Route1 Inc. (ROI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Route1 investor update conference call and webcast. [Operator Instructions] As a reminder, ladies and gentlemen, this call is being recorded today, Thursday, April 23, 2020. I would now like to turn the call over to Tony Busseri, Route1's Chief Executive Officer.

Thank you very much. Good afternoon to everybody. Thanks for attending the call. I'm joined remotely by our Executive Vice President and Chief Financial Officer, Peter Chodos, as we are practicing safe social distancing a few thousand miles apart. Hopefully, you've had the opportunity to review our fourth quarter and full year 2019 financial results press release and the related financial statements and MD&A that were filed on SEDAR last night and issued across the newswire services earlier today. They're also available on our website, if you want to pick them up and take a look at them. As you know, we have a pro forma period here where I need to make a few statements, so please let me get this out of the way. As described on the company's slide, I'd like to inform listeners that this presentation contains statements that are not current or historical factual statements that may constitute forward-looking statements. These statements are based on certain factors and assumptions, including expected financial performance, business prospects, technological developments and development activities and like matters. While Route1 considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. These statements invoke -- involve, excuse me, risks and uncertainties, including, but not limited to, the risk factors described in reporting documents filed by the company. Actual results could differ materially from those projected as a result of these risks and should not be relied upon as a prediction of future events. The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which statement is made or to reflect the occurrence of unanticipated events, except as required by law. Estimates used in this presentation are from company sources. I also need to point out that on today's call, we use names that are either registered trademarks or trademarks of Route1 in the United States or Canada. Well, let's start off. We think we had another great quarter. It was a quarter where we were able to see, again, very strong gross profit and EBITDA driven by our newer business model, and one that includes PCS. That all being said, won't surprise you that a bunch of what we're going to talk about today is less about the fourth quarter of 2019 and more about the environment that's changed dramatically around us. What we set out a couple of years ago to pivot the diversified business model focused on working with government and enterprise clients to use the data to create sustainable outcomes for them. It was not to move away from data security, but rather expand their client outcomes tools. We didn't stop promoting or marketing MobiKEY in the proverbial halls of the DoD, we grew our secure remote access technology's presence and build stronger brand awareness. Simply put, we are over the last 5 weeks materially benefiting from that steady investment and firm commitment that MobiKEY has significant value in a number of use cases, including teleworking. Our presentation today will focus on what has changed over the last 5 or 6 weeks for us, and again, our results from the fourth quarter of 2019. The power of our private cloud infrastructure, MobiNET or for our government users DEFIMNET, it is a game changer for us as it allows us to deliver all our software applications on a basis of security, on a basis of exceptional user performance. The MobiKEY technology is the one that, obviously, is driving significant new revenue and gross profit. It is a game changer because it's not a VPN. It is, as we call, the un-VPN. And without going through all the unique features of MobiKEY, suffice to say that some pretty important secure clients have decided this is their technology of choice to support the teleworking requirements now and as we move forward into the months and quarters and years to come. What is the COVID-19 overall impact then? So let's go through this real quickly. We've talked about and we'll quantify in a slide or 2 what has happened with our MobiKEY sales. Specifically, we've seen robust sales for MobiKEY not just with government, but also our business customers, specifically, government -- excuse me, banking clients, health care and those in the professional services field, driven simply by the government mandate to work from home. And people sometimes say to me, "Well, Tony, as soon as this crisis ends, does that mean you're going to lose all your clients or are these users going away?" Quite specifically, we sell MobiKEY on a 1-year subscription basis paid annually in advance. Furthermore, it's our belief that: one, as we've delivered this technology, we've created a scenario where those organizations, government or business, may see some or all of their employees continuing to work from home. We do not believe the uptick that we're about to describe in MobiKEY sales and users is short term or something that will not recur in the years to come. So the 3 other bullet points we're going to talk about here are related to the impact of COVID-19 on our rugged device, our data analytics business, specifically license plate recognition technology. First off, before the crisis or the virus really hit North America, we were starting to see some slowdown in our original equipment manufacturers, those that deliver rugged devices to us, having some difficulty meeting their deadlines for shipping product to us. What was going on is our Taiwanese partners were having difficulty getting components from their partners in China. And so there, for sure, was an impact during January and February and a little bit in March related to the timing of delivery of rugged goods, and that will be depicted in our first quarter as will be the uptick in MobiKEY sales. The U.S.