercise price of CAD 0.70 and $8.3 million as a $0.90 exercise price.
Before closing my section, let me provide and reiterate a few comments about our outlook. The company continues to track at the upward and of its initial $6.5 million to $7 million guidance for the fiscal year, which would be a 60% year-over-year growth at the high end. Several key points to make about this gotten into the upside potential.
First, our pipeline did replenish and grow this quarter above $7 million. Our pipeline is a bottoms up projection for specific projects and customers over the next nine months give or take that are factored by progress to close. Second, while we have included, while we could have included all banking opportunities, the company only included to near term deals, rather than all prospects to avoid inflating the pipeline and associated investor expectations.
Third, as Andy alluded to the last time we faced the economic headwinds, was when the COVID shutdown first hit. However, during that time, our pipeline actually doubled since prospective customers realize that their existing IT systems might be good, but they weren’t good enough to handle supply chain, global collaboration, traceability, and other data and management challenges. This prior pipeline increase is what is fueled our current ARR growth. And why? Because our Digital Ledger isn’t just unique and great technology, it enhances productivity and ROI to our customers.
So, in conclusion, given the company’s revenue growth and outlook, our goal continues to be both profitable and accelerate growth. And as we’ve mentioned before, our focus and goal is not just to hit our guidance, but to exceed it. And we look forward to providing you progress on that goal in the months and quarters ahead.
With that, let me turn it back over to Andy.
Andy Duncan
Thanks, Charlie. To say that the businesses that are very exciting inflection point is an understatement. Boardwalktech is starting to prove that our Digital Ledger Platform and related products is a unique and important solution for both large enterprises and financial institutions to better manage and empower their unstructured data. There was nothing on the market that can do what Boardwalktech does today, and our shareholders will soon be rewarded for their commitment and their trust. We look forward to announcing new developments in the upcoming months and reporting our results to our investors.
And with that, we’ll move over to any questions that anyone may have.
Question-and-Answer Session
Operator
Thank you, sir. [Operator Instructions] And your first question will be from Mike Stevens at Echelon Wealth Partners. Please go ahead.
Mike Stevens
Yeah, hi. Good afternoon, guys and congrats on your progress in the quarter.
Andy Duncan
Thanks, Mike.
Mike Stevens
Yeah, I just had a question. You touched on the macro environment and some of the countercyclical trends that you saw at the beginning of the pandemic, and you’re seeing them again now. What about the sales cycles and with you know higher costs inflation, et cetera? Is there much difference this time around or any color with that?
Andy Duncan
Yeah, Mike this is Andy. You know, we’re not really seeing a change in the sales cycle. The deal that we did that we mentioned you know during this call with a fabless semiconductor company, you know that was about a three-month sales cycle. And while that was shorter than normal, I think that we’re kind of in a mode of being anywhere between kind of 3 months and 6 months depending upon the size of the deal.
I will say that from you know your question with regard to the economic component in this and the supply chain. You know the supply chain is a complete mess. And you know we continue to see companies struggling with regard to supply chain. And part of that problem is that, the systems that they’re using are antiquated. And they’re very difficult to change rapidly. And you know this problem is certainly you know becoming more and more evident and companies are looking for new ways to be able to solve this supply chain issues and problems from a technical standpoint, and we believe that we’re positioned really well to be able to do that utilizing the Boardwalk Digital Ledger.
Mike Stevens
Okay, great. And sticking with the macro theme. You touched on the – seeing some wage inflation in your business. I’m just wondering in terms of pricing power, I know it’s still early stage in your trajectory. But is that something that you’re able to pass through? Or is it more that land and expand is just kind of scaling the number of customers that you’re – that’s really the focus?
Charlie Glavin
Yeah, just –
Andy Duncan
Yeah, go ahead, Charlie.
