Digimarc (NASDAQ:DMRC) Q3 2020 Earnings Call

0:00 Good afternoon and thank you for participating in today's conference call. Now we turn the call over to Chairman and CEO of DigiMark, Mr. Bruce Davis. Sir, please proceed.

0:12 Thank you and good afternoon. Welcome to our conference call. Charles Beck, our CFO, is with me. We also have Bob Chamness, our EVP in charge of sustainability, joining us today to provide an update on progress and prospects in this increasingly important use of our platform in plastics recycling. On the call today, we'll review Q3 financial results, discuss significant business developments and market conditions, and provide an update on progress and execution of strategy. We have posted these prepared remarks in the investor relations section of our website and will archive this webcast there. Before we begin, let me remind everyone that today's discussion contains forward-looking statements that have risk and uncertainties. Please refer to our press release for more information on the risk factors that could cause actual results to differ materially.

0:57 Charles?

1:00 Thank you, Bruce, and good afternoon, everyone. Revenue for the third quarter was $5.8 million, essentially flat with Q3 last year. Service revenue increased 6% from $3.2 million to $3.4 million due to growth in services provided to government customers. Subscription revenue decreased 10% from $2.7 million to $2.4 million due to the impact of a renegotiated contract with a retail supplier partner in the first quarter of 2020. that we've discussed on prior calls. Revenue from government was up 4% to 3.5 million, driven by growth in service revenue. Revenue from retail was down 15% to 1.4 million, reflecting the impact of the renegotiated contract I referenced a moment ago.

1:47 Revenue from media was unchanged at 900,000. Retail bookings, which include store operations, supply chain, and recycling solutions, were 1.2 million, around the same number as Q3 last year. The most significant factor affecting bookings growth during the quarter was the pandemic effect on the organization of Holy Grail 2.0 and planning for the Golden Thread projects. We signed some new revenue deals in Q3 that did not contribute significantly to bookings as they were primarily early production and pilot projects. However, we do expect these initial activities will grow into larger revenue streams in coming quarters. Bookings during Q3 included several notable strategic developments. We started enhancement of private label packages with Digimart barcode for a major retailer in Japan. To date, we have completed more than 70 packages.

2:40 We expect to transition the enhancement process to a trusted partner in Japan during Q4. We also began a customer-funded study of the commercial viability of laser engraving serialization with a global brand and its suppliers. We generated follow-on bookings for the variable data printing solution that I mentioned on our Q2 earnings call. And we completed the Walmart toy catalog, which began circulating about a week ago. Gross margin for the quarter was 66%, down from 67% last year due to a shift in revenue mix to services. Service margins were 58%, up from 55% last year due to a favorable mix in billable expenses. with higher labor and lower non-labor expenses.

3:31 Subscription margins were 78% down from 81% last year, primarily due to lower subscription revenue. Operating expenses were $12.2 million, an increase of 2% from $11.9 million in Q3 last year. Operating expenses during the quarter included non-recurring severance costs of $800,000 relating to the corporate restructuring we announced in July. Excluding these costs, operating expenses would have declined by 5% due to lower travel, consulting, and other costs. We expect operating expenses to range from $11.2 million to $11.6 million in the fourth quarter. Net loss for Q3 was $8.4 million, or $0.68 per diluted share, versus a net loss of $7.8 million, or $0.65 per diluted share, in the third quarter last year.

4:23 Non-recurrent severance costs of $800,000 accounted for $0.07 per diluted share of the net loss. Our balance sheet has been considerably strengthened. We raised $2.1 million under the ATM program prior to the TCM investment. The TCM investment added $53.5 million of cash. We have no further plans to use the ATM. We are also shelving the strategic financing initiative for the time being in light of the substantial increase in working capital. We ended the quarter with $62.7 million in cash and investments, including $36.5 million of proceeds for common stock issued to TCM. We received the remaining $17 million of proceeds from the investment on October 1st when the convertible preferred stock was issued.

5:15 Cash and investments after receipt of the proceeds from the convertible preferred stock issuance was $79.6 million. We filed for forgiveness of our entire Paycheck Protection Program loan in mid-September. The bank has 60 days to review our application and then the Small Business Administration has 90 days to approve it. We are working on our operating plan for 2021 and have some preliminary views of planning assumptions to share that are guiding our views on allocation of resources for the next year. Our government business is functioning well. We expect revenue to grow at mid-single digits and to vary quarter to quarter based on timing of when services are performed with slightly more work in the first half of the year than the second half.

