Posabit Systems Corp

Good afternoon, ladies and gentlemen, and welcome to the Positbit Systems Corporation third quarter 2021 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Carbonara. Sir, the floor is yours.

Thank you, and once again, welcome. With me on the call are Ryan Hamlin, Chief Executive Officer, and Matt Ballard, Chief Financial Officer. I'd like to begin the call by reading the safe harbor statement. This statement is made pursuant to the safe harbor for forward-looking statements described in the private securities litigation reform act of 1995. All statements made on this call with the exception of historical facts may be considered forward-looking statements within the meaning of section 27A of the securities act of 1933 and section 21E of the securities exchange act of 1934. Although the company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, It makes no assurances that such expectations will prove to have been correct. Actual results may differ materially from those expressed or implied in the forward-looking statements due to various risks and uncertainties. For discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in forward-looking statements, please see risk factors detailed in the company's annual report and subsequent filed reports, as well as in other reports that the company files from time to time with CDAR. Any forward-looking statements included in the earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events or circumstances. The company will also be citing adjusted EBITDA in today's discussion. Adjusted EBITDA is a non-IFRS measure used by management that does not have any prescribed meeting by IFRS and that may not be comparable to similar measures presented by other companies. The company defines adjusted EBITDA as net income or loss generated for the period as reported before interest, taxes, depreciation, and amortization, and is further adjusted to remove changes in fair values and expected credit losses, foreign exchange gains, and or losses and impairments. The company believes this is a useful metric to evaluate its core operating performance. Now, I would like to turn the call over to Ryan Hanlon, Chief Executive Officer. Ryan, please proceed.