Charlie Glavin
Andy. So I’m sorry. Yeah, Mike, I would caution that we’re not going out trying to fight on a price basis, but rather in terms of a ROI to the customers. In fact, it’s somewhat funny. We’ve had some pushback from the customers who are wondering why we haven’t charged more you know for some of our customers, given the amount of savings, higher productivity, profitability that we’re giving to the customers. But we are not going out and fighting on a price basis.
So our reference more towards the inflation was more in terms of making sure that we haven’t had merit increases for several years, because we’ve been very focused on trying to get to the profitability. But we know we also have to stay competitive. But we have had success in having select hires necessary to fuel the growth you know going forward. But when it comes to actual pricing, now, our technology is so unique you know at this point. We don’t have to go out you know and fight on a price basis.
In fact, that’s not the way that we position this, but rather on how do we resolve problems and save you know quite frankly, time. That’s why that quote you know that Andy mentioned you know, what used to take you two days now, it takes 15 minutes. That’s the ROI that we’re trying to and we try to target at least a minimum of 5x ROI in the first year for our customers.
Mike Stevens
Okay, great. Appreciate it. And then just if I could ask about your teaming partners, just any updates with how you’re you know are you happy with the progress? And in terms of the number of resources that they’re able to deploy? Is that something that you have any control over? Or is that sort of contracted in or just any color on that?
Andy Duncan
Yeah, so as you know, Mike, the way in which we’ve set up these teaming agreements is that, the IT services company will partner with Boardwalk, Boardwalk will have the direct license agreement for the technology with the bank. And the bank will contract directly with the IT services company to do all of the, you know administrative and rollout work. And any other professional services work that is contemplated with that.
It’s a win-win, because that’s exactly what these IT services companies want is bodies against, you know a project or you know projects. And, of course, what we’re interested in keeping our margins high and that direct license revenue. And further to answer your question, we continue to go through training with a lot of these IT services companies who are now starting to build personnel in and around this, and we’re pretty enthusiastic about the response that we’re getting, including some that are calling us directly to say, I’d really like to be trained you know on the Boardwalk Velocity solution.
And so we definitely are seeing movement there. What I love to be talking about you know that we’ve got you know 20 banks in the pipeline. Yeah, but we don’t and you know we’re continuing to educate and partner with the IT services companies as these banks are going to continue to look for solutions to be able to solve this problem, especially as the OCC you know continues to focus in on more compliance issues in and around these issues with end user computing environments and spreadsheets.
Mike Stevens
Okay, thanks. And last one, if I could just a broad question maybe longer-term. Is there any areas of the market that you’re particularly excited about that maybe you know people don’t associate Boardwalk at the moment? Whether it’s a new vertical or an area of investment?
Charlie Glavin
Can I answer that? Andy, can I answer that one? Because, sorry [inaudible]. Mike, there are several other market areas that we could you know be even deeper in, that we’d remind investors on as well track and trace you know be in the food and pharma areas, another very logical and tangential area that we could get into. We’ve already proven some of that we did a pilot project with the Defense Logistics Agency, for example. But one of the reasons why I wanted to take this answer is, when I first was approached by Andy.
For those who don’t know, I would have killed for this Digital Ledger, where I still at Intel or still at Credit Suisse having a global semis. But it was when I asked Andy almost the same question you did, Mike. And Andy said, you know, we could go into these other areas, we want to keep our focus with limited resources to excel in these couple, rather than spread yourself too thin and be mediocre. So my point being is yes, there are a lot of other markets that we could Excel and add incremental growth to.
But we also have to be judicious with the limited amount of resources that and growth equity that we have at hand. So there is a lot more upside even to what Andy has said. I think it’s reflective of Andy’s leadership that we don’t go chasing every single one. Again, the banking market was one we did not chase, but rather had an existing partner who came to us after Andy had given a talk in London, who said, we know a bank that could use you and made the introduction.
Mike Stevens
Awesome. No, I really appreciate the color guys and your time. Have a good one.
Andy Duncan
Thanks, Mike.