-based factory shutdowns, really we started to feel during the last week of March and early into April. We are seeing those factories now coming back online, whether it's next week or early in May. And so when my comment here is May is unknown was -- I built this slide last night, and we have more information today. So we will see a little bit of an impact in our rugged device side of our business where there was some abnormal lower revenue numbers related to it. But from a second quarter perspective, I would suffice to say that the uptick in MobiKEY sales dramatically outweighs whatever slowdown we would -- we've seen on the rugged device side of the business in Q2. The other impact was related to license plate recognition projects. And this is not about losing work, this is what happens in late March and early April, where certain public safety and parking lot clients asked us not to come and install our provision for their contracts and pushed it out to the right. Again, it's not an issue of losing the business or the job or the gross profit, it's simply a timing issue. And we'll see these projects fulfilled on in May and June and July. So it will be interesting when we delivered Q1 and Q2 to you because it will be somewhat abnormal around the non-MobiKEY or the data security side of our business. But overall, COVID-19 has an impact for the first half of the year will be a strong positive for our company. So let's talk about quantifying specifically the MobiKEY impact. One of the things I've provided here is monthly or end-of-the-month user counts for paid active MobiKEY subscribers. And what you can see as of yesterday's date that we had grown by about 4,000 MobiKEY subscribers from a similar point in time in February. And you might say, "Well, that's 4,000, what does that mean, Tony?" So let's go to that. What it specifically means is that, that recurring revenue base has jumped. And so when we take a look at where it was in February of this year, it was about $400,000. It started growing in March. But with a number of those sales getting closed in late March, the full impact of March sales wasn't felt until April. And much like March, April also has sales that came in, in part of the month. So May is so much bigger, not because it's a forecast number, but as at today's date, we are running just shy of $600,000 a month in MobiKEY subscription revenue, which is up from February's number almost by 50%. So -- what's also important with this is May does not include any additional sales. So it's just -- May is now the normalized month based off of everything we've sold up and including to April 22. Do we expect no additional sales? No, clearly not. We are expecting continued strong growth in MobiKEY sales. And we expect, therefore, that monthly subscription number to continue to grow. So a couple other MobiKEY metrics for you then. I think it's important because I often get asked about this. "Where are you with Navy with that new DEFIMNET infrastructure that you've communicated should or would lead to additional sales." Well, we are continuing to work with the Navy and their prime contractor or integrator, named Perspecta. It's now our belief that very soon, we'll have the ATO or the accreditation for that new infrastructure. It's called DEFIMNET 3.0. And it's our hope that we actually have the ATO within the next couple of weeks, but we feel very confident we'll finally have it in the second quarter, at which time we'll ship it. It will be installed at the Navy network operations center of choice on the East Coast, and then be turned on. And we're quite excited about that because the experience for the Department of the Navy users will be better, and it creates a more credible platform where we will expect significant user growth. With the JSP, or it's often called the Pentagon as a client, that license was renewed and now has been fully paid. So that was addressed earlier this month. It's very similar to the historical model that there's 4,000 paid active users, and there was a surge component to grow to 19,000 without additional revenue to us. What's interesting about it is our technology has become an important technology to the Joint Service Provider that supports the Pentagon flag officers and other professionals. We believe right now that they're running at around 10,000 to 12,000 users active on our JSP platform hosted at the March center, and that will continue to grow. So we're quite pleased with how we've supported the office of the Secretary of Defense, the Pentagon users. We think that great service provision to them is leading to other DoD components now coming on and using our technology, and we have a great reference account, obviously. I would argue the most secure enterprise in the world is our client, being the Pentagon. Whether there's a subtlety, whether it's some other DoD component or not, suffice to say, it's a very important reference account for us. So again, just with these things alone, we are very excited about what the rest of the second quarter, third quarter and so on can mean to us as a business going forward. So I think what's also relevant, and you should know about is how we're dealing with research and development. I would tell you right now, there's very little research, there's none. And from a development exercise standpoint, it's all about supporting our users and their infrastructure. So again, our private cloud infrastructure is called MobiNET for the multi-tenant clients or DEFIMNET which is a single-tenant environment. And our goal, whether it's our CTO or CDO, is to support the clients and ensure that as we're growing the number of MobiKEY subscribers, whether it's the total number or the concurrent number, that we have the ability to support them and ramp up that growth very quickly. We've obviously been focused also on the ATO for the new DEFIMNET for the Navy. And we continue to look for ways to give greater reporting metrics to our clients and a better user experience. We also, earlier this month, released MobiKEY 7.0. So if you're a user, then you know about that. We continue to work on our MobiNET switching array, which is a component of that infrastructure and handles the large volume of traffic. And so we're looking always to improve the code within that. So again, it provides a better user experience. And then lastly, a second release, our support MobiKEY for Android is coming out this week or next week. So we've been busy. And it's been MobiKEY-related. It's not that we don't care about our data analytics side to the business or adding new technologies, but simply put, the opportunity right now is with MobiKEY and its private cloud infrastructure, MobiNET/DEFIMNET, that's where we're investing. So just before I turn the presentation over to Peter, I just want to touch on point again. You'll notice that I, again, make a bet or say, "Oh, we're expecting a second wave or a third wave of this nasty and horrible virus to hit us." I think what's more important to us as an organization is we believe there's a fundamental change that's occurred around how businesses work and whether that's some or all of their employees working from home, we think that virus has been a catalyst to that change, and we support that, obviously, but we don't think what's going on right now is going to looked at, ultimately, longer term is just a COVID-19 event. It's going to be fundamentally the way that we have greater work-life balance, the demands we put on employees that don't live in urban centers, et cetera. And we would expect that teleworking is going to become a very, very important subject matter for the small pizzeria to as big as The Pentagon. So on that note, Peter, maybe you can take us through our financial performance for Q4 and the year, please.

