Brand Engagement Network, Inc. (BNAI) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Brand Engagement Network's Second Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Brand Engagement Network, Investor Relations, Ryan Flanagan. Please go ahead.

Thank you. Hi, everyone, and thanks for joining our Q2 earnings conference call. Joining me on the call today are Paul Chang, our Co-CEO; Bill Williams, our CFO; and Skye, our AI-powered Assistant. By now, everyone should have access to our earnings announcement. This announcement is also available on our Investor Relations website. During this call, we'll make forward-looking statements, including statements about our business outlook, strategies and long-term goals. These comments are based on our plans, predictions and expectations as of today, which may change over time. Our actual results could differ materially due to a number of risks and uncertainties. For more information about the risks and uncertainties involving forward-looking statements, and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in our most recent annual report on Form 10-K as supplemented by the risk factors in our most recent quarterly report on Form 10-Q. Forward-looking statements represent management's current estimates, and the company assumes no obligation to update any forward-looking statements in the future. And finally, this call in its entirety is being webcast from our Investor Relations website at www.investors.beninc.ai and an audio replay will be available on our website in a few hours. With that, I'd like to turn the call over to Paul. Paul?

Thank you, Ryan, and thank you all for joining us today. I'm pleased to report that in the second quarter, we've made continued progress on market validation initiatives with meaningful acceleration in new proof of concepts and the maturation of earlier engagements into production-ready deployments. Further, we have taken incremental steps to improving our liquidity and capital position, successfully closing a private placement in May providing us funding over time. We continue to closely manage our internal costs to ensure our business is built for growth and to last for the long term. Reflecting the production-ready nature of our platform, we are thrilled to introduce Skye, one of BEN's AI assistance, who is here to demonstrate her domain expertise and participate on our earnings call. Data from business and technology sections of BEN's investor presentation and selected few SEC filings have been ingested. Skye also brings knowledge of our key partners as well as statistics on health care challenges and ramifications. Before discussing our results and key business developments in greater detail, I wanted to take a moment to discuss recent organizational changes. In May, I was appointed co-CEO with the responsibility for BEN's commercial business and oversight of day-to-day operations. My near-term focus is twofold: driving market validation of our differentiated solutions; and meaningful revenue through the conversion of POCs into scale deployments. As co-CEO, Michael Zacharski is focused wholly on advising our Board of Directors on inorganic growth opportunities and our M&A strategy, which we view as a key component of our go-to-market strategy. Now to discuss progress we made across several fronts in the second quarter. To start, we are seeing continued momentum in customer expansion. Recall in our previous earnings call, we highlighted 2 POCs. We are pleased to see an acceleration in the second quarter to 6 POCs with an early read of the Q3 pipeline and an opportunity funnel suggesting that this number will continue to increase in the second half of the year. We announced our attainment of HIPAA compliance early in Q2, underscoring our commitment to protecting patient health care information and fast-tracking our ability to operate in the health care vertical. Further demonstrating our data security and privacy focus, we have also obtained SOC 2 Type 1 certification, ensuring that third-party services providers store and process client data in a secure fashion. Our partnership pipeline remains robust with several notable announcements in the quarter: First, we announced a pilot collaboration with the Skills Acquisition and Innovation Laboratory, or SAIL; collaborating with an industry thought leader such as New York Presbyterian Hospital and Cornell Medical College provides BEN with significant domain expertise as well as access to an innovation lab where breakthrough technology can be tested and validated. Second, we are excited to expand our partnership with MedAdvisor Solutions, which was announced just this past Tuesday. The expansion includes a commercial solution offering by MedAdvisor on educating and addressing vaccine hesitancy among the patient population. BEN's AI assistance are designed not only to engage consumers, but to complete tasks such as filling out necessary forms and scheduling appointments. The joint offering is scheduled to be launched at the National Chain Drug Store Association's Total Store Expo Conference in Boston on August 18 and 19. Third, we have announced a commercial agreement with Vibro, a company that connects brands with customers through innovative audio messaging strategies. Together, we are collaborating to merge BEN's proprietary AI assistant technology with Vibro's audio and radio communication technology to enable interactive consumer engagement for brands. There's perhaps no better way to illustrate the readiness of our platform than to have a natural conversation with one of our AI assistance, Skye. We would like to mention that Skye is using BEN's proprietary large language model, retrievable augmented generation and for this application presenting in life-sized proportions.

Thank you, everyone, for joining. I am standing here at SAIL, which is an innovative lab that sits in the intersection of Cornell Medical College, New York Presbyterian Hospital and the industry to provide world-class leading-edge educational training for clinicians so that they can provide enhanced customer care for all patients. I'm standing here because we have our AI assistant deployed to aid in that educational curriculum. I'd like to describe this deployment because most likely, your experience with AI has been on a phone or maybe on a little screen. What you see here is a life-size representation of our AI assistant that is actually being run by a small computer behind this monitor. So everything you see is being run locally because we know certain industries having on-prem deployment is critical to ensuring safety and privacy of the data that is being utilized at this facility. Now we can still run cloud-based solutions but always having an option to run locally, we believe, gives an advantage. Now enough from me, let me introduce you to our AI assistant Skye. Hey Skye, can you tell me a little bit about Brand Engagement Network and what makes their technology different?