Charlie Glavin
Thanks.
Andy Duncan
Thanks for your great questions.
Operator
Next question will be from [Craig Johnson] [ph]. Investor, please go ahead, Greg.
Unidentified Participant
Hello. You’ve – I’m just trying to get some more color on these arrangements with for teaming. That is you’re picking up the subscription revenue, and the consultants get the professional services, et cetera. And but I see that you have in your expenses $204,000 for payments to teaming partners, I’m assuming. Can you explain if they’re picking up the revenue for some things, why are you paying them?
Charlie Glavin
So that’s an excellent question, Craig. And the lion’s share of the professional services revenue is being picked up by the IT services. So it is a win-win plus, they can front the personnel. There was, in particular for these first couple of deals, essentially, the equivalent of I don’t want to call it a retailer commission. But for the introduction that come in, to be very blunt, we would not have gotten into this first bank had it not been for this partner.
And I don’t want to go into the details of this. But we are amortizing it because this is not a one-off. But rather, we were duplicating this and the teaming fee is something that you probably have seen within government or defense contracts. And you, this partner as being essentially the prime, and then you allocate the piece at the beginning, partly because the lead you know partner who brought us in, provide us the access and help win us that license is something we couldn’t have done it on our own, but certainly not in the time fashion that we did.
But we also – and it’s been ourselves and the teaming partner. Ultimately, we are at the behest of that bank, who then can reallocate it. So view some of those fees as a backwash in terms of protection for that partner to make sure that they don’t get written out of deal by the banking partner.
Unidentified Participant
Okay. So is this likely to grow over time?
Charlie Glavin
No.
Unidentified Participant
And if so. Okay. So it’s just – is it going to stay at that level kind of for a while? Is that because this is a kind of an incentive payment to the one or two groups?
Charlie Glavin
Yeah, that would be the way to look at it and think of it as more front end weighted like.
Unidentified Participant
Okay. So it would – it’s going to I’m just trying to think in terms of the – it’s going to stay around $200,000 for a while?
Charlie Glavin
And then trail off.
Unidentified Participant
I see. Okay, that’s good. And in terms just one other question. In terms of your pipe, I see last year, if I add together your ARR plus your pipe, I get about $12.3 million from last year, same quarter. This year, I get about $12.5 million-ish. That’s up a little bit, but it’s not. So it means you’re converting your pipe is what that means. But I’m just wondering, you’ve said that you’re being very conservative in terms of what’s in the pipe. It’s not obvious from those numbers that the pipe is really – that the net, the total is growing. But you’re saying is that you’re being very conservative and putting the numbers in there. I’m – just want to make sure if I’ve got this, if I’m understanding this right.
Charlie Glavin
Now you’ve got that right, Craig and one of the other things that we do is, it’s not absolute numbers. So one of the things is that depending on the position of the – how close we are to we proceed to be closing, we will act actually back to that as well, JB CoupIe, our – and the sales will factor that as well. Plus, NEI will also look at discretion.
So as I mentioned, we could have added a couple of other banks into the pipeline from where we have discussions, but we thought it more prudent to temper expectations at this point and let our numbers you know present it. I would not use the pipeline as being you know the absolute and we’ll be very honest there our customers who come on the pipeline, and drop off and go back and forth. Oftentimes when a customer will look at our solution, and they’ll look at their internal IT and the internal IT will say, let us give it a shot.
They try it and they come back to us. And that happens on a frequent basis as well. So you shouldn’t view it as linear, but rather it’s dynamic overall. But in terms of the conversion, you know no on that. The other thing that we’re getting is a lot more referrals. So not just IT services, companies referring us in. But I would remark on three of our largest customers came from an existing customers as well. And that trend we’re actually seeing started to pick up as well.
Unidentified Participant
So if I could summarize, the business is growing really well. Even though these particular numbers are just don’t reflect.
