CONFERENCE CALL TRANSCRIPT WITH JOEL LEETZOW CEO OF CORTEX SOLUTIONS
Ben: Thanks for standing by and this is the conference operator. Welcome to the Oil & Gas Investments Bulletin Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. To join the question queue you may press *1 on your phone keypad. Should you need assistance during the conference call you may signal an operator by pressing *0.
I’d now like to turn the conference over to Keith Schaefer…please go ahead.
Keith: Thank you Ben. Welcome everyone and thank you for joining us on this conference call with Joel (Last name – 17:33) CEO of Cortex Business Solutions, a new portfolio pick for the OGIB subscriber portfolio.
One of the main reasons I chose to put the stock in the portfolio and I think Joel is going to address this quickly is the unbelievable value proposition that this business has for customers. When you can go to any customer base and say you will be able to payback their service in 2 weeks or less that’s incredible. So Joel will lead off a little bit and give us a little background on that and then get into the broader company, the product suite and why it hasn’t quite caught on with as many hubs it could have in the past and what he’s doing to change that and has already had great success doing that.
Again it’s Joel (Name – 18:20) CEO of Cortex Business Solutions and please everyone don’t forget to follow along on the webinar link so you can follow Joel on his slides. If you don’t have that in front of you right now you should check your invite email to make sure you’re following along on the slides.
Joel I’m going to pass it over to you and you have control of the slides and so please go ahead.
Joel: Thank you Keith and good afternoon everyone. I appreciate your time in coming. As Keith mentioned, my name is Joel (Last name – 18:51) and I’m the Chief Executive Officer for a Canadian company out of Calgary, Alberta, Canada named Cortex Business Solutions.
I took the helm of the company in early May of this year. The business had been around for almost a decade and doing a bit of bobbing along the bottom, had a few spikes over the years but candidly and we’ll talk a bit more in detail today…the company just never made it out of startup mode into successful business mode. I was brought in to change that.
People often ask me why did you come here and where did you come from? Those things aren’t on the deck and so I’ll start off by explaining the 25 year technology career for me has mostly been in private software companies that I’ve owned myself and been the chief cook and bottle washer. In doing so I was always looking for the next killer app that was going to make my life as a sales guy easier because the value proposition of the technology was so compelling people would just start signing orders.
When I saw Cortex I saw what you guys will see as well which was a pre- reverse split, a story with a $10 million reoccurring revenue model, 370 million outstanding shares and so a ton of dilution of the shareholders from capital raises over the years and frankly it looked like a bit of a mess.
What I saw was a technology that had 10,000 customers which seemed intriguing to me. I saw some really neat Canadian and US marquee accounts. I saw revenues split between the US and Canada and I thought let me look at this value proposition and figure it out. I think most of you at this time understand what Software As a Service is. Cortex is a SAAS platform which means our customers don’t pay us a license fee to use the technology; they pay a subscription fee to utilize it as a service executed through an internet browser.
Basically there’s an instant ROI to the application. Pre-Cortex in a manual processing of paper and we’ll talk a bit later about what we actually do with that paper but basically Gardner says it’s $19 to $20 a document to send an invoice from a supplier to a buying organization. We’ve got that down to a cost model for us that’s less than a quarter and a chargeable retail model or rack rate to our clients that ranges from 50 cents to $5 depending on volume.
So we do charge for services to go out and deploy this technology. We’re typically done within a couple of weeks and the customer is often saving money. So the normal return on investment for this type of technology for us is about 2 weeks into the project and they’re making money from us or our system. I just hadn’t seen any other investment in technology in my career where you can have something that was so compelling and at the same time it’s a subscription service and so if it doesn’t work out for you, you have the luxury of cancelling.
I’m going to dive into my deck and, of course, we’ll have some questions at the end. This PowerPoint is listed on our website under Investor Relations and I am going to broad brush some of this stuff today. If you’d like to look at it in more detail, please feel free to do so.