Sure. Thanks very much, and welcome, everybody, to the presentation. I'm just going to go over the highlights very quickly and save the meat for questions, if anybody has. But I want to focus on the annual numbers for '18 -- for fiscal '18 and fiscal '19. You'll note that the sales volume decreased by $2.2 million. And if people who have followed this company remember, in Q3 last year, we had an abnormally large order from -- in GroupMobile, and that skewed the results a little bit in 2018. So you'll note that the gross margin is up substantially year-over-year, '19 over '18, both in dollars, obviously, and in percentage. And interestingly enough, when you look at the expense ratio to sales, that number in fiscal '19 is 34%. If you normalize fiscal '18's numbers, it's a bit higher. So we are doing -- relative to our sales volume, we're doing a very creditable job of cost containment. You'll note, operating income has increased. EBITDA has increased by 50 -- by just over 52%. I think it's a very, very solid achievement for 2019. You'll remember that in -- on June 28, 2019, we acquired PCS. And PCS contributed substantially in the last 6 months of the year. So we're very, very pleased not only with the fact that we made the acquisition, but it was a great contributor to our financial results. The AirWatch litigation amount -- the end of 2018, beginning or first quarter of 2019 was a lot of the activity in the legal case stretching obviously through the month of June where we had our summary judgment hearing. So that accounts for the dramatic increase in litigation expenses. We don't expect to have as many expenses in the coming quarters for that. Net income or net loss for the year was approximately $0.5 million and, again, largely due to the -- well, to the excessive amount of patent litigation expenses. If you go the next slide with -- and look at the quarterly performance, you can see -- and I'm going to focus on the last part of the year, where the sales increased dramatically, the whole -- the scale of our business increased dramatically post the acquisition of PCS. I mean you can see that we're ticking along at $3.5 million, $4 million a year -- a quarter rather in revenue. And all of a sudden, we jump up to a whole new level of revenue. And we are -- we believe that's going to be consistent through -- again, subject to the impact of COVID and the pandemic and the closures, we believe that generally speaking, these levels of revenues are going to be sustainable, and I'm talking in broad terms, not -- I'm not focusing specifically on the impact of our -- of the increase in our MobiKEY or remote teleworking computing business. So the gross margin has increased dollar-wise substantially over the first half of the year to the extent of approximately 50% -- almost 60%. So you can see the impact of the acquisition number one and the profitability of the acquisition number two. EBITDA has grown substantially, as you can see. We use this as one of our primary operating metrics. And you can see that in the last half of the year, EBITDA increased substantially. And you're going to see that, again, in the coming quarters, primarily as a result -- in this case, as a result of the tremendous increase in MobiKEY subscribers. Net income for the quarter was positive to the extent of approximately $0.5 million. In the next slide, which is the subscription revenue and services slide, I'm not going to spend too much time on here. Tony has already talked about the substantial growth in the application software. TaaS is a tremendous source of profitability, of cash flow generation for us. And there are circumstances where some TaaS subscribers or purchasers or lessors -- lessees, I should say, have kept the equipment past the term of our provision, which means that by the time the end of their term rolls around, we have amortized that particular piece of equipment to 0. So every subsequent month that we have this out in the field -- this piece of equipment out in the field is highly profitable for us. The service part of our business is -- it fluctuates dramatically. We had an increase in that in the -- from, I guess, the third and fourth quarters, we're very, very positive with respect to that. And as Tony mentioned, we're probably going to see a bit of a decrease in the latter part of the first quarter and certainly in the beginning part of the second quarter in terms of the service provision segment. In terms of operating expenses, not much to say about that except for the fact that the biggest gain or the biggest increase, I should say, in the selling and marketing expenses were -- in expenses totally, sorry, were selling and marketing. And for me and I think for the corporation, probably the best place to -- if we're going to have an expense increase, the best place to have an expense increase because what -- that means 2 things. Number one, we're increasing our sales force. Number two, we're extremely happy to pay our sales force extraordinary commissions when they sell an extraordinary amount of product. We are investing heavily in the sales and marketing team, and you'll see those results coming through for the 2020 fiscal year. Just to put a fine point on that on the next slide, we have a metric where we apply gross profit to sales and figure out how much of the sales dollar is contributing to gross profit. So you'll see that, for example, in Q4, we had gross profit to sales of 2.66x. And in Q1, we had gross profit to sales of 2.88x. That measure, we expect, we hope, to get it over 3x to make our sales and marketing cost segment extremely profit generative. And that's what we want to do when we show this measure to our investors. The balance sheet is -- I think we've made this point before on the balance sheet that it's pretty skewed now with respect to accounting for leases, the capitalization of leases, notional liabilities, some current, some long term. So it's pretty -- the balance sheet today, generally speaking, for all companies is pretty confusing. I wanted just to highlight a couple of things here. Our cash balance you'll notice is $126,000 at the end of the year. And if you sort of step back and look at the accomplishments that we've made or that we've had in 2019 -- and I say accomplishments, I'm looking at investments and I'm looking at where we're putting our capital. We're investing in the company, we're buying back stock and we're spending an awful lot of money on capital expenditures, primarily -- as Tony mentioned earlier, primarily to improve, strengthen, support our infrastructure because there's no question that the delivery, subject to our infrastructure, is absolutely critical. I just want to say one other thing. Our working capital balance is negative, but it's not as negative as all that, given the large component of deferred revenue that we always carry. So I think that you'll see an improvement in working capital over the course of the next several quarters. If you take a look at the capital expenditure slide that we have up now, you'll see that the computer hardware, which largely from the DON DEFIMNET is about a $578,000 expenditure in 2019. We spent that money through the year and we expected to -- we expect to reap the rewards for that over the next several years. The final slide that I'm going to talk about is the small acquisition that we made on April 9 of this year. So that was a couple of weeks ago. Mobile-Tek is a small reseller based in the Cincinnati area. And we wanted to link up with that business for 2 reasons: number one, strengthen our exposure to the Midwest; and also increase the sales effort in the sort of Midwest, Eastern -- Southeastern part of the country. And we think we've done that. We've hired 3 people, 2 sales reps, again, investing in our sales force and 1 customer support person. We're very, very excited and very pleased to welcome the Mobile-Tek people to Route1. Tony?