Charlie Glavin
We’re – I think the best way of looking at the pipeline is, we’re not going to close on, you know, on all of the deals that would be unrealistic. But it is showing that and why we reference even within COVID as we had that you know dropped down fairly low. And as people were uncertain about COVID.
And then a lot of customers, including a couple that are now amongst our top five customers looked at their existing IT they had tried other solutions, both internal and external, and came back to us and we saw that pipeline double you know over the course of Andy, what was it? About nine months that it went from you know from the nadir to doubling. And that is in turn, Craig, whether it’s your, you know, our existing growth.
So it is dynamic, but you should view it as the pipeline is indication of future growth right now, because people are either approaching us, we’re getting referrals from other customers or IT services partners that are indicating that we have a lot of growth potential you know out there, and ultimately what we’re focusing on especially Andy is converting those deals into actual recurring revenue.
Unidentified Participant
Okay, that’s great. Thank you so much.
Operator
Thank you. [Operator Instructions] And your next question will be from Ed Sollbach at Spartan. Please go ahead.
Ed Sollbach
Good day. Congrats on another good quarter. Yeah, just trying like you kind of referenced the two big opportunities out there, Andy, there. And are those specific companies or are they kind of industries that you’re targeting that maybe have that big size? Because those sizes are outside of your pipeline, right? Like, how do you get to those numbers?
Andy Duncan
Yeah, I mean, at the macro level and the way that we look at this is again, there’s two distinct opportunities, one, in the financial services market. When we look at the first deal we closed that was you know a couple million growing to you know $3.5 million on an annualized basis as the contract matures.
And you know, we think that there’s a very good possibility for us over the next 36 months, 48 months to land 50 additional banks hang us call it a minimum of $2 million a year for the Boardwalk Velocity product. And that’s how we get to kind of $100 million revenue in financial services market, there’s execution to be done. And you know, there’s momentum that needs to continue to build in that market, but we think it’s very reasonable to think that we can get there.
On the second side of the business, the other kind of $100 million opportunity is in our traditional enterprise business, selling our Digital Ledger Platform. And that is, we’re going to continue to focus on the early adopter markets that we’ve been focused on, which is you know in CPG, manufacturing tax with a real focus also on supply chain, you’re going to see us really talking a lot more about supply chain.
When you look at most of these large enterprises you know we’re only focused on enterprises that are doing $1 million and above, so kind of midmarket up to all the way through the Fortune 1000, these companies routinely will have 100 million plus of these mission critical spreadsheet applications that are currently being run in a manual Excel mode, that need to be you know transformed over on to the Boardwalk Digital Ledger Platform.
If you say we’re going to get 10 of those at 100,000 apiece, which has been kind of our ASP on those deals, that gets us to a $1 million of recurring revenue per large enterprise, very sticky. And then you do that and you say, over the next 36 months to 48 months, can you get 100 additional enterprises paying you $1 million per year ARR. And we believe that that is very viable. And so that’s how we kind of get to those two what I would say macro markets that we’re going after.
But with a very deep focus at on the particular vertical industries that we’re targeting, like we’re not going after pharma, we’re not going after other areas, whereas Charlie mentioned, we could we just don’t have the resources or the manpower to be able to go and do that yet. And you know as we get opportunities in those areas, and we think we can actually handle it, then we’ll certainly expand into that.
So that’s an area of have a lot of opportunity for us. I’ll also say that yesterday, I gave a speech to 1200 enterprises with regard to supply chain. And the response after the speech was pretty strong. And after the presentation, people really are acknowledging that there’s such a big problem in the supply chain. And we really believe that our solution is unique and different. And that you’re going to continue to see new wins that we’re going to be focusing in on the supply chain.
Ed Sollbach
Okay, well. Thanks. Thanks for that color. Andy. I mean, I think you know I can – are you looking at the auto industry? I mean I can think of the last couple years you know they’ve lost tens of billions in sales, because they’re missing a couple of chips or you know Ford is lost you know their sales were down 20% just this quarter, because they’re missing badges you know the Ford badge for their cars, right? Like is that one example of an industry that you’re targeting?