Let’s talk a little bit about the numbers. We’ve done a few things since May when I got here and (1) was a reverse split that I talked about and we did a 50 to 1 on the market. We were trading at 8 cents the day I got here and we consolidated to a $4 share price and I guess as we kind of expected we had a fairly rapid sell off of some tired investors who didn’t like the reverse split. But basically the 50 to 1 resulted in a downslide that led the stock to be down to give or take $1.30 as a low. Of course we weathered a bit of the tax season sell off recently.
And to everyone on this call being involved in oil and gas we are facing some of the strongest headwinds in this industry that we’ve seen in forever. The fact that Cortex is associated as an oil and gas provider I think the market expects we’ll have a tail spin here based on our customer base having some challenges. Frankly what I’ve seen is the opposite which is there’s never been a worse time to poke a new hole in the ground and so the CFO’s at these oil companies are no longer going let’s hire geologists, let’s put in wells and let’s spend some capital. They’re looking at ways to save dollars, minimizing the number of people they have to lay off in theory preparing for the comeback.
And we really had a nice run here of a ton of audiences within the oil and gas community that maybe have been too busy making money for the last 10 years to really worry about some back office automation technology that may help save them some money. But now we’re getting access to these executives in a way we never have and at the same time candidly speaking they also have less capital to throw around than they ever have.
So a Software As a Service model with a fairly instant ROI is a pretty interesting conversation for them.
We had a year end this year on July 31st and at that time I said we had weathered the reverse consolidation or we were in the midst of it and the stock price was trading at $1.85. We had a market cap of $16 million which is just a shade more than one times revenue. And we did a raise back in September which allowed us to put $3 million back into our war chest, brought our cash position up to basically $6.5 million. And my commitment to the market then and I don’t ever plan reversing this…that was the last survival raise of Cortex.
We had been in the habit of raising $10 million a year and, of course, in the process diluting our shareholders and we were bleeding about $7 million a year in cash, shareholder cash when I got here.
What you’re going to see here is that we just released our last quarter and in our last quarter we were literally a hair away from break even. In the first 6 months of my tenure we basically removed the $7 million burn rate, reorganized the company, got ourselves in a cash position and I think at this point we’re well prepared to now move from start model to reoccurring revenues software company model.
A couple of other interesting things about our finances is we are debt free and it is a lot to the tune of the shareholder. Basically debt free $6.5 million in cash and a reoccurring revenue of $10.5 million.
If I look at the next slide, I mentioned that we do business both in the US and Canada and right now our revenue streams are 60% Canadian origin and 40% US and as everyone can imagine with the current exchange rates on the dollar we’re doing very well bringing those US dollars back home to Calgary and we’re seeing that as an uplift in our monetary value per se just based on the exchange rate.
But this is the only network of its kind. It’s historically been specific product from a marketing perspective. We focused very much on oil and gas and about 98% of our revenue came from oil and gas.
When I got here one of the interesting things about the technology was that I believed it to be horizontal meaning we could sell it outside oil and gas and it would have the same value proposition. I’m pretty pleased to say within the first 6 months we’ve gotten 2 landmark customers outside oil and gas for the first time ever. One is called KMC Mining out of Edmonton, Alberta Canada and the other is Calgary Sports and Entertainment, the parent company of the Flames and the Stampeders.
So our intent is to continue to go to these other verticals and get a starting customer, an anchor customer and then drill that vertical the same way we drilled into oil and gas for the past decade.
This technology as a small $10 million company…it’s kind of interesting because our customers trade $18 billion a year on our network. That’s the economy of a small 3rd world country and so we’re clearly important to our customers who are using the technology to trade. If we were to go away this $18 billion would have to be traded elsewhere.
The other thing that’s relevant about the numbers here is having 10,000 customers basically process 14 million transactions a year is a big deal. We looked at this and said there is lots of volume and velocity that are running across the network and we have to be able to find some secondary and tertiary revenue streams from this pool of customers.
We’ll take a minute here to talk a little bit about what we do. I mentioned invoices and basically what happens in a traditional world pre Cortex is you would mail an invoice to your customer…you’d print it, fold it, you’d put a stamp on it and send it through the mail and cross your fingers waiting for payment back from your customer.