Yes, with one comment. I'm not sure what happened to the language here, but when we said, owned 100% by Howie Mandel, that what we supposed to say is not that Howie Mandel you see on TV. So there you go. Look, at this point, I'd be happy -- we would be happy to take your questions. I thank you for giving us about half an hour or to explain what we saw during the fourth quarter in 2019 and help you better understand what's going on with COVID-19. So operator, over to you, please.

[Operator Instructions] We have a question from the line of Jeff Silver with Corrado Financial Group.

They say that necessity is the mother of invention, right? So it's sort of the environment we're in today. I understand and wholeheartedly appreciate the focus on where the compelling opportunity is right now. The -- with respect to MobiKEY, so having said that, let me ask you this, with respect to MobiKEY, I know that a while back you had given some thought and maybe made some forays into the commercial space. Are you getting any sort of inbound interest from the commercial space? Or do you think there's anything that could really crop up there?

Yes, Jeff, what we saw -- and again, we focused on low-hanging fruit during the course of the last 5 to 6 weeks was this, is that we went after current enterprise customers that were nongovernment too. And a number of the regional banks stepped up 5, 6x their subscription of MobiKEY. The second initiative to try and take advantage of what we believe to be a sea change in the support for teleworking across corporate America is that we recently, i.e., last week, made an offer and hired a VP of Marketing. That professional will start with us on the 29th. If you follow me on LinkedIn, you'll know that we are posting there. And as a company 6 weeks ago at a certain level of cash flow, we hadn't planned to bring in that professional until, call it, Q4 this year or Q1 next year. And [ Gresham Hill ] is his name, and he'll be starting with us because of the significant influx of cash flow, that $2 million and change of gross profit which basically drops to the bottom line. Some of that we're reinvesting in our talent to go after even additional growth in gross profit. And so my answer is twofold: one, we upsized our enterprise nongovernment accounts; and two, is that we're bringing the professional to help out with messaging and campaigns to open up professional services, banking and utility verticals and others. And so, Jeff, I -- as much as we're feeling that the crisis is this 5-, 6-week window and it's petering out to some level, I think the truth is it's changed the way we do business. And a lot of organizations who had a solution in place over the course of the last 1.5 months understand the inadequacies of it and are currently looking to put in place a stronger, more permanent solution for the what ifs as well as the shift to teleworking. So clearly, there is a window here to capitalize, and we did that to some level. And there is a bigger window about the fundamental change in how people go to work. And so I would say to you, I think the time is now to go after that, and we are for sure going after that and quite excited about the opportunities. I mean, if anything, it's our view that the VPN technology exposed again its weaknesses from a functionality and ability to carry load. And it failed for a number of organizations. And as the un-VPN solution that candidly is more secure with better functionality, we see great upside growth. And I think to back up my point, just watch over the next 6 weeks the number of data breaches and network breaches that come forward as a result of what parties had to do over this crisis.

That's a good point. Just to make sure that I have my numbers correct. So you now have 36 million shares and the stock close to $0.68, which would put a $25 million market cap on the company, and you've got, call it, $2 million in debt. And if I understand the run rate correctly just on the MobiKEY side, you now have a run rate of $7.2 million a year, which one could argue as an annuity and which one could argue would be worth, as an annuity, a very high-value annuity. I think you have pharmaceutical kind of margins there, multiples of revenue, potentially 5x to 10x revenue, which would put a significantly greater value on the stock than you're currently trading in the market today. I understand that the stock has had a nice move, but it seems to me that -- I mean -- so I just want to -- I guess the question is, on an annualized run rate basis, now you're running at $7.2 million just in the MobiKEY business and -- is that correct?

That is correct. One clarification, Jeff, that I don't know if it was read in the news release by many readers is we actually have no third-party debt anymore as a result of the cash inflow since the end of the year. We are in a positive cash position. And we have, call it, sellers' notes of VTB of $700,000, $800,000, and that's it. That's where we stand. We're cash flow positive on a month-to-month basis. And we know that our net cash balance continues to grow. So just to clarify, again, the third-party debt is 0. And the vendor take backs, which made up some of that combined third-party vendor notes are about $700,000, $800,000 in aggregate. And on the MobiKEY side -- go ahead, please. Go ahead, sorry.