6:03 We expect revenue from media to be around the same level as 2020. This area of business is stabilized and does not currently warrant incremental investment. We have a small yet great team that continues to work on efficiencies to maximize account retention and contribution margin and explore opportunities for growth. In the primary growth area of the business, we are currently projecting triple-digit growth in retail bookings and revenues in 2021. The growth in retail subscriptions is expected to come primarily from licensing software to partners and end users. Key applications include traceability, brand protection, logistics, recycling, and retail store operations. Growth in retail services is expected to be fueled by development and consulting projects, associated with the Plastics Recycling Initiative in Europe.

6:55 We expect subscription revenue to grow at a higher rate than service revenue leading to an expansion of gross margins as the incremental margin contribution for licensing software is nearly 100%. Although we expect significant growth in retail revenues, a wide range of potential outcomes is possible for this area of the business due to the timing of closing contracts and other factors including continuing uncertainties about the effects of the pandemic. We think the most likely outcome is an acceleration in bookings consistent with our momentum theory of market development. When and how much the rate of bookings growth will accelerate due to tipping points in the market remains hard to predict. The range of potential outcomes is largely a function of the nature and timing of key account developments and the effect of adoption by market leaders on the rest of the industry.

7:48 We are projecting a modest increase in total expenses in 2021, up single digits from 2020, reflecting additional headcount to support growing opportunities in plastics and sustainability and the impact of routine cost-of-living adjustments for existing employees. For further discussion of our financial results and risks and prospects for our business, please see our Form 10-Q that we expect to file shortly. Bruce and Bob will now comment on significant business developments, market conditions, and execution strategy. Bruce?

8:20 Thanks, Charles. There have been several very positive developments since our last call. Most prominent among them was TCM Strategic's $53 million investment. It's a game changer. We have made great progress in building our platform and developing the market. Now we have more capital to fuel progress on the path to profitability and establishing DigiMark as a cornerstone of automatic identification in the global supply chain and more broadly in artificial intelligence, machine learning and augmented reality. Our platform will redefine relationships between people and things in many aspects of commerce and everyday life. TCM Strategic is well-informed and ably led by its visionary fund manager, Riley McCormack, a long-time Digimark shareholder. He was elected to the board yesterday. I expect him to be a terrific shareholder, representative and advocate. Most of our shares are held by less than a dozen high-quality long-term institutional investors, and he is well-known and respected by our largest shareholders.

9:14 Knowing Riley well, I'm personally excited about the opportunity to collaborate with him. We also elected Alicia Surratt to our board. Alicia has a remarkable career in the financial markets. Her accomplishments across many disciplines demonstrate entrepreneurial talent. and extraordinary leadership qualities and understanding of financial markets, a track record of advocacy for diversity and a mastery of modern media. I expect that she too will be a great contributor. These directors bring significant new perspectives and experience to our board, rounding out its capabilities as we advance into the next stage of platform market development. I particularly look forward to the advice and assistance of our new directors in creating a better understanding of the positioning of our business in the capital markets. Sales side coverage is limited. Thank you.

9:59 Thank you. We are planning outreach into historically underserved areas of the capital markets, including the rising tide of millennial investors, ESG funds, and European investors. We expect that these segments will appreciate our important roles in areas like food safety and the circular economy, and the improvements in corporate governance that we have implemented this year.

10:48 We've seen an expansion of digital market holdings by European funds to nearly 10% of institutional ownership, as reported by NASDAQ. We will do considerable outreach in Europe. There may be a better understanding of our potential contributions to the circular economy and the importance of these contributions in Europe where there are more decisive societal and governmental actions addressing plastic waste as compared to the U.S. We expect there to be a great deal of activity in the EU during 2021 involving AIM, plastic recycling, and other sustainability initiatives involving our company that we need to communicate to investors there. We shelved the strategic investment initiative for now in light of the TCM investment and board developments. The primary drivers of the initiative revolve around access to capital and the optimal use of our limited working capital. The significant strengthening of our cash position allows us to approach these relationships with a focus on operational leverage rather than capital acquisition.