What happens in Cortex is they go into the Cortex system and either attach their invoice or they can actually create their invoice within our solution. It transfer over to the buyer instantaneously and so you cut out the entire concept of the printed mail function. On the other side where the buy would then receive a paper invoice, open it and start keying it into their AP system what we’ve done is integrated that invoice already into the buyer’s side and the buyer now has visibility of that invoice within seconds and they can decide to pay it, they can decide they need further approval on it or reject the invoice back to the supplier saying it’s not right and for whatever reason it doesn’t match the purchase order. You don’t have a delivery receipt.
The benefit to the supplier is they get instant feedback from the buyer that that payment isn’t coming for a specific reason and they can then cure it and resubmit the invoice and get paid. So there are 2 sides to this technology that benefit – the buyer benefits because they get their invoices electronically automatically integrated into their AP and the supplier benefits because they’re able to submit their invoices electronically with an instantaneous recognition of what the status of the payment is. As they approach the terms of that invoice they actually have a dashboard in Cortex where they can go in and visually see is my payment coming or not. That visibility, of course, helps their CFO’s balance their cash flow and other concerns.
So we’re a little bit different than our competitors and there are competitors in this market. If you look at the global electronic invoicing market there is about 400 players from a 2 man start up to the largest concern in the world who does similar things to what we do and it’s a division of SAP called Arriva.
One of the things that appealed to me about Cortex was…what’s the secret sauce? 400 companies around the world kind of doing the same thing…what’s our unique value proposition? There are 2 and (1) is our unique value proposition for the energy sector is we bring 10,000 pre- connected suppliers to a new hub organization and one of those limiting factors of this technology taking off in any market has been the adoption of suppliers to the app.
What Cortex has done differently is actually created tools for those suppliers that make them want to use the technology because they save too. And what our competitors offer and let’s square that up, 399 of them, those suppliers can log into a website and if any of you have ever used an Arriva type tool and start keying your invoice in manually as a buyer or seller and all the automation benefits go to the buyer’s side.
So the fact that we have technology that supports automation for the seller as well as for the buyer the adoption rate goes up much faster, hence the return on investment happens much faster. And where you’ll hear other companies similar to ours brag to the market about getting a 30 to 40% take up from the supplier base, Cortex is pretty proud that we have several customers north of 90% integrated by their suppliers.
The other thing we do that is a bit of a unique story for us is when we integrate the electronic invoice on the supplier’s side all the information that the buyer wants to pay the invoice isn’t always there. Rather than like everyone else forcing the supplier to start from scratch, what we do is we pre-populate the information they do have and only leave it up to them to augment the fields of data they don’t.
I have clients like waste management who tell me that that saves them 90% of the labor of using a competitive solution to ours. And it’s pretty common for our supplier customers to ask us to go their other buying organizations and replace our competitors to drive their costs down as well.
So there is 2 sides to this fence…the sender of the invoice that we spoke about and the receiver of the invoice and this is kind of graphical to give you an idea of what it looks like. Any company can fit in the generic logo. You can see the paper document here in the middle transferring back and forth, then you’ve got connections. What those connections are is we become a many to one connection for that sender and so they send it to Cortex and we can send it out to 10,000 internal to Cortex mailboxes. We also have something unique called Extended Connections and what that allows my customers to do is transfer those documents through my network and actually onto a competitive network.
So for those of you who have any remnants of the EDI space 30 years ago it was all about interconnecting networks…well this is our play in modern technology of extended connections into competitive products and it does a couple of things. It does a bit of a white flag waving with our competitive pool to say hey there is enough revenue here for all of us to behave nicely and share it and it gives our customer value because they get to go beyond the Cortex platform to people who made a commitment to another vendor and get the exact same value.
Here at the bottom we have Cortex Express and we have customers like Finning the largest caterpillar dealer in the world and they basically email out their invoices beyond the Cortex network. So we have certain transactions that go through Cortex and others that go through an email. I think most of you may scratch your head and say can’t anyone email an invoice? The answer is anyone can email an image and what’s different about ours is ours is not just a photograph of the invoice it’s the data within. So now they can cut and paste that data or integrate that data into their accounting system.