I was going to say, so if you put at least a 5 multiple just on that $7.2 million stream, that doesn't include any of the other businesses. That's a $35-plus million market cap valuation. And that's at 5x. And I know that sometimes there's annuity streams that can go for significantly higher than that.

I guess, I would encourage -- like we -- look, I'm not going to make the strong forward-looking statement about where our run rate EBITDA is today. I would encourage people to look at the second half of the year. The incremental MobiKEY gross profit, which -- the only cost against it is commissions at 10 points and where we're running at likely now. I think people can figure that math out. And then you take a look at where we're trading at, and each party will make a decision whether that low multiple is appropriate to put on the cash flow generation power of this company. That doesn't even look at incremental MobiKEY sales or growth where it's already grown quite a bit over the last 24 hours and where there's that rest of the business in the data analytics arena and the rugged device reselling for sure, but the broader outcome side of our sales team. Look, I understand the difficulty people are having because our transformation is happening so quickly. And Q1, even when it comes out, won't reflect it because so much of this MobiKEY growth came in the last week or 2 of a 13-week quarter for sure. So people will have to use their own best judgment around what the right value is. I think Peter alluded to it. I think Q2 will be a powerful quarter, and Q3 will be even so much more. And each party will then make a decision around where we are. Suffice to say, I don't think normalizing the last half of 2019 is -- by doubling it, is a reflection of currently where we stand. I think we're a lot stronger and a lot more powerful today.

[Operator Instructions] We have a question coming from the line of Hugh Jackson with Brant Securities.

So you talked here about the increased time to receive the devices that you've ordered. I believe they come from Taiwan. But you also talked about certain clients -- you're offering certain clients innovative ways of bridging the time gap. Can you give us a bit more of an explanation of what that is?

Sure. I think, first of all, let's do a quick refresher on what's unique about the MobiKEY Fusion3 device. It reads a government-issued full-size smart card. On the defense side, we call that a CAC card. On the civilian side, it's a PIV card. And it's not tied to any one type of mobile asset. So whether it's your service tablet or your Dell PC at home or your iPhone or iPad or your Samsung device, it doesn't connect you to any one piece of hardware, which is real great value as well as it's leveraging the government-issued card for user authentication, so that they can log in, but also sign e-mails or go to password-protected websites, et cetera. In the interim, we -- on a case-by-case basis, certain components of the military have approved their users to use third-party smart card readers. Now those smart card readers have certain limitations to them, but they want to get going with MobiKEY right away, and we support them. So they've decided to light up their subscription, use a third-party smart card reader, so that they can get that experience, not the disassociation with a specific mobile device and wait for their MobiKEY Fusion3 device to come in, in late June or early July. And that is what we are alluding to. It's too long to write it out. But simply put, we are continuing to sell MobiKEY subscriptions because of creative unique ways that we're able to support our users. A great tip of the hat to our Chief Technology Officer, Yamian Quintero; and our Chief Digital Officer, Jerry Iwanski. These folks work tirelessly to support our clients, so that they can immediately and effectively use MobiKEY.

So the people that choose that option, would they still be included in your backlog of 5,064 MobiKEY Fusion devices?

Yes.

Okay. And as you talk about your signing up business every week here right now, the 6,000 units that you've got on order are pretty well spoken for. Are you -- have you put in another order beyond the 6,000?

Well, I mean -- I think the 5,000 number you're referring to may have been from a prior release. We've sold now more than 6,000 Fusion3 devices. And so we better increase our order. Peter is working with our partner, and we've put in another order for an additional 4,000. So we are growing. And we do a couple of things. We don't wait -- the 4,000 doesn't mean we have exactly 4,000 incremental orders now for them. We have some orders against that number, plus we expect to build inventory. Or quite candidly, with success, we would hope we would sell another 4,000 users by the time those devices were shipped to us in July.