Thanks, James, and thanks everyone for joining the call today. I've prepared a few remarks and then we'll open up for Q&A at the end. Before we kick off, I'd like to acknowledge that unfortunately we had to move this call from its original planned date of November 10th earlier this month. This was due to some resource constraints on our team as well as ensuring we could provide thoughtful guidance for 2022 as part of today's call. Our goal has always been and will continue to be to work to an earlier announcement than is required by the CSE. Now let's turn our attention to our high-level financial results. As a reminder, all numbers that we are presenting today are in U.S. dollars. Our momentum continued in the third quarter as we delivered another record quarter of revenue, increased our gross profit, and ended with $5.5 million in cash on hand. Transactional sales for our card services business totaled $106 million, up 151 percent compared to $42.2 million in the third quarter of 2020. Third-quarter revenues were up 173 percent year-over-year and up 29 percent from last quarter, resulting in year-to-date revenue of approximately $15 million. Revenue growth was driven by customer adoption of non-cash payments, same-store sales growth, and onboarding of new merchants. Our revenue mixed shift towards debit transactions also had a positive impact on revenue, as it has been shown to be a better customer experience, which has fueled merchant adoption. Additionally, our investment in additional sales resources has resulted in our largest backlog in sales pipeline in merchants to date. We will onboard most of this backlog in the fourth quarter, setting up for strong growth for the foreseeable future. Given our tremendous growth through the first nine months of 2021 and our visibility into year-end, We are on a trajectory to exceed the full year 2021 revenue guidance we provided back in July, and we'll discuss our new guidance near the end of this call. Turning to adjusted EBITDA. After four consecutive quarters of adjusted EBITDA profitability, the company has determined there's more value to be created by investing our profits in growing market share than reporting near-term marginal profitability. This is evidenced by our previously mentioned backlog of new merchants. As a result, we did record a slight loss in adjusted EBITDA this quarter. Now some operational highlights in Q3. We didn't hold back and, in fact, accelerated our investments in hiring in pursuit of our stated goal of doubling headcount by the end of this year. We increased headcount from 23 to 38 employees, half of which were new hires in our direct sales team, to help our continued acceleration into the markets. In October, we participated at MJBiz in Las Vegas, Nevada, the premier cannabis event of the year. It was an exciting time for our team with attendance of approximately 27,000. We saw great interest in Posit's current and future product offerings. All our hard work throughout the year has brought us to the point where we believe we are the industry leader in payments infrastructure for the cannabis sector. Additionally, at the beginning of Q3, we announced the partnership with Spring Breaks. a leading provider in cannabis loyalty and communications technology. By integrating Spring Big's loyalty platform with our payment solutions, our merchants now have access to marketing tools and actionable data to increase engagement. Spring Big's loyalty rewards can be received and redeemed directly at the positive point of sale. We also announced a new partnership with Alpine IQ, the leading data and marketing solutions provider for the cannabis retail industry. Our two-way integration provides dispensaries with the ability to cultivate unmatched guest loyalty and drive incremental sales. Enabling loyalty rewards to be passed directly to our point of sale software for redemption is one of the many benefits of our Alpine IQ integration. I now would like to briefly discuss the cannabis industry market dynamics and how this continues to be incredibly favorable for our expansion and our growth. To begin, Recent valuations in cannabis technology companies have been astonishing. Our private company peers in the industry are raising capital at very high valuations and multiples, unlike very few industries today. Given positive management owns 30% of the company, we are cognizant of this disconnect between our valuation and the private markets and will continue to educate and raise awareness to investors as we believe we eventually will be viewed comparably. Lastly, we, of course, are always looking at other ways to uplist to new exchanges to increase the exposure of Positbit to new investors. At Positbit, we're also benefiting from strong legislative tailwinds. Expanding legislation translates to direct growth of our business and growth in the industry at large. U.S. cannabis retail sales are now projected to grow at a compounded annual rate of 19%, from $22 billion in 2021 to over $38 billion in 2025. Further, cannabis production and sales were also deemed essential businesses during the COVID pandemic, with dispensaries remaining open in all states where cannabis is legal. Moreover, growth in cannabis-related tourism also continues to expand. Most recently, we entered the New Mexico market, making New Mexico the 15th state where we have established operations. The state of New Mexico passed legislation to legalize cannabis at the end of June And within 90 days, we had partnered with one of the largest retail chains in the state. New Mexico is an up-and-coming market for us and is indicative of the intuitive nature we take to reach every corner of the legal US cannabis industry. Another lever for merchant growth, in addition to expanding into new states, is by getting deeper and wider in the states we already are in. It is estimated that approximately 90% of dispensaries still only take cash. That translates to an enormous opportunity of growth ahead by increasing cash adoption in states we are operating. Yet another growth engine comes from increased customer adoption in same-store sales growth within our existing base. The impact of same-store sales growth is derived from existing customers increasing their spend. Recall, our transactional growth for the quarter was $106 million, up 151% year-over-year. We continue to see a strong trend that when a new store comes on board with Positbit, and as consumers get more accustomed to using our debit solution, they don't come in with cash. And so we continue to see an overall volume rise in our stores over time. If you consider the overall percentage of card transactions versus cash, we see an increase where we come in at about 25% of cannabis store transaction volumes initially, and then over time that increases to 35% to 40%. And in some cases, we have stores that are doing over 60% of their volume through Positbit. Now turning to expanding our product offerings. We continue to look for ways to build out new product offerings to increase our wallet share, grow margins, and overall stickiness of our merchants. Prior to quarter end, we announced the release of Positbit Connect, our publicly available open API that allows third-party integrations of all kinds to gain access to our ever-expanding Positbit product suite. Positbit Connect is a significant step forward for our company and the cannabis industry at large. With this open API, companies of every kind within the industry can gain access to the Positbit ecosystem. Positbit Connect enables integrations across a variety of facets of any retailer's business, including menus, customer profiles, product and sales data, bookkeeping, and of course, our industry-leading payments platform. last month we also unveiled our new positive kiosk a versatile standalone hardware option for dispensaries and retailers that allows customers to build out carts either in store or online and pay for orders with a debit card directly from the kiosk we believe positive kiosk is a game-changing solution for retailers across the country not only is it a line buster but it's also a brand new avenue for in-store marketing and represents a significant leap forward in how online orders are processed, paid for, and fulfilled. Importantly, via Positbit Connect, we are also an open platform, which means we allow all major menu platforms to fully integrate with the Positbit kiosk, creating a fully functional and intuitive process for all sales coming from the kiosk itself, whether or not you use Positbit menus, or another industry e-commerce provider for your online menu service. Positive Kiosk is currently being beta tested in select retailers with a full rollout expected in Q1 of 2022. Also earlier this month, we announced Positive Cash Advance, a new loan factoring program for the cannabis industry. The Cash Advance platform will allow positive payment merchants to secure a loan from the company quickly and without hassle and subsequently repay the loan through payout deductions from the company's in-store processing. We see positive cash advance as a tremendous opportunity for any of our current partners to quickly access funds and make their subsequent loan payments with relative ease. The pain point that this serves is clear. Retailers within the Canvas space are often in need of increased liquidity, whether that's to purchase desirable product in bulk, break ground on renovations, or scale their operations. Positive Cash Advance provides these retailers with both access to cash and a painless repayment program. We see it as a huge win all around. Positive Cash Advance went live in Q4 with select beta accounts with a planned full rollout in early 2022. Taken all together, we believe these new offerings will continue to fuel our revenue growth in 2022 and beyond. They also reflect a pattern that is a key differentiator for Positive and why we're the leader in the payments industry. We're the only payments provider that is open to all software service providers, meaning you can run your payments side by side with any POS or online order provider, enabling us to go after all 8,500 dispensaries in the U.S. to help with all their payment needs. Clearly, our momentum continues to accelerate, and we are well positioned for tremendous growth again in fourth quarter and into 2022. Technology partnerships and continued investment and growth, both in terms of our team and new product offerings, against a backdrop of strong market demand and favorable industry trends, reinforces our confidence in continued success. It's an exciting time deposit in the industry as a whole, and we look forward to providing you with additional updates as we continue to make progress. We will now turn our attention to our specific financial operating results for the quarter ending September 30th, 2021. I've asked our CFO, Matt Fowler, to review the numbers for you.