So basically this is kind of what’s happening and you have the company on the left sending through Cortex and you have recipients on the right. Oil Decks represents a competitor and so we’re doing an interconnect of their network and we’re reaching their customers over here. So these would be competitive customers who are using our network to transfer documents. Then below that line you have the native Cortex customer and that’s the Huskies, the Apaches, the Bonavista’s are customers of ours and this supplier is sending documents across and they’re getting them automatically.
We talked a little bit about supplier benefits and I’m going to skip over this for the sake of time. I’m going to bring up a wheel that kind of takes you through what does the product do in the procured payment process and so if you just think about the beginning of a payment cycle you’re going to select a product, you’ll requisition that and you’ll approve a purchase order to be sent out. You’re going to send the PO which can be done through Cortex.
I mentioned before that you get an invoice response and you also get a PO response. You get a confirmation of the delivery and we have a field ticketing application that allows our customers to log into their cell phone and acknowledge a delivery out at Fort McMurray in the fields. We then have the goods receipt that matches to the PO that matches to the invoice and we do what we call a 3 way match and the customer flips it to a ready to pay status.
This functionality isn’t available natively in any ERP on the market. There have been folks like SAP that have made a play to buy a competitive offering like Arriva to tuck this in. But we pretty much make out living by supplementing other people’s large capital intensive accounting system or ERP plays. So there is an opportunity for us rather than to rip and replace what you bought, there’s an augment of what you already have by adding to it utilizing us. And we built pre-built integrations to just about every accounting system in the world.
We talked about document management and work flow. One of the channels of revenue for us and it’s actually quite a strong channel to the tune of about 80% historically has been our accounting system partners. What those folks are bringing to the table is the work flow that allows the approval of an invoice to happen internally. So just think of the process of the invoice comes in and Keith was the purchaser and we’ve got to find Keith to acknowledge the receipt. This is where the 2 systems basically integrate together so Keith can see the purchase order, the invoice and a delivery ticket and give it the thumbs up to say yeah you can go ahead and pay that supplier.
When I think of the next opportunity for us it is really over here on the money side of the fence. Trade financing, particularly in oil and gas, has become a very hot topic. You’ve got cash flow issues with suppliers, you have buyer’s who are either consolidating or going out of business…there’s a whole new risk equation to trade within this market. And we have been able to integrate into credit cards, automatic cash transfers within banks that once our buyer says I’m ready to pay we actually move that messaging to a financial institution, the financial institution then issues the cash and we do not. We’re not a bank and so let me be clear but it really does complete the cycle of the entire procure to payment process.
So let me skip down to this slide and people want to know how do we save customers time? Frankly, we do it through the connection of their accounting system to our system. We do it through the automation of the document flow and the approval of the invoice beforehand. We have a support team that helps our hub buying organizations reach out to their supplier base, answer questions and help that buyer become successful by on boarding their supply community.
We’ve got some very nice dashboarding and reporting tools that allow both the buyer and supplier to understand where we are in the transaction and then we have a means to message through the system. And so as a supplier I can send an inquiry to Apache saying I sent you an invoice 2 weeks ago what’s the status on it? And immediately Apache can message me back through the system saying they got your invoice and it hasn’t been approved yet and when it is we’ll let you know.
Then really the bigger ticker is how do we save people money because rarely do people buy technology on soft dollar labor savings. They buy it because they have a return on investment. The return on investment comes from a couple of different areas.
There’s a notion in business at a commercial level that typically means you have terms between 2 parties and those terms tend to be Net 30, Net 45 and Net 60, but most commercial agreements say if paid within Net 10 you can remove 2% from your invoice as a discount called “early pay.” Of course, the challenge with the paper market is by the time that paper is mailed and received, is acknowledge received the 10 days is gone.
So you have customers with a billion dollar spend who aren’t taking advantage of the 2% discount from their suppliers at any level. Then you have guys like our customers with a 97% capture of that 2%. When you go across that $18 billion spend that’s enormous amount of capital that our clients are saving through these discount programs.
The other way is the automation and removal of the costs associated with the labor. So there’s the time component but also the cost component. I mentioned earlier one of our customers had 57 people removed from A/P and we can all imagine that at $50,000 a year that’s a substantial part of the money flow back to them as well on the investment.