11:44 Explorations with corporate investors have been helpful and constructively influenced many aspects of the execution strategy. It's better for the time being to focus on the many opportunities for organic growth that are surfacing and on expansion of our shareholder base. Opportunities to improve auto identification span consumer product life cycles from manufacturing to recycling. The environmental impact of plastic waste is becoming a global crisis. Last year we demonstrated unique relevance to recycling and technical trials. Our platform demonstrations show promise of unprecedented improvements in quantity and quality of storing of recyclable materials and waste streams. It's also obvious that we can play a much broader role in the circular economy. Our capabilities have galvanized the industry. Global leaders involved in plastics have gotten together to form an impressive industry initiative known as Holy Grail 2.0 to determine the path to commercialization for digital watermarking.

12:37 We have a central role to play in this initiative. The TCM strategic investment allows us to deploy more resources to address this enormous market opportunity. Bob Chamness, the executive in charge of this area of our business, is here today to provide an update and overview on our progress and prospects.

12:54 Bob? Well, thank you, Bruce. It's my pleasure to join the call and to share recent developments in our plans for the recycling and sustainability initiatives. In previous calls, Bruce has discussed the enduring demand for plastic in the global economy and its resilience as a superior product, notwithstanding both negative publicity regarding the damage to our oceans, waterways, and landfills, and increasing government scrutiny and involvement across Europe and in some states and municipalities here in North America. The mission, which we've undertaken with other Holy Grail members, is to improve the quantity and quality of recyclable plastic as the foundation of a more efficient system of product design, consumer education, collection, sortation, and processing of the waste streams collectively known as the circular economy. The goal of the circular economy is to keep plastic out of our oceans, waterways, and landfills and reduce air pollution due to incineration.

14:03 This is a massive, long-term opportunity for the company. Neither GS1 nor suppliers of the products themselves have published aggregate data on the number of plastics-based products currently in global commerce. Best estimates suggest that as many as 300 million or more than 30% of the active SKUs in the market are plastic. Any reasonable penetration of that opportunity would lead to outstanding returns on our investment to address this crisis. The formal launch of Holy Grail 2.0 in September was a very significant development. The initiative now has over 90 members. Over the past two years, we've demonstrated the vital role we can play in addressing the plastics crisis. at two Holy Grail demonstrations on high-speed sortation equipment.

15:03 We became the centerpiece of the formation of Holy Grail 2.0, which will test our technology in high-speed sortation of mixed waste at scale in industrial waste facilities in at least two countries. During the past few quarters, our team has focused on speeding the adoption of DigiMark barcode among brand owners and aiding development of a robust ecosystem for both the enhancement and discovery sides of the DigiMark platform. The pandemic slowed the pace during the first three quarters of this year. Thank you. Thank you. We are engaging in support of recycling and sustainability initiatives with 13 of the top 20 global brands and 4 of the top 5 retailers who are members of Holy Grail.

16:17 We are working with their materials and packaging suppliers, mold makers, and converters. We are now actively engaged with 24 of the key supply chain members of Holy Grail 2.0 and nearly all of the trade associations and academic influencers who help shape public perception and the legislative and regulatory environment. Writing up this ecosystem of suppliers and partners is critical to long-term success. On the detection side, we have completed agreements with and accelerated our assistance to the two largest manufacturers of high-speed sortation equipment, who together provide over 80% of the lines in sorting and materials recovery facilities globally.

17:09 This work includes the development of prototype detection systems for use in industrial trials and deployment of commercial units shortly thereafter. We are in discussion with several additional suppliers of visual systems and components involved in the analysis of waste streams and companies exploring use of our mobile software to provide consumer education and engagement, test systems for the identity of marked packaging and quality assurance. Plans for launching Golden Thread projects in three countries were delayed due to the pandemic but are now gaining traction. As we stated last quarter, these projects are intended to provide commercialization models for brands, retailers, manufacturers, dual systems operators, sorting facilities, and other ecosystem players.

18:07 They aim to test and develop strategies for better recyclability, collection, consumer education, sortation, and recovery to enable true circularity. Two of these projects have been scoped and budget requests submitted. We believe that at least one will start during Q4. The third has been subsumed within Holy Grail 2.0, and we anticipate meaningful progress in planning and funding for that initiative during Q4. Two other potential golden threads are in early formative discussions. A second front is emerging in North America. While the political environment and ecosystem are strikingly different from the EU, several initiatives are gaining momentum.