Andy Duncan
It’s definitely a great example of an industry that’s got a lot of pain and has a lot of legacy software that is actually causing some of these issues. It’s about an industry that we’ve focused on today, and that’s mainly because of a lack of resources to be able to go after it. Not saying that we would be a perfect fit. It’s – just don’t have the horsepower to go in and focus on that industry. I will say that –
Ed Sollbach
Is that an industry you could target with your partners that you pay? We were talking about the finder’s fee that you’re paying is that –
Andy Duncan
Yeah, so it is certainly yes, go ahead, Charlie.
Charlie Glavin
Yeah, so it’s funny you should mention within the auto industry, because the first one I would be thinking is semi semiconductor where we’re actually had success. One of the problems you have within the auto industry is that actually a long cycle. So you have to, it is within the suppliers, you actually have to qualify within the suppliers to the automakers. So once you’re in you get a very long area. But yeah, I can take it offline as far as that area.
What I can tell you that an area that we could and should be you know even deeper in is, within the semiconductor industry as well. And that I do think has a lot more upside not just SiTime, but other customers of ours include Qualcomm, Broadcom and on semi. And those are areas where we’ve had you know, we have shown specific productivity gain. That you know, not just because it’s part of my background, that it’s so right. We even had a customer who was a perpetual license of ours back in 2014, that we migrated over to a recurring license. And part of that was from being able for them to track chips within their end product as well.
So, as Andy said you know and I did as well, there are some tangential markets that we really could you know get deeper in. But we don’t want to chase those markets, but rather prove the technology. And that’s why having Andy go out, given indications, speeches, along with just printing more announcements about new deal wins that in turn gets us to have reverse inquiry.
And I will tell you, we’ve actually had some sales people who have approached us to wanting to start to work with us or they know of opportunities. And when you get that reversing for when people look or hear a speech that Andy and I have given and said, Can I get you in touch with somebody, that’s where we know we’re getting the traction and the growth. But like Andy said, we don’t have all the resources we wished to be able to chase all those market opportunities and rather excel on the ones that we are.
Ed Sollbach
Well, yeah, a lot of times you know on the technology, it’s a snowball that we’re all seen the orders come in.
Charlie Glavin
And I’ll give you numbers –
Ed Sollbach
Sign them up with a lot less resources, because they’re already educated, right. So that’s right.
Charlie Glavin
I’ll give you another example. And this is one JV and we are also working on is within the upstream areas within the sort of the track and trace, but it’s a supply chain issue overall. And that’s working with guys within the RFID and AIM market overall. And the idea of this is not just at the point of sale, but further up when you’re getting into customs licensed tax areas, which we’ve already proven on is another area that we are working on.
But again, what we’re finding is, it probably will be growth that we’re going to be working with other ecosystems, like the RFID ecosystem, to not just have one problem, but rather the entire supply chain. So that would include the DHL Logistics and other parties out there of whom we do have a relationship to an existing partner. So there are opportunities out there, and it’s just that we can’t chase all of them at the same time.
Andy Duncan
I love your thought process on that as well.
Ed Sollbach
Okay. Yeah. So just on the income statement you know great top line growth, but you’re not getting the operating leverage because of the expense growth. Now, I understand the professional fees, or no, sorry you know, the finders’ fees, the $204,000 the other gentleman was referring to that makes sense, because I, you know, the contract I would imagine might be there for many, many years, right or possibly forever, right. And the finder fee goes away, but what you like, when does it go away? Like how you said you amortize it, but how – what’s the amortization period for these finder’s fees?
Charlie Glavin
So the amortization is over the life of the contract given that we’ve negotiated beforehand, but obviously, we’re not going to – we’re trying not to disclose certain confidential information regards that. But with each new partner, we would probably have not similar, but there would be some amortization associated with it, but not as the period of expense.