That’s what I got gentlemen and Keith hopefully that was good on time.
Why don’t we open it for questions?
Keith: Sure that’s a good idea and Joel thank you so much for giving us a bit of an idea on what’s been going on. I’m going to throw out the first question and let Ben come in and allow everyone else to come in.
One thing you mentioned that caught my attention is you said your model has changed a little bit and now you can actually do the work for one of these big hub companies to get them going on the system. Can you walk me through that again on how that’s a change? To me that’s really important…you’re now able to kind of walk them through it and give them their very quick payback and show it to them without them having to really do anything.
Joel: Yes and the best way for me to answer that question is to talk about the Calgary Sports Center Entertainment Group. When we go to venture outside oil and gas we’re leaving something pretty important behind and that’s the 10,000 suppliers that are already part of our network.
So when I go to a net new vertical like the Flames basically they’re going to say this is awesome but how do we get our suppliers on board fast enough to make this work? Keith’s right and historically we had no answer to this equation, which is why we’ve been pinned in oil and gas for a decade.
The reality is those paper invoices are coming in and there’s all kinds of neat technology out there to do optical character recognition or scanning of those documents. What we did with the Flames was created a program that said let’s get what we can of the suppliers already on Cortex talking to the Flames – done. We got about a 12% automation rate and now let’s go to the rest of the 88% and say you can do 1 of 2 things. You can mail us paper and if you do we have a 3rd party in the States as well as Canada that grabs that paper quite literally and scans it into the Cortex network and the perception for the Flames is they’re then receiving the invoice electronically.
So rather than having a 12% automation rate very quickly, we got them up to 100% automation rate in a very short period of time.
We talked earlier about the cost to deal with paper was $19 to $20 a piece. We brought their cost down to around $1 for an integrated invoice from a supplier on our network and we raised their cost to $1.50 for people still sending paper.
Probably the most interesting thing is we’re then paying the 3rd party provider 50 cents per document and so the profitability for Cortex is the exact same whether we have the 3rd party involved and it’s the exact same if they’re using paper or electronic and our customer becomes the beneficiary of an $18 per invoice savings within 30 days. So this does 2 things, it makes us capable of moving to a completely new vertical and not having the trap that held us back in the past which is having no automation levels. And it allows us to, in a very repeatable way, go after net new customers and new verticals and have an instant ROI for them and a very profitable model for us.
Keith: So you say you have the Flames for the first one and so do you just go and target leaders in different verticals to try and go do the same thing?
Joel: That’s right and when I think of people, companies and technology, you can really break them down into a couple of different camps Keith. You’ve got that laggards who may never do it, you have the early adopters who really want to disrupt their industry and adopt technology before anyone else and you’ve got the standard in the market, the average guys coming on.
What we’re looking for is the early adopters in other verticals, we’re looking for the laggards and medium adopters in the oil and gas space. So it’s just a little bit of a different hunt. The key is to find someone who wants to do something nobody else is doing and then capitalize on it. Of course our job is to have an anchor customer who will support us and give us case studies and references and as in the case with the Flames interesting conversation…hey we’ll help you go to every hockey team in the world because we compete on the ice but we don’t compete in the Board room. We buy our hot dogs from the same vendor and Coke from Coke. We can all work together to reduce our cost as an entity.
I think when we find industries like that we’re going to really be in good shape to help them out.
Keith: I actually have a few other questions but Ben do you want to allow some other people to ask questions?
Ben: Sure we’ll now begin the Q & A session. To join the question queue you may press *1 on your phone. You’ll be required to record your name at the tone. If you’re using a speaker phone please pick up the handset before pressing any keys. To withdraw your question press *2. We’ll pause for a moment as callers join the queue.
The first question is from Dave Brown.
Dave: Due to the low oil and gas prices that some of the energy companies are getting and they’re all getting low prices…some will be going bankrupt. Can you please discuss the credit quality of your clients and the concentration, i.e.: what percentage of revenue you’re getting from your top clients?