Are you seeing any one particular part of the U.S. military embrace the technology more than others?

Across the Department of Defense, we're lucky to have a very strong client in the Pentagon DISA, the Joint Service Provider. And what you effectively have is flag officers that have seats at the Pentagon, who when they go back to their primary group and talk about their MobiKEY experience, those primary groups would be across Air Force -- Marine Corps, Defense Logistics, Navy and Air Force. And they ultimately, therefore, create demand generation because they're talking about their positive experience. We also have what's going on is that we have certain components of the DoD, and I'm not going to go across names here, that maybe weren't ready as well as they could have been to support the continuity of their operations. And they call out to the policy group being DISA, and they look for strong references. And at times, we're being recommended by DISA or JSP or the Pentagon that this is a credible, strong technology that should be strongly considered. They can't dictate to a component, but they can give a good reference. And we're very proud of the relationship we have with the Pentagon. We work 7/24/52. In other words, I can guarantee you, over the last 6 weeks, there hasn't been an hour around the clock that we haven't been active with our clients supporting them. And that's not because there's been problems. We're looking to scale up, to expand, to improve, however you want to characterize it. And what do we get in return for that great behavior is strong references. I would argue that we've done the similar thing with the Department of the Navy. We value that relationship strongly, and we also believe that, that relationship will continue to scale and grow with the delivery of the DEFIMNET 3.0.

Our next question is from the line of Keith Fulton with Raymond James.

Tony, I was wondering if -- I had expected something on the presentation, but can you talk to us a little bit about what's going on with the litigation right now?

Yes. We gave an update within the last operations update in March. And because it is legal proceedings, we're careful with what we say. And therefore, we would refer you to -- I think it was the March 19 business operations update, where the status of that litigation is. As there's material changes with it, for sure, we'll provide that feedback to the -- our stakeholder base.

Okay. So nothing really has changed since then. I did read that. So yes. Okay. What...

Pleasure. And we understand the strong interest in it. When you're in a patent litigation, it's wise not to say something that can prejudice yourself. It's dynamic. We're working in Canada and the U.S. with 2 separate actions. And there's just a lot going on, so we're careful with our messaging. And again, thank you for the question, Keith.

One final thing, actually. Could you explain what that surge aspect is to the JSP going from 4,000 to 19,000. Could you clarify that?

Yes. It allows them to scale up to 19,000 users with no incremental cost. In return, we're allowed to add other components of the DoD to that platform and allow us to generate revenue from those other components. So it's a reciprocal relationship. And that's as simple as I can make it is that they're paying for a little more than 4,000 users and have the ability to use up to 19,000. In exchange, we get to use that platform for other components of the DoD.

Okay. So -- but it's not like it's a net-net increase to your monthly revenues.

Going from -- not with JSP, no. But we obviously have a number of additional components using that platform that do pay us like the Air Force and Army and others. And so it -- on a whole, it's a very productive structure for us.

At this time, we have no additional questions. If you'd like to make some additional remarks, Mr. Busseri.

Thank you. You've all given us a lot of time, and I appreciate the interest. We're quite excited. Obviously, I know I get criticized from time to time talking about how excited I am. Look, we've worked very hard and been steady with our belief that MobiKEY is a game-changing technology that has a whole bunch of good use cases. But one of them was continuity of operations and another was teleworking. And sometimes with technology, you aren't exactly right when it's going to pop. But if you believe the value proposition and the quality of the user base or reference user base you have, then you stick with it, and we've stuck with it. And tip of the hat to the team, including Michael Seiler and Daron Dabney that have been our program managers and directors leading our business development foray at the DoD. They've been solid and steady through this progress -- our process. And I hope you all acknowledge at a minimum that our bet was right, and we'll see how right it's going to be. So thank you. I look forward to speaking with you again shortly. If you joined halfway through or thereabouts in this call, there is a replay. It's available at 1 (877) 481-4010 and or 1 (919) 882-2331. In both cases, #33603. And the replay will be available until May 5, that's Tuesday until 4:30 p.m. At this time, I wish you a good evening, and we'll talk soon.

Thank you. That will conclude today's conference.