And the reason for that is, again, if you take a look at where teaming agreements have been mostly used, and say government and defense, it’s to your point, these are long-term deals, but the fees themselves associated with this teaming fee would be more front end, you know and say, the first year or so of the deal, then it becomes a symbionic relationship where you know, we’ve got the brains, they’ve got the brawn, let’s go make lots of money, that sort of idea.
And with contracts that we’re looking at trying to do four years to eight years you know, out there, and in some cases, we’ve even negotiated the prices out to the first four years. And I don’t want to get into details, but what I can tell you that is that, they are progressive pricing. More importantly to the investors, the contribution margin, so not the gross margin, but what’s going down to the bottom line of cash. With these new deals, we should be getting you know well in excess of 70% contribution margin. That’s what we’re focusing on,
Ed Sollbach
Even with the teammates. Even with the teammates?
Charlie Glavin
Yes, yes, because we’re not having to hire teams people, anybody who’s experienced SAP, you do a shrink wrap SAP and next thing, you know, you’ve got a team of 20 or 40 guys who are camped out in the West Wing of your offices three years afterwards, because they’re doing implementations. Why? Because you’re still reliant on doing SQL queries, for not only getting the data into the data lake, but extracting it as well, which is a highly inefficient and labor intensive process.
That is the beauty of the Boardwalk Digital Ledger you know, one of our first major customers from the time we signed the license to the time they went live with their own clients was six weeks, and it took me less than five guys during the implementation to get them up and running and to maintain it is only requiring two. That’s the operating leverage going forward.
Ed Sollbach
Right. All right. Okay. Well certainly it’s you know, they have the customer relationship. And, but so with that like, if things were just you know, so would an example be that you have a multiyear contract, and you pay a teaming fee for the first year? And then after that they have to, if they want more, they have to get new contracts. Is that kind of –
Charlie Glavin
We would incentivize them for a renewal, depending on whether there’s an upsell you know, associated with that. Yeah, we – right because we don’t want to just have them come in and sit back and collect. That’s why we call it a teaming agreement. And not –
Ed Sollbach
That’s not a royalty fee. It’s more of a finder fee or more of a royalty fee. I guess that’s the thing.
Charlie Glavin
That’s why the best way of describing it is a teaming –
Ed Sollbach
I don’t know. Okay, I don’t know the teaming term. But.
Charlie Glavin
Well the teaming and being in like, again you know, within the government is, they have the IT services, they have the access, they will collect the professional services off of that, because you say that we don’t have those relationships or approved access into those banks and financial institutions, these companies do. And so we get to go through the front door, not a side door. And we don’t have to spend the time. So we’ve just accelerated our, you know time to closing, we’ve lowered our cost of acquisition, and we don’t have to hire as many people to implement and sustain those deals.
Ed Sollbach
And it’s like a stamp of approval from this consult.
Charlie Glavin
Yeah, that’s a good way of describing it as well.
Ed Sollbach
Okay, and so would it be correct to think of it as the teaming fee as partly finding fee and partly, then support fee ongoing where they would kind of support the product into the future is that –
Charlie Glavin
I think that’s a relatively accurate way of describing it.
Ed Sollbach
Okay.
Charlie Glavin
And I should point out, those are on pre-arrangements as well where there’s, again, you know, a long-term vision on this now, the short-term, let’s just close the deal.
Andy Duncan
Yeah, I’d also, to point out that, as we continue to mature into this market, and mature our relationships on these teaming agreements, that we’re going to get a little bit more exact, and probably get to a little bit better terms, if you will. Regard to future deals, as we move forward. So we’re, you know, we want to leverage the channel. We want to let them sell while we sleep, and reap the benefits from that. But we also want to make sure that we’re economically doing this correctly. And, again, as the market – as this market and relationships mature, it’ll continue to change. I think that the favor of Boardwalk.