Joel: Sure. First, you’re absolutely right the headwinds in oil and gas have caused some disruption to our customers and we lost some this year. I can think of a handful of clients that were bought by Slumberge themselves, meaning just one company buying them. What I found though is that, knock on wood, we haven’t seen Chapter 11 or 13 notices from our clients saying we’re out of luck on the cash and they’re gone. What’s normally happening is they are consumed by another entity and that other entity then owes us the money.
Our DSO’s at Cortex are under 50 days and I think that tells us our customers are credit worthy and they pay us on time which means they’re happy. As far as the concentration of revenue it’s probably 80/20 and 20% of our customers do 80% of our revenue. That probably isn’t going to change, we’re going to continue to add customers but I think the same top tier 20% will be the lion’s share of our revenue forever.
Dave: Okay and how about the concentration of energy to other industries is that 80/20 probably too?
Joel: No not yet and that will certainly be my goal. Right now we’re 98% oil and gas and 2% outside of oil and gas.
Dave: Okay thanks.
Ben: We have no more phone questions at this time.
Keith: Joel can you talk a bit about your recurring revenue because this is money that comes in month in and month out. Is it okay to say you don’t need a sales force to do this and your retention rate is high…tell me a bit what the revenue is like and the EBIDA numbers should stay fairly strong.
Joel: Basically you’re right Keith. What happens is the $10 million in reoccurring revenue is pre-contracted for the year. I do have the advantage as CEO of walking into a first day of a new year in having $10 million in new business come my way because it’s currently contracted. Of course, the goal is to grow beyond the $10.5 million in recurring revenue, but to answer your first question that $10 million is pre-contracted and so it’s at very low risk.
What has hurt us and we’ll talk about why, but basically we charge our customers for 3 different revenue streams. One is an access fee and that is just think of it as a membership fee to participate in using the tool. The 2nd is they pay us by the transaction or the document. What has happened in oil and gas is 50% of the wells are closed across North America and our customers are simply trading less invoices but not to the tune of the drop in the market of 40%.What we’ve seen is a drop of about 20%. So although our recurring revenue has slid we’ve been able to sustain the same recurring revenue by adding 20% growth and so 20% down or 20% up equals flat.
That may be a short term problem for us in growing but as compared to comps in this market where pretty much everyone is down we’re pretty proud to say we’re flat and growing. So we now know what will happen in this industry and we’re a year deep in the slide and it looks like the slide has pretty much tapered off at 20 points and we have a sales plan in place to grow that 20 back and we already have from last year. Of course, I’ll be adding new salespeople and trying to maintain our cost model as we grow, but our goal is to grow revenue without spending a ton more money.
The other thing I think is interesting is we found our balance point. The balance point of financials is that it costs $10 million a year to run this company and we service 10,000 customers successfully with that model. The opportunity for us and I think most people would agree is unlimited and 80% of the market has yet to do anything with anyone. So as we continue to grow the size of our revenue we don’t have to in lock step grow the size of our cost base.
So Keith is right and the EBIDA right now is negative .0 something and it was at -30 2 years ago and our goal is to move it into the block and keep charging it up to ultimately I see this as about a 30% EBIDA business.
Keith: So EBIDA margin is running about 30%?
Joel: They should be…our margin today is 50% and our EBIDA is 0 because
our costs are equal to our cash.
Keith: 30% EBIDA would be a very profitable business and that’s not gross profits it’s EBIDA margin.
Joel: That’s right.
Keith: What does that roughly mean? You’re hoping at a certain stage for every extra dollar in revenue you get 30 cents of that will fall into your EBIDA line.
Joel: That’s right you hit it on the head Keith.
Keith: We’re basically at break even here.
Joel: Yes we’re at break even for the first time in our history.
Keith: Okay so the market should be pretty happy with that.
Joel: I think the market is happy with that. I still see a market cap though at 2 times revenue and I think if your group goes out and looks at comparable SAAS models with a recurring revenue stream they tend to be valued at 5 to 10 times revenue. So in theory we’re undervalued but we also have to show we can make a profit before, I think, the market will react and respect us in a way I hope they will.