18:57 We are supporting and aligning with key North American trade groups to leverage the learnings from Holy Grail and with European government relations initiatives to gain efficiencies and harmonization along the path to globalization. Our global brand customers may need such coordination and eventual global standards to reduce operational complexity and compliance risks across their markets. Globalization is inevitable. The Ellen MacArthur Foundation, sponsor of the original Holy Grail project, has collaborated with the Worldwide Fund for Nature and the Boston Consulting Group in a call for a UN treaty on plastic pollution. Their business case for a treaty calls for, quote, coordination, coordinated investment approaches to support infrastructure development in key markets and innovation, end quote. In summary, all signs are green at this point, and we are planning to increase our support for efforts to reduce plastic pollution as we enter 2021.

20:07 I'll now pass the mic over to Bruce for closing remarks.

20:12 Thank you, Bob. Secular trends in the digital transformation of businesses and increasing evidence of the need to move beyond the UPC are evident in the plastics initiatives, in growing demand for serialization, and in the enduring effects expected from the pandemic. New customer opportunities are in the pipeline in forms of media and industries that I doubt are contemplated by the investment community. As these opportunities mature, it will become increasingly obvious that our positioning as the barcode of everything is not hyperbole. The company's organization continues to evolve with the maturation of execution strategy, growth in size, breadth, and sophistication of the supplier ecosystem, and the result of expanding the universe of applications being built on the platform. The organization has changed dramatically as we evolved from an IP licensing company to a customer-centric software and services supplier.

21:02 I'm proud of the versatility, loyalty, and focus on our mission of our employees and leadership team as such changes are challenging. We made significant changes in Q3. The primary goals were to strengthen the relationship between product development and sales, improve accountability for customer outcomes, accelerate a transition to the cloud, create better alignment between the organization and changes in demand profiles we are observing, and gain operational efficiencies. With the fundamental building blocks of the platform in place, it's time to assess about our customers, both partners and end users, delivering great value efficiently and effectively across a spectrum of enabled applications. Our product and platform development are increasingly informed by end users and their suppliers, bringing problems and opportunities to us that they can believe can be uniquely addressed by Digimart.

21:51 There were many very positive developments since our last call. Key takeaways include we raised $55 million, and now the balance sheet is in good shape. We had a team of directors to the board, broadening relevant skills and experience. Revenues in EPS matter exceeded annual assessments for the third quarter in a row despite the pandemic. We continue to navigate the effects of the pandemic well. Demand for brand owners increased while U.S. retailer progress slowed some. European and Japanese retailers seem less affected. Brand owner demand is growing and expanding in the new geographies and new industries, including pharmaceuticals, automotive, and tobacco. We expect the shift in revenue mix to persist for the foreseeable future. The key market themes are sustainability, supply chain visibility, and brand protection.

22:41 The recycling initiative is making impressive progress and looks very promising. Serialization is another key area of opportunity. Our preliminary planning for 2021 indicates substantial growth in bookings and revenues with a small increase in spending, leading to higher gross margin and better cash flow. As we enter 2021, here's what I view as the keys to success. Begin with obsessing customer success. Maintaining our excellent rapport with the central banks, delivering exceptional value and expanding our footprint at Walmart. Establish additional tentpole customers for supply chain solutions. Make advancements in faster, easier enhancement with minimal impact on designs and delivering integrated, reliable quality management to lower the total cost of ownership for adoption of the platform.

23:29 Meet demand for serialization with interfaces to IoT services, including traceability, RAM protection, and supply chain visibility. That's going to be a big theme. Address great opportunities in R&D and techniques for plastic enhancement in thermal form and laser marking. Participate in industrial trials with AIM Holy Grail 2.0 and some parallel golden threads to stimulate and accelerate adoption and ecosystem development and encourage a second front in North America for the plastics initiatives. expand support and provide more infrastructure for rapidly expanding supplier ecosystems. Keep our stable, highly skilled workforce with unrivaled institutional knowledge of the area of science that we operate in safe, healthy, engaged, and productive in the COVID-19 era.

24:20 And executing effectively on these initiatives should fuel substantial bookings and revenue growth. So with long-term funding secured, Thank you for your support for our mission and confidence in our ability to achieve it. We wish you all the best in these difficult times. That's it for our prepared remarks, and now we'll open the floor to questions. Thank you. Ladies and gentlemen, if you have any questions or comments, please press star then 1. Once again, ladies and gentlemen, if you have any questions or comments, please press star then one. Please stand by.

