Posabit Systems Corp

Good day, ladies and gentlemen, and welcome to the Positbit Systems Corporation fourth quarter and full year 2021 earnings call. All participants have been placed on a listen-only mode, and the floor will be open for 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 this call are Ryan Hamlin, Chief Executive Officer of and Matthew Fowler, Chief Financial Officer. I would 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 forward-looking statements due to various risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, Please see risk factors detailed in the company's annual report and subsequently filed reports, as well as in other reports that the company files from time to time with CDAR. Any forward-looking statements included in this 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 and adjusted net loss in today's discussions. Adjusted EBITDA and adjusted net loss are non-IFRS measures used by management that do not have any prescribed meaning 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 it's further adjusted to remove changes in fair values and expected credit losses, foreign exchange gains, and or losses and impairments. The company defines Adjusted net loss as net loss generated for the period, as reported, adjusted to remove changes in the fair values of derivative liabilities. The company believes that these are useful metrics to evaluate its core operating performance. Now, I would like to turn the call over to Ryan Hamlin, Chief Executive Officer. Ryan, please proceed.

Thanks, James, and thanks, everyone, for joining the call today. We have a few prepared remarks, and then we'll open up for some questions at the end. First, an overview of our financial results. As a reminder, all numbers that we're reporting today are in U.S. dollars. 2021 was another great year of growth and expansion for us. Strong market trends, entry into new regions, same-store growth with existing merchants, new product launches, and alignment with key industry leaders through strategic partnerships enabled us to drive record revenue of 21.3 million, more than doubling the 7.8 million we've reported in 2020. Our transactional sales volume increased to $362 million compared to $132 million in the prior year. We're also very pleased to report that we more than doubled our point of sale footprint over the course of the last year. Our adjusted net loss, which is a non-IFRS metric that Matt will discuss in further detail in a few minutes, was a loss of $829,000 in 2021 compared to a loss of $1.2 million in 2020, reflecting a narrowing of our loss by more than 30% year over year, while our total revenue grew by 172%. Adjusted net loss isolates the non-cash impact of items below the operating line, which we believe helps investors to better understand the true operating business and performance of our business. Investment in our platforms and scaling our team to support our continued growth is essential to gaining market share and executing our plans for further expansion. We accelerated this reinvestment in the second half of the year. Our team now consists of 48 employees and contractors. New additions have primarily been in sales and product development resources. On the sales side, we have expanded our sales organization by 300%. As a result, we currently have the largest backlog and pipeline of new merchants to onboard in the history of our company. At this time, we have more than 100 contracted retail locations that are queued up to go live over the next 60 days. Based on historical averages, transactional sales of these locations alone are expected to total more than $100 million, which we estimate will add approximately $5.5 million in new incremental revenue to our business on an annualized basis. These new retail locations combined with same store growth, new product offerings, a robust pipeline of new potential merchants, a larger sales team with increased geographic coverage, and a strong focus on engaging with large MSOs gives us a high level of confidence in our ability to hit our guidance for the year. Now turning to the market. The cannabis market continues to be an exciting and dynamic space in which to operate. with strong market trends that favor our continued growth. New merchants are emerging regularly, state legislation efforts are advancing across the country, and acceptance of digital payments is becoming more normalized as retailers recognize the importance of reducing the amount of cash in their stores to create a safer work environment for their employees. All of this translates to industry growth and increasing opportunities for POSBIT. The total payment processing opportunity in the U.S. for cannabis sales is estimated by Forbes to grow to more than $43 billion by 2025. There clearly is still a massive opportunity for our business moving forward. Entry into new geographies is an important element to capturing an increased share of this opportunity and one of the several key drivers of our growth. We started the year with operations in 10 states in the US and ended with 15. Subsequent to the year end, we've added three more states, Georgia, Texas, and West Virginia. and have plans in motion to end 2022 with deployments in eight more states, concentrating primarily in U.S. Mid-Atlantic and Northeast regions. Our entrance into the CBD market in states such as Texas and Georgia has opened up a massive new pool of potential customers across the country. Additionally, our ever-increasing success with large MSO chains has provided excellent momentum and continued opportunities among the biggest and most successful companies in the cannabis industry. In fact, we recently began deploying our payment solution in the Loom dispensary chain, which currently operates over 30 retail locations in Michigan, making it the largest operator in the state. Just as important in 2021 was our success with increasing same-store revenue growth for Positbit. We continue to see a rise in percent of non-cash payments following the onboarding of new merchants, typically a 30% to 40% increase in the six months following our installation. We had a number of new product launches during 2021 that increased the breadth of what we offer to merchants. In the back half of the year, we launched our kiosk, a standalone hardware option for dispensaries and retailers that allow customers to build out a cart of products, either in-store or online, and pay for orders with a debit card directly at the kiosk. We are now preparing for a full-scale release and launch of our kiosk in Q2 across multiple states. As a company, we firmly believe that providing ample choice to our current merchants and the cannabis market at large sets us apart from the competition. Retailers want options and prefer to use solutions and products they're comfortable and familiar with. As such, a major focus in the past year was bolstering our positive connect API. a publicly available open API that allows third-party integrators to gain access to our expanding suite of products. As the industry leader in payment infrastructure for the cannabis sector, our open platform allows access to our complete ecosystem, enables third-party integrations of every kind. We are the only processor and POS provider that offers merchants the flexibility to plug into any or all of our product offerings. We also continue to strengthen our current partnerships with industry leaders such as Spring Big and iHeartGene. This shows our commitment to customer choice and the idea that merchants deserve optionality as the industry matures. Product extension through innovation remains a priority for 2022. We're increasing the size of our product engineering team to support the launch of new products and further expand our portfolio. We plan to continue releasing new and exciting features within our point of sale technology, expanding our offerings with a wide array of features for retailers across the industry. A few examples of this include newly released safety features on our point of sale to alert authorities of a crime in progress, as well as new integrated debit payment features that promote solutions to reduce cash on hand at store locations. Additionally, we are focused on building out innovative features for the benefit of large MSO chains. all with an eye towards helping merchants drive incremental sales and improving both the merchant and customer experience on an enterprise level. Looking ahead, our operational plans for this year are built upon our success in 2021, which we believe makes our company increasingly attractive to a wide range of investors. Market demand for our offerings is robust, and we have a proven track record of delivering results. I'll now turn the call over to Matt Fowler, our CFO, for a more detailed review of our financial results for both the quarter and year ending December 31st, 2021. Matt, take it over.