Keith: Do you find…let’s say you have a big hub that is a company like Husky or Apache or someone like that and they must have several large suppliers as well. Like I saw in one of your slides Ackland’s Granger and I know that company and they are a massive parts supplier around Canada and probably in the States too. Do you go to someone like them and say you should put us into your whole system or how do you…so that’s the first question.
And (b) I’d like to hear about getting traction in the US and expanding that 40% of your revenue.
Joel: Sure. Let me tackle the first one first. Yes we do go after our largest suppliers and try and convert them to a buyer. Before I got here Cortex had a very different pricing model and so you bought a buyer or supplier subscription or you bought both. I looked at it and said wait we’ve got 10,000 suppliers who can all be buyers of varying degrees. Some are Ackland’s Grangers and admittedly some are 2 guys in a truck.
But we dropped the threshold of the cost and gave everyone of our 10,000 suppliers a buyer account for free and said go sign up your suppliers now to use our technology. The goal is if we can get 20% of our supplier base on board as buyers we’ve grown the business by 2,000 new customers or 20% right then and there.
So I see 2 opportunities here, I see an opportunity to go into our current customer base and continue to add more value and grow our revenue from that pool. Then I see this 80% yet to be tapped open market for us to do net new sales with both the hubs and suppliers.
I’m sorry what was your 2nd question?
Keith: You said 40% of your…
Joel: Oh the US.
Keith: …revenue is in the US and all your expansion talk has been you have a thing in Edmonton and how are you going to go jump start your revenues in US dollars?
Joel: Yeah we’ve got a full time sales rep in Houston and he’s brought in 3 net new hubs in the past quarter. I’d like to double down on that and put a few more bodies down there and expand in the other logical oil basins in the States. There’s obviously opportunities around Pennsylvania, the Louisiana Basin, Texas and Colorado. Our plan is to once again without changing our cost model drastically and going out and spending a ton of money to do it, my plan is to bring some salespeople on in those geographical territories in the States, get them up to speed on training through a new training program we call Cortex University which has been new since I got here.
And our absolute focus is to grow the US market because when I do it’s
$1.40 vs. $1 right? The other thing that’s interesting to me is that the Canadians have certainly hit, I think, a heavier headwind in the price. I’m not oil expert but what I understand is it costs more to get oil out of the ground in Canada than in Houston. I found our US customers are in far less dire straits today than our Canadian customers in similar businesses.
So it’s logical for us to grow and it’s also logical they hired me, an
American, to help grow the US market.
Ben: We do have a follow up question from Dave Brown.
Dave: My 2nd question is let’s say you got into a new vertical, food distribution, I think you’d have to do some software development for that. That is my first question…do you have to do that? My 2nd question is who would pay for that software development? Would it be more R & D for you?
Joel: Yeah let’s talk about that Dave. I don’t agree and I don’t mean to say you’re wrong, I mean to say I understand our technology and we don’t necessarily have to write more code or add functionality to our product to go into any vertical. What is real is not every vertical is in the same want mode for this type of technology and I’ll explain why.
If you look at an oil and gas purchase between a buyer and supplier it tends to follow this type model: here is a master PO or a requisition and then you’ll deliver partials of that PO to me on a periodic basis and I have to keep a counting of when does that PO run out of cash? When do I have to have a new one? And to keep track of partial payments in the middle. It’s a pretty laborious process for these companies to keep track of all that which is why they’ve been such an attentive audience for us.
The food market I happen to know very well and spent 20 years of my life in that market. Those guys with 3% margins 30 years ago started to do the things that the oil companies are just starting to do today. so you take the
Ciscoes and US Foods of the world and I was selling them EDI systems back in 1990.They basically solve this problem internally or with a vendor like us but they did it long ago and the reason was they wanted to survive to today as a 3% margin business without automating.
Clearly we all know oil and gas got to 2015 without this and 2015 is when they need it now in a way that the food companies needed it 30 years ago. Does that make sense Dave?
Dave: Yeah it does okay. I never thought of it that way.
Joel: Yeah and I don’t want everyone on the call to think the world is the oyster and this product fits everybody. What it does is it fits common sophisticated supply chains. When I think of the logical places to go…let’s be candid sports and entertainment was not my first dart right? I though in terms of waste management and mining, construction, infrastructure and government and we are aggressively working on all those things. The Flames was a bit of a quagmire of Calgary company and you guys kind of do this…wait your product actually fits us quite nicely.