25:05 We can power Q&A roster. And our first question comes from Jeff Van Ree with Craig Helen Capital. You may proceed.

25:25 and many more.

25:57 With respect to private brand products, that's motoring along, doing fine. And we're discussing means to move beyond the grocery and consumables area where we've concentrated in our initial work. We also are exploring more mobile applications throughout the store. You may have seen an announcement by Walmart that they're embracing a mobile-centric shopping model and hope to have a couple hundred stores lit up moving forward. I think that's an excellent initiative by Walmart. in order to provide a safer and yet still engaging and efficient shopping experience for their customers and all the others who are in their stores from third parties and store associates shopping for others. with respect to thermal it's still on hold and it's on hold because it will have a significant impact on store operations when implemented and there's just too much going on in the stores right now and too much uncertainty for them to begin rollout in this environment so I don't know when it will come back online it's pretty close to ready to go so I'm hoping that we can work on developing a store or two at some point to deploy the system and fully debug it and so forth and prepare

27:27 for a broad rollout. But there was just a presentation yesterday by John Ferners, the CEO of Walmart US, talking about his priorities and the environment, and they're still unsettled. And the focus is on things that can have an immediate effect on urgent needs. and not so much on longer term improvements to the retail operating model.

27:57 Kind of helpful. You guys talked about, you know, preliminarily expecting triple digit bookings growth in 21. Obviously bookings have been impacted because of COVID in 20, but when you think about that triple digit bookings growth next year, what are the primary use cases that you see in the pipe right now that are going to drive that?

28:16 and potentially recycling. So the largest growth we expect will be in those areas. As I noted in my remarks, in retail store operations, the U.S. is a bit more disrupted than the other geographies appear to be at this point. But I don't know if you're watching the news today, there's more trouble in Europe causing some shutdowns and so forth. So it's really hard to predict how retail will go next year, but I believe that the increase in demand for supply chain solutions is being driven by the pandemic. So it's a kind of contraindicator. It's driven by the pandemic as opposed to being impeded by it.

29:03 And with respect to plastics, obviously the world's got a lot of concerns right now, but the plastics industry, situation is getting worse not better and there seems to be growing awareness of the need to do something and a growing voice which will motivate change so I'm actually very encouraged about the continuing progress and the uptick in recent progress in plastics in the midst of the COVID crisis.

29:31 Got it. And then just to follow on that, sort of on your last part there with respect to recycling, what are the sort of the near-term key objectives and milestones of some of these Golden Thread projects? You know, you mentioned a couple of industrial tests you guys planned. Obviously, COVID might hinder that to some extent. Not sure. But what are the key milestones and objectives? And then also, when do you... I have our expert on the call today, Jeff, so I'll turn over the floor to Bob to answer your questions about recycling and plastics.

30:14 A couple of things come to mind immediately. The Aim Holy Grail project is kind of the mother load project for purposes of supply chain and partner involvement. And we're working with the brands, the retailers, several of the recycling companies, sorting equipment providers, political organizations and suppliers and plastic producers and affect the supply chain. And so we look for that project to be relatively active next year. We're working with that team in terms of the planning of the project and its scheduling. Because there are so many players, it is a little unpredictable, Jeff.

31:03 And so we're working through some of that unpredictability. The golden threads are less pan-European. They tend to be focused more in specific countries. And in some respects, those will be easier to drive forward. Again, there are some dependencies. We also look for those to start revenuing next year.

31:27 Got it. And then just lastly, if I could, you guys obviously got close to $80 million on the balance sheet now. Are there any areas where you plan to really ramp investments over the next six to 12 months? Yes.

31:41 We'll be increasing our investments in the circular economy and helping to solve the plastics crisis. Got it. Help with that for me.

31:51 Okay. Thank you. Hi guys, just a couple questions for you.

32:04 First, can you talk a little bit more about the laser engraving work that you're doing with CPG, I guess, and supply chain members and talk a little bit about the application there?

32:19 Not too much because it's a confidential project. It's just that as we talk about serialization, there are three primary means to deliver the serialized data. The one that had been actually a gating factor was digital presses, and that has to do with the scale economies of digital presses versus traditional presses. We had a major technological breakthrough in the past year with respect to what's called marker-coder or industrial inkjet overprint, allowing for serialization of traditionally printed packaging. So that's been the big breakthrough that's caused us to be able to scale our business materially in that area.