Hi, there. Brand Engagement Network, or BEN, is an innovative company specializing in conversational AI assistance. What sets us apart is our focus on security and personalization. Our AI assistance are built on proprietary NLP allowing for human-like interactions and they're designed to be industry agnostic, making them versatile for various sectors like automotive and health care. Plus, we ensure our AI assistance only provide information from validated data sets preventing hallucinations and maintaining data reliability.

Skye, can you tell me a little bit about our partner, MedAdvisor?

MedAdvisor Solutions is a global leader in pharmacy-driven patient engagement. They work with over 37,000 pharmacies worldwide to provide personalized patient experiences, simplifying medication journeys. Their data-driven approach and innovative digital experiences empower pharmacies and drive lasting behavior change.

Why is medication adherence so important in treating chronic conditions?

Medication Adherence is crucial for managing chronic conditions because it helps prevent complications and hospitalizations. Around 70% of Americans with chronic diseases struggle with taking their meds as prescribed, leading to about 125,000 deaths and $630 billion in unnecessary cost globally each year.

Skye, what are some automotive use cases?

We're currently exploring automotive use cases for our AI assistance. One potential application is an in-car assistant that provides real-time traffic updates, navigation assistance and vehicle maintenance reminders. We're also looking into AI-driven customer support for automotive dealerships.

Skye, are you able to deliver our financial results for second quarter?

For financial matters, I will hand it over to our CFO, Bill Williams, who is in charge of finances.

Thanks, Skye. Take it away, Bill.

Thank you, Skye, and thanks, everyone, for joining us. I appreciate the opportunity to provide an update on BEN's financial progress. Our Q2 and year-to-date results reflect BEN's continued focus on laying the foundation for future growth, product and solution development, the continued build-out in productionizing of our infrastructure, developing talent and expanding partnerships and initial customer relationships. While quarter and year-to-date booked revenue was minimal, we saw expanded proof-of-concept, pilot and partnership activity gaining momentum, notably a 3x expansion in POCs and channel partnerships since the first quarter. These include notable wins such as Valio Technologies, SAIL, the Cornell University Medical Center's Innovation Center, Members-only Health Network, [ Intervent ] Health, Vibro, and a Northwest Indiana car dealership in the important automotive vertical. Our year-to-date financial performance reflects R&D costs associated with the continued build-out of BEN's capabilities and multiple product introductions since our second half 2023 DM Lab's acquisition, plus transaction costs from the Q1 2024 merger, partially offset by positive impact of cost actions and discipline, which drove sequential operating loss improvement. The quarter also benefited from a recognized gain on extinguishment of combination-related liabilities of $1.8 million through the negotiated settlement of accounts payable. Q2 2024 saw the initial stages of BEN's transition from a pre-revenue enterprise and ongoing market momentum characterized by an uptick in proof-of-concept, pilot and channel partnerships that we believe will convert into recurring revenue in the second half of 2024 with acceleration in 2025. Finally, turning to BEN's financial strategy. We remain focused on building market momentum, scaling the platform, improving access to efficient capital and liquidity and cost discipline. In summary, we remain focused on bringing AI solutions that deliver real benefits to our B2B2C customers, driving CX productivity and performance. Q2 featured building momentum through operationalizing our platform, successful productizing AI assistance, expanded customer and partnerships and POCs in market and attracting capital. For the remainder of 2024, our focus will continue to be on performance, execution and converting pilot programs into revenue and enhanced liquidity. Now I'd like to turn it over to the operator for Q&A. Operator?

[Operator Instructions] Our first question comes from the line of Jack Vander Aarde from Maxim Group.

I appreciate the 2Q update guys. Nice to hear from Paul and Bill and Ryan and also your -- to meet your new AI system, Skye. So I'll start with a question for Paul. Paul, you guys have made a lot of progress recently on all these various pilot programs and proof-of-concepts in health care and automotive. And I think you have some other maybe industrials and consumer applications ongoing as well or targeting. Can you maybe just touch on some of the specific ones. Maybe like how would you rank these in order of what are the closest ones being commercialized in your view? And what are kind of like the bigger opportunities? Or however you want to talk about it. It will be -- it's just -- there's so many interesting pilots going on. I just let you kind of zone in on a couple, maybe, for example, of the ones you think are ready to be commercialized at some point.

Thanks, Jack, and great to chat with you here. So I would say, as you saw in our developments of new commercial opportunities, so far, we've had quite a bit of progress and advancements in the health care space. And one of our thesis in developing our AI assistance was that we needed to help those industries that are struggling with resources, especially skilled resources as in health care. And what we're seeing is companies testing the technology. And I mean they're testing it rather thoroughly because there's been some missteps out there with other Gen AI solutions companies. And so they're being somewhat methodical and cautious, but I would say in the health care space, we are on the cusp of being able to deploy with a larger footprint than just doing pilots. In the automotive space, we're still working with some of our key partners in identifying the use cases as well as building pilots. So the dealership that was mentioned by Bill, they're essentially our joint development partner to ensure that the technology meets their needs. And indeed, it is providing the functionality that they're looking for.