Thank you, Ryan. Our financial results for both the quarter and the full year again include exponential top-line growth along with reinvestment for the benefit of long-term growth, starting with the fourth quarter. Transactional sales for payment services totaled 102.6 million, up 96% compared with 52.4 million in the fourth quarter of 2020. Transactional sales, which is a non-IFRS measure, is a primary underlying driver of our payments business, and more specifically, our revenue. Total revenue was 6.4 million, up 110% compared to 3.1 million in the fourth quarter of 2020. Gross profit was 1.5 million, or 23% of revenue, up 86% on a dollar basis compared with 797,000, or 26% of revenue in the fourth quarter of 2020. Operating expenses were 2.8 million compared to 704,000 in the prior year quarter. The increase is the result of investment in sales and engineering staff and additional corporate overhead to support our growth. We additionally had increased professional fees tied to contract negotiations with our larger MSL merchants, as well as higher non-cash stock-based compensation tied to new hires. Net loss was $2.3 million, inclusive of a $519,000 non-cash change in the fair value of derivative liabilities. This compared with a loss of $116,000, inclusive of a $78,000 non-cash change in the fair value of derivative liabilities in the fourth quarter of 2020. The mark-to-market of the embedded derivatives relates to our convertible debt is a non-cash accounting industry required by our IFRS and can cause significant differences in net income or loss quarter to quarter. These fluctuations may be more extreme in periods of increased volatility in the price of our company stock. To provide additional clarity, when we exclude the non-cash impact, which is below our operating results, Our adjusted net loss was $1.8 million compared with an adjusted net loss of $38,000 in the fourth quarter of 2020. Adjusted EBITDA loss was $1.1 million, or negative 17% of revenue, compared with a gain of $134,000, or 4% of revenue, in the fourth quarter of 2020. Turning to the full year 2021, transactional sales for payment services totaled $362 million, up 174% compared with $132 million in 2020. Total revenue was $21.3 million, up 172% compared with $7.8 million in 2020, and $800,000 above the high end of our guidance of $19 to $20.5 million. Gross profit was $5.8 million, or 27% of revenue, up 232% on a dollar basis compared with $1.7 million, or 22% of revenue in 2020. Net loss was $10.6 million, inclusive of a $9.7 million non-cash change in fair value of derivative liabilities. This compared with a net loss of $1.3 million, inclusive of a $70,000 non-cash change in fair value of derivative liabilities in 2020. For the year, adjusted net loss, which again excludes the non-cash impact from the valuation of derivative liabilities, was a loss of $829,000 for 2021. compared to an adjusted net loss of $1.2 million in 2020, an improvement of nearly 30%. For the full year, adjusted EBITDA loss was $1.2 million, with negative 6% of revenue for 2021, compared to an adjusted EBITDA loss of $558,000, with negative 7% of revenue in 2020. While our adjusted EBITDA loss was greater on an absolute dollar basis, as the percentage of revenue improved year over year, to the full year, illustrating the benefits of continuing to scale our business. Cash on hand at the end of the year was $4.4 million, an increase of 352% compared to approximately $980,000 at the end of 2020. The increase was driven primarily by increased transaction volumes, proceeds from the exercise of outstanding warrants during 2021, and a small capital raise in February of 2021. Our debt balance remains low with just over $130,000 in long-term debt comprised of an SBA loan and convertible notes. That's it for me, Ryan. I'll hand it back to you to walk through the closing remarks.

