Core AI Holdings Q2 FY2023 earnings call

• Previously announced two capital raises generating $4.55 million in gross proceeds and a reverse stock split to meet NASDAQ requirements.
• Second quarter revenue grew 180% YOY with strengthening sales of SD7 handset and accessories, expanding into new verticals like schools, healthcare, etc.
• SD7 has certifications with North American and international carriers, and expanded distribution to strategic resellers.
• Announced new product SD7+ with body camera capabilities powered by Visual Labs' software.
• Expanded sales team with hire from AT&T's FirstNet.

In Q2 2023, total revenue was $2.7 million, a 180% increase year-over-year compared to Q2 2022's ~$1 million. Revenue from the U.S. was 84% of total revenue for the quarter. Rugged device sales in Q2 2023 were approximately $2.1 million, which is 10x higher than Q2 2022's $220,000, directly attributed to sales of the SD7 handset. Gross margin percentage for Q2 2023 was 29.7% versus 11.2% in Q2 2022. For the 6 months ended June 30, 2023, total revenue was $4.5 million, a 150% increase year-over-year compared to the same period in 2022. Gross margin dollars were $1.3 million in 2023 compared to $400,000 in the same period of 2022.

• Expect strong growth in coming quarters with double-digit year-over-year growth.
• Substantial growth anticipated based on orders and partnerships received.
• Confident in continued growth across product categories, especially rugged handset PTT product category.

Forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances difficult to predict, and actual results may differ materially from forward-looking statements. Risks are also discussed in the company’s annual report on Form 20-F.

Q: Just for clarity, Marc, let me start with the question, just so I understand. There are some restated financials. I think it was just related to one item. It’s about $2.7 million change in fair value to a warrant that impacted the first quarter. Is that the only – is it the main change in the restatements?

A: Yes. It’s the main change. It’s a non-cash issue and it was just the way that our accountant or our auditor viewed the way that we had looked at those warrants in Q1.

Q: Okay. Good. That’s helpful. And then if I just move forward here, I do notice that you have a – it looks like a bank loan outstanding of just about $700,000, which is related to our recently obtained line of credit factoring agreement to your North America receivables. This was a new development. I wasn’t aware of before. What does this do for you exactly? Does this help boost your sales?

A: Yes. Yes, this is a great development because it’s – it allows us to have factor in and to factor our customers. All of our customers are very high-level rated customers, and it allows us to factor them.

Q: Okay. Got it. Understood. And then let me just look at the top line. You did $2.7 million of sales in the second quarter. So, significant growth year-over-year, obviously, congrats on that, a big growth sequentially as well, so that’s great to see. Now, if I try to look forward before looking here, I see the $2.6 million last year in the third quarter. So, as we look at – we are halfway through the third quarter this year now, do you expect year-over-year growth in revenue – year-over-year growth and sequential growth in the third quarter? Is it going to be lumpy? Just on any line of sight would be helpful.

A: It’s very hard for us to give projections just because this is – the sales are really ramping up now. And I don’t want to say it’s new to us, but it’s relatively new to us getting this level of sales to the carriers and it’s going really in a great direction for the company. We do hope and our goal is to definitely have double-digit growth on a year basis for sure.

Q: Okay. Got it. And there are comments, I guess for – I think it was Glenn was providing comments in his prepared remarks about AT&T, FirstNet, adding – it’s over 300,000 new subscribers, I believe. How do you – who are those subscribers signing up with and what devices are they signing up with? And how do you start to get a larger piece of that with these new FirstNet subscribers turning on?

A: So, the more that FirstNet is lighting up SIM cards, that’s good for us because that’s one of our main customers. They are working right now with companies like Samsung and Apple and a company called Sonim Technologies. Those are probably the three main vendors that they are working with right now. But we think that we have something which is very unique. We are the only vendor that has a device that looks and feels like a radio, but it’s a cellular-based device. Everybody else is selling higher-end smartphone devices. We are the most cost-effective mission-critical push-to-talk device available at FirstNet today, and we see that traction coming in from FirstNet, both in this quarter and the sales that we had in Q2, and we see that coming going forward also.

Q: Okay. Great. And then just in terms of big needle movers, I know this is kind of a domino effect and you are spreading brand awareness, obviously, these are all great additives. Do you have an expectations or any visibility into – I am sure you are working behind the SIM card, with the new sales hires. But is there any – any just sense of when you might see a large volume order arrangement in the near future?

A: So, there are a few very large scale opportunities that we are working with for large school districts, large corporations, just corporations that employ tens of thousands of people, but those are single opportunities that are not even going to get sold in one quarter. If we got a large school district that would need 20,000 units, that would probably spread over two quarters or three quarters, right. So, it’s not that we are going to get one order for 20,000 units, we will get an order for a few thousand units, 6,000 units or 7,000 units over two quarters or three quarters because they have to roll it out throughout the school district, just as an example.

Q: Good morning guys. A couple of quick ones. Can you provide further color on the European markets and those distribution channels? Is that gained traction yet, or is that more of a 2024 type story?

A: That’s definitely a Glenn question. Glenn: Hey Tom. Yes. Thanks for the question. I would say things are growing in Europe, not quite as quickly as in North America, simply because the adoption of push-to-talk over cellular is trailing in Europe relative to what’s happening here in North America. But we see – we are having good conversations with multiple distributors, multiple carriers there. And so we do expect that, that will follow, albeit just a little bit later than what we are experiencing in the North America market.

Q: Okay. Great. And a specific question on the SD7+, does that still appeal to all of the verticals you guys talk about, or is it more narrow towards law enforcement or would – but all of the verticals healthcare, education benefit from the SD7+, right?

A: So, we are specifically starting to file some in the education vertical for security within education within schools. So, that security, law enforcement, wildlife, there is hospitals, there is a lot of different verticals that we are going after with this. Not necessarily leisure, which is another area that we started going into now, but there are a lot of large-scale verticals that we are doing trials with right now with the SD7+.

Q: Okay. Great. And the – just one last financial question, the share count is – has it changed much from the issued statement – was 185.4 million or 1.85 split, is that the current share count as of today?

A: Yes.