Okay. Got it. I appreciate that color. And maybe just a follow-up there. In the automotive vertical, as your reseller partner, your exclusive reseller partner in that vertical, that relationship has been, I think, ongoing now for a couple of quarters. So I imagine there has been some time that's passed, and you've been able to get some feedback, I'm sure, and have things being tested out. What are you -- what are some general takeaways you're hearing from potential dealership customers that automotive partner is working with already? What are you hearing from those end customers? Are they receptive? Is there a real need? I'd just be curious to hear kind of tone of those discussions on what you're hearing?

Sure. Yes. So the customers are all more than receptive. I would say they're excited about the potential of AI technology, enhancing their customer experience and perhaps driving more efficiency to their dealerships. They are seeing how the technology can augment their existing staff and be able to take on sort of the more of the administrative tasks, leaving the current staff members to be able to provide a better customer service and better customer experience. So they're excited. And we look forward to launching some of the use cases with a handful of pilot dealerships based on the data that they are able to provide our AI systems. So, so far, all signs are good. We need to just take the next steps in order to be able to deliver on the promise of generative AI.

Got you. And maybe 2 more questions. I'll ask a question for Bill afterwards, just about the operating expense line items. But first, before I do that, Paul, maybe just one more question in terms of these 6 proof-of-concepts arrangements you have going on and the arrangement you have with your auto partner. The AI space is obviously a very competitive market, obviously. The fact you've entered the 6th proof-of-concept arrangements. Can you just talk about -- I don't know if you could share anything specific about maybe MedAdvisor or AFG, or just in general, how -- are they actively -- did you compete against other competitors? How did you win these arrangements? Just where do you stack competitively? And why did these brands ultimately choose you for a pilot program? And then I'll move on to a question for Bill.

Sure, sure. So I would assume we are always competing because there are lots of "AI" companies out there. Many of those companies are just a thin veneer on top of public large language models like ChatGPT, but they are posing as a true AI companies, whereas I think for BEN, we don't have to pose because we know we are a true full stack AI company. We have the frontend, the middleware and the backend, including our large language model. So we are able to configure our AI systems. We are able to tailor it to solve very specific problems for specific customers. So as an example, the solution that we've launched with MedAdvisor has to do with addressing vaccine hesitancy and we know this is a large problem facing not just the U.S. population, but globally. And it takes a lot of resources and manpower to answer questions and address different needs from different patients. So having an AI system that's essentially infinitely scalable to meet the needs of the consumers and the patients, be able to describe the benefits and potential side effects address them beforehand, that is essentially a game changer in the health care market, specifically in the vaccines world. So we know that we are competing against others, but the feedback that we've gotten is most customers have not seen anything like our technology, just as you just saw on the video. They have not seen anything remotely close to that from some of the other AI providers. And again, I credit that to our full control over the various different components that makes AI run and be able to configure to deliver a safe and secure interaction with consumers.

Okay. Great. That's really helpful color. Very interesting. And then let me switch gears, I'll ask a question then maybe on the financial side. Operating expenses, just trying to get a sense here because the business is still obviously very early stage. I'm just trying to get a sense of how the 2Q operating expense level kind of compares to maybe your expectations for the next couple of quarters going forward? Just to get a sense of how much of this is noise from the merger? And how much of this is normalized?

Thank you, Jack. I appreciate the question. I would say second quarter, especially compared to Q1, I think Q1, I mean did have a lot of movement that was driven around the transaction and transaction costs. We had a little bit of that, that bled over into the quarter, Q2. But I think our run rate now is probably more reflective of our go forward. And so most of the OpEx that we experienced basically, we were essentially flat kind of sequentially. And so that's going to be the blend of, kind of a drop-off of transaction expenses. And then we also did have some increases as we started productionizing our systems and getting ready to kind of put those in market in the second half of the year. We also benefited from being able to convert some transaction expenses that kind of flow from the acquisition that got renegotiated down. We got the benefit of that. And so that's kind of out of our kind of normal run rate. So I guess, overall, I would say we are closer to having kind of a normalized operating range, which is really going to reflect our employment costs and for our staff as we start commercializing products and very little of transaction-related costs. We did have an uptick in depreciation and amortization as we actually shifted from R&D to actually putting solutions in market because of the POCs, those are now operationalized. So there was an uptick in depreciation and amortization, just [ is what going ] from that. So I would say this run rate is probably more reflective of what we'll see second half of the year and with adequate funding and all that we'll will start building capabilities, I would say, investing more in things like our commercial team, our sales team and go-to-market team as we start expanding in the second half of the year. You'll see that as kind of an investment more of an investment profile as we go forward.

I appreciate the update and congrats on the strong momentum. I look forward to tracking the story.

Thank you. At this time, I'm showing no further questions. I would now like to turn the conference back over to Paul Chang for closing remarks.

Thank you, Gigi. I want to just thank everyone for joining this call. I hope it was informative and perhaps even entertaining. And we will talk to you guys next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.