33:08 The third means of doing it is through lasers. And that's not yet commercially available. It's in R&D. What we wanted to do was to assure you that we actually have a very prominent brand and some outstanding suppliers in a collaboration to see if we can get there. And if we do, I think it's going to be a tremendous opportunity for a change in the world, frankly, that brings serialization at scale to products of all kinds. But beginning with products that you might imagine where the substrate would be more relevant than the labels.

33:54 So we have the means to do labels. We're working on the means to do substrates. We combine the two. We've got really marvelous products. Thank you for joining us today.

34:08 That's great. And then can you talk a little bit about the synergy, if there is any, between the Holy Grail members that you've talked about who are obviously also your key customers for traceability, for supply chain, et cetera, et cetera. Is there cross-fertilization going on there already, or are these kind of siloed things still right now? Once again, I'll refer to my colleague Bob on that one.

34:41 There is a great synergy between the two, and particularly within their organizations. And so we're working to support really all sides of those brands, retailers, and others. that want to invest in the platform. And part of what makes our platform so attractive is the multiple use cases that can be driven from implementing it. And for some of these companies, recycling alone is a motivator. But for others, they want other use cases including front of store efficiency or supply chain or food safety or manufacturing all those other things that we can bring to the party.

35:28 So for some it's closely held but for most it is an effort that spreads across the company. Great, thanks very much. And once again ladies and gentlemen if you have any questions or comments please press star then one. And our next question comes from Steve Tompkins with Oppenheimer & Company.

35:49 Yes, thank you for having us and my question is Because of the increase in global demand with the retail and all the other members that's involved with Holy Grail in Europe, do you ever find yourself turning away any business so you don't become stray and so you're not spread too thin?

36:14 We'll get on this. I'll start. Oh, go ahead. Oh, go ahead, Bob. If you want to start, go ahead.

36:21 Okay. Where we try to focus our resources is on the key individuals or companies that are supporting and investing most clearly in the project and in the technology. But I look to engage everyone that wants to be involved. will just prioritize as necessary to make sure that we deliver high quality and satisfy the customer obsessing on their success.

36:58 And more generally Steve, There are two threads to my answer. One is yes, we will turn away business where we don't see adequate promise in terms of the scaling of the opportunity beyond a particular need. We are increasingly driving product development out of customer needs and customers are increasingly coming to us with problems and opportunities they think that we can uniquely address. With all of that said, however, the model that we have is one in which we empower suppliers. And so as we empower suppliers, that application layer gets hopefully increasingly served by the suppliers who then take on that complexity. So our business doesn't get increasingly complex.

37:44 It's increasingly profitable because the suppliers will take on the application layer understanding and service requirements and we will gain income from their growth and their business. Great. Sounds good. Thank you. And we have a follow-up question from Jeff Bernstein with Kelly. You may proceed. Thank you.

38:10 I just wanted to hear your thoughts a little bit more on Japan. I think in the past, what we've read and what you've talked about is there's a little bit more of a collective approach to adopting new technologies across the supply chain rather than the kind of individualist stuff that goes on in the U.S., and a more consolidated group of suppliers. So kind of breaking the ice with the first player there maybe is a prelude to a more accelerated adoption, but you tell us.

38:44 Well, Charles actually is our executive who provides primary oversight and direction for the Japanese market, so I'll ask Charles to respond to that question.

38:56 Yeah, so our strategy in Japan is we have not invested heavily on boots on the ground. We have a sales executive there. Our strategy is really centered around enabling partners to deliver to the retailers and brands. We have a number of projects going on. We've got good engagement from our partners. This was kind of our first breakthrough. As I've mentioned before, the challenge that we had in Japan was that some of the hardware just didn't work as well with with our technology just in the fact that the hardware wasn't having the latest optics or CPU or those sorts of things, so it was less than suboptimal. We started to make significant improvements there to where the hardware ecosystem is a lot more supportive of our technology, and this was kind of the first instance where we had a significant update to scanner software that then enabled the ability for the retailer to utilize the technology in front of sports.

39:55 And we're continuing to make progress there. We've got good tight alignment with a number of key partners there that I think will open up the doors for additional opportunities. That's great. Thank you. And we do not have any further questions in here.

40:18 All right, perfect. Well, thank you, everyone, for participating, and we look forward to any follow-up questions you may have and to speaking to you soon. So thanks very much. Stay safe and be well. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.