Ed Sollbach
Right, well, I mean, it’s all structuring, right. So, I mean, a 15% be for you know, commission is fine, but a 15% you know, royalty in perpetuity is seems high, right, but anyways, and then the other, you know, the other part of operating leverage is salaries, wages and benefits on your side is that’s also gone up about just, you know, in line with revenues over 30%. So is that – did you bring on a bunch of new people or are people just doing a lot?
Andy Duncan
Well, it was a combination of two things, Ed. But no, we hadn’t given merit. We had not given a merit increase to our team both into [inaudible] and for a couple of years. They’re compensated with both, you know, cash compensation in our shoes. It was time and you know, we wanted to stay ahead of the market because the market at least when we made these merit increases was pretty frothy and we didn’t want to keep people. So it was time.
The second thing is yes, we did hire some additional folks from an engineering standpoint to execute on a supply chain project that we’re working on that is long-term that we’ll be able to talk about soon, and also that we’ll be able to leverage that technology that’s been developed into many other customers. So this was a good, proper investment that will continue to support our growth.
Ed Sollbach
Okay. And so the salaries is it kind of a catch up and won’t be repeated, is that the way to think of it?
Andy Duncan
Well, again –
Ed Sollbach
Especially given the layoffs in the value and stuffs or –
Andy Duncan
Yeah you know, again, we look at the value, but you know, you also look at you know, wage inflation in India at you know 30%. Okay so you know we had to be careful and do the right thing for our people to be able to get them on par with what the competition was and be able to you know retain them. And –
Ed Sollbach
Some of that sort of India too.
Andy Duncan
Yes, yes, some of that is sort of India as well.
Charlie Glavin
And I’d also point out that, because of how we have to do our planning and projections, we can afford to hire somebody after you close the deal. But in anticipation of the depending on the, again, the progress, say, within our pipeline, because we need people to come up and ramp. So there’s a bit of a calculated risk. But again, I’d point out that yeah while there’s been some notable layoffs, we have actually been hiring selectively, and even add people who are coming to us, you know, seeking to join particularly on the sales and marketing side.
So I’m not saying that we’re bucking the entire industry trend, but we are trying to be judicious with this. Andy and I and the team realize that getting to profitability is a line that we you know still are marching towards. But we have to balance that off to make sure that if we’re closing another banking deal, we’re going to take the banking deal and the growth associated with it, because of the better long-term decision, as opposed to the short-term metric that we can chuck off. We got to take a look into both tactically as well as strategically.
Ed Sollbach
Right. No, I mean, I know you know, I’ve been following the company for a few years. And you know, they, you know, you manage expenses, well, when times were tougher and I – so I can see the need for catch up. And you know, I think you’re right to put growth ahead of profitability especially if you can get that you know, the strong growth you’ve been seeing. And, but then on the other hand you know I think to get the, you know, if you have a lot of employees, shareholders, and so that you know, if you keep managing expenses, then they’re going to get – they’re going to do better, much better on the shares, then even through a salary increase, right. So it’s, you got lock that line –
Andy Duncan
It’s a fine line, Ed. And you know, just no two things, Charlie, and I wake up every day thinking about how do we add ARR. And the second thing is, we wake up thinking you know we’re we got to continue to stay very judicious and focused on getting to profitability, which will be you know mid next year.
Ed Sollbach
Fantastic. Okay, well, thanks for all the color and congrats on a great quarter.
Charlie Glavin
Thank you.
Andy Duncan
Thanks, Ed.
Operator
Thank you. And at this time, gentlemen, we have no further questions, please proceed with closing remarks.
Andy Duncan
Great. I’d like to thank everybody for attending our 2Q Fiscal – our Fiscal 2Q quarterly conference call and I sincerely appreciate your interest and you being an investor in Boardwalktech [inaudible] of the call. Thank you very much.
Operator
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask you to please disconnect your lines.
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