I will say and the question that’s asked of me often is…where is your development cycle? Meaning how much more cost are you going to have to build a product? What I’ll tell you is the cost never ends and we’ll always have to enhance the product from a commercial perspective to remain competitive.
That being said I think we have our cost in line so what we spend on development today is what we’ll spend on development next year and the year after and there won’t be any big giant spends to move us into a new vertical at all. It will simply be a different kind of support for a different kind of customer using the exact same technology.
Dave: Okay have you ever thought of municipalities?
Joel: I have very much thought of municipalities because municipalities are in the same means. When I heard Justin Trudeau come into office and say we’re going to start reinvesting in Canadian infrastructure, candidly my first thought was my 10,000 oil and gas suppliers are going to run and
build hospitals and they will do thing with the government and so I better go get the government as my customer. I’m not done yet but we’re thinking alike.
Dave: Okay thank you.
Joel: You’re welcome.
Ben: If you do have a question simply press *1.
Keith: When you’re giving the…now you’ve been there 9 or 10 months now and for you I hear the change in the business model has been very important, but when you’re entering the room with the client and giving the pitch what are you saying when you see the light go on in their heads?
Joel: I think the first thing I see is I tend to throw down a printed piece of paper with what is the process of what they don’t see in their CFO tower, which is the mail room. The guys cutting these envelopes open, folding the paper and stacking them and manually sorting them and then the person keying it in.
When I lay that out and say does your business look like this…then I put down a 2nd piece of paper that shows a post Cortex implementation of automation and say or does it look like this? The lights go on immediately if they’ve yet to make a play. The lights may or may not go on if they already made a play and the reason I say that is we definitively have customers who are removing our competitor’s technology to put ours in because it’s better. But the flip side is the real lights come on when they are being introduced to this opportunity for the first time by us.
And it’s usually about the 2% discount and the visibility of the field ticket showing the PO, the delivery ticket and invoice match so they can automatically flip that into payment mode and shorten the payment cycle.
Keith: You were telling me once that one of your clients was able to get rid of their mailroom or maybe I misunderstood you there. What was that story?
Joel: Let me say Keith they were able to downsize their mailroom because they no longer have tens of thousands of paper invoices being mailed to them.
They will still get credit card statements, junk mail or whatever but you’ve removed an entire labor force in the mailroom that has to do what’s now a redundant process because that invoice came across the internet, showed up in the accounts payable clerk’s inbox or her Cortex dashboard and you just remove a lot of head count down there. You also remove the head count of the accounts payable clerk keying it in.
Again, I’ll say selling software for close to 30 years people don’t like to talk about soft dollar labor savings and they like to talk about money. I think the brightest lights are about the 2% discount that they’re not getting today because they can’t turnaround and invoice fast enough to pay it in 9 days.
Keith: Okay. Ben are there any other questions in the queue? Ben: We have no more questions at this time.
Keith: Before we leave Joel is there something we haven’t touched on that you’d
like to talk about?
Joel: No just a quick reminder that I’m out there in the market from time to time and I’m available for folks from 6 to 8 a.m. Calgary time. I try to come in early to take some calls. If there’s any interest in people wanting to have more discussions with me I would encourage you to do so. Once 8:00 hits I run the company from 8 to 6 every day and tend to not take calls. But know I have an open door and know you can go to our Investor Relations portion of our website at www.Cortex.net and you can download the presentation I showed today and also look at our trends over time as far as where our financials are stacking up, etc.
We have an annual shareholder meeting in Calgary this month and so if any of you are in Calgary or happen to be in this area and want to come to our AGM you’re welcome and I’ll extend an open invite. I think that’s it.
I appreciated everyone’s time today this was fun.
Keith: Joel thank you so much and thank you subscribers for joining us today. The audio will be placed in the Member’s center as early as tomorrow and the transcript is usually only a few days after that and we’ll probably push it out to subscribers as well.
Thank you everyone for your time today and that’s the end of our call.