Thanks, Matt. Before we get to the closing remarks in our Q&A, let's briefly discuss an important day in our industry. We are just coming off the industry's biggest day of the year, last week, 420. This 420 was another record-breaking day for Positivit. as we saw both record sales and 100% uptime across all our technology platforms during what is by far the busiest day of the year for our retailers. Just another example of the value POSIMET brings to our merchants and a strong indication of our ability to scale and provide enterprise-level software solutions. This 420 was a great reminder of how we've grown since our inception in 2015. We've delivered exceptional growth and positive adjusted EBITDA in four of the last six quarters. We've doubled our revenue each year for five consecutive years. Market demand for our offerings is robust, and we have a proven track record of delivering results. Importantly, they're a strong indication of continued momentum into 2022 and beyond. Now to address our guidance for 2022. We are refining the revenue guidance and transactional sales for 2022 that we initially provided in our press release in January of this year. We stated at the time our expectations of $36 to $39.5 million. As of today, we are increasing our 2022 revenue guidance to a range of $37 to $40 million, which reflects year-over-year growth of 81% at the midpoint and continues our trend of doubling or nearly doubling our revenue for five consecutive years. This guidance is based on a detailed business plan for expansion, reinvestment, market trends, and transactional sales volume that we expect to be between $675 to $730 million, which at the high end would approach nearly three-quarters of a billion dollars in 2022. We are also adding guidance for gross profit, which we expect to be $9 to $10 million for the full year 2022, reflecting year-over-year growth and gross profit of 64% at the midpoint. Thank you for your interest in our story and for being here with us today. We look forward to speaking with you again next month when we report our first quarter results. Operator, we can now open the call for any questions.

Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold while we poll for questions. Okay, just a reminder that if you want to ask any questions or comments, please press star 1 on your handset. Okay, as there's no questions in the queue, there appears to be no further questions. Would you like to read your closing comments?

No, we're good. Thank you.

You're good? Awesome. Thank you very much, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone line at this time and have a wonderful day. Thank you for your participation.