Posabit Systems Corp

Good day, ladies and gentlemen, and welcome to the Positbit Systems Corporation second quarter 2022 earnings call. All participants have been placed on a listen-only mode, and the floor will be open 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, Operator. And once again, welcome everybody to Positbit's Q2 earnings call. With me on this call are Ryan Hamlin, Chief Executive Officer, 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 the 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 call are made only as of the date of this call. We do not undertake any obligations to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances. The company may 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 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. It's further adjusted to remove changes in fair value 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 Hamlin, Chief Executive Officer. Ryan, please proceed.

Thank you, James, and thanks everyone for joining us this afternoon. We'll start with an overview of our second quarter financial results. As a reminder, all numbers that we're reporting today are in U.S. dollars. We are very pleased to announce our second quarter revenue increased 66% year-over-year and 29% sequentially from Q1 to $8.2 million. The strength in our top line was driven by the addition of more than 100 new locations, a record number of dispensary point-of-sale installations, and increased transaction volume within our current merchant base. As part of our Q1 earnings call, we reported that our revenue in March was the largest in corporate history. Since then, we have set a new record high in each subsequent month through July. The continued execution of our sales strategy was the key element to our strong revenue growth in the second quarter and sets us apart from our competitors. we exceeded the industry growth rate by a considerable margin, while others in the industry are reporting single-digit growth, or even in some cases, a decline in sales. The industry as a whole is starting to show signs of stabilization. Although the average order value has not rebounded from where it was last year, In fact, the average order value process using positive payments in Q2 was down from $78 last year to $73, or a 6.4% reduction from Q2 of last year, which is consistent within the industry. While this does affect the total gross volume of transactions process, we are still seeing strong growth in actual number of transactions, meaning the average order value is down but total transactions process is up. This trend is leading us to lower forecasted transactional sales. However, this is offset again by an increase in the number of transactions, which has enabled us to continue to grow our revenue at fast pace. To be clear, even with the lower order value, transactional sales still grew significantly in Q2, growing by 25% over our first quarter. we processed 129 million in Q2 versus 103 million in Q1. Given the dip in average order value, we are lowering the midpoint of our guidance for transactional sales from 700 million down to 650 million to reflect the current economic climate in the U.S. But more importantly, we are reaffirming our guidance for revenue of 37 million to 40 million. We are also increasing the lower end of our guidance range for gross profit due to a mixed shift towards more SaaS and point-of-sale revenue, which has much higher margins. I'll walk through the specific numbers in just a bit. Now switching to some great news around partnerships. This week we announced the largest partner deal in the history of our company. We closed a strategic partnership with a large cannabis technology partner to license our point-of-sale software. It is a software license agreement that provides royalty payments deposit for each unit sold by our technology partner. I want to point out a few additional and important points about this new strategic partnership. First, we've always believed in the strength of our point of sale software. We consider it the best in the industry. The fact that a leading technology provider has licensed our source code validates the quality, scalability, and complete feature set of our point of sale software. Second, this agreement represents a significant new stream of guaranteed reoccurring revenue over the next four years and potentially well beyond that. There is a minimum of 20 million in guaranteed revenue that will be recognized on our P&L over the next four years. As most of you know, we have doubled our revenue every year for the past four years, and we expect this year to be no different, moving from 21 million in 2021 to our guidance of 37 million to 40 million in 2022. Personally, I love doubling revenue every year, and I want to keep that trend going. Deals like this set us up not only for a great year this year, but for many years to come. Third, software license deals that involve licensing source code are great for margin. All of the $20 million in revenue is straight profit. The company that is licensing our software will take on the full hosting, support, and implementation costs of running the point of sale. This is only one example of how we are working to improve our gross margin to enable us to get to adjusted EBITDA profitability. We will begin recognizing revenue from this partnership in the third quarter of this year. The first full-year revenue of $4.4 million, which includes a one-time fee of $500,000 and first-year royalty licensing fees of $3.9 million, was paid in advance and will be recognized on our P&L over the next 12 months. The last comment I want to make about this deal. We've been saying now for the past several years that Positive is the open platform for all cannabis technology companies to integrate with. This open integration approach sets us apart in the industry. And this specific partnership is a great proof point of the value our industry places on our point of sale and payments platform. This openness is a key competitive advantage and key driver of our growth for years to come. Now turning to our merchant store growth. We are further encouraged by the speed at which our teams are standing up operations in new retail locations. You heard us speak about our target of 100 locations in 60 days. That is, back in May, we had more than 100 contracted retail locations queued up to go live over the following 60 days. We met that target, and all those locations are now fully operational with our solutions. Earlier this month, we hit a significant milestone in our business. We now have more than 500 merchant agreements in place for our payments and POS solution. We have nearly doubled our market share for POS with more than 80 locations added so far in 2022, 36 of those in the second quarter alone, which is a record for POS installations for us. As we have discussed in the past, another important element of our growth strategy is our focus on multi-state operators or MSOs. Most recently, we began the deployment of our payment services for one of the most successful and largest privately held MSOs with operations in seven states and more than 60 locations. We expect to roll to all of those locations over the coming weeks. Our newly appointed Chief Revenue Officer, Julie Solomon, is scaling our organization to increase brand awareness achieve excellence with implementations, and drive same-store sales growth from our existing base. The team has more than doubled in size since Julie joined us in June. We now have more than 20 people in our sales and customer success organization. We have added direct sales professionals with industry and MSO experience in targeted geographic regions, as well as marketing and implementation specialists. While competitors in our space are downsizing, we are investing in revenue generating resources and scaling up. The team is already signing up new business, growing the pipeline, and reaching new geographic areas. Collectively, they are elevating the customer experience, driving growth, and setting us up to achieve our second half 2022 objectives and enter 2023 in a strong position. We expect to see tangible proof points in the quarters to come. During the second quarter, we also entered the New Mexico market with our point of sale solution as the state went live with recreational sales for the first time. Our location count in New Mexico is in the low 20s with more locations under contract and expected to go live in the second half of this year. With the addition of New Mexico, we are now operational in 19 states in the U.S. and well on our way to achieving our target of adding eight new states in 2022. We began the year in operations in 15 states. The addition of Georgia, New Mexico, Texas, and West Virginia brings us to 19. The recent agreement with a large MSO includes deployment in seven states, three of which are new for Positbit, leaving one more state remaining to achieve our target for this year. As we continue to scale, we are adding staff across our business to support our increasing volume of contracted locations and projected sales pipeline. We currently have 50 professionals and plan to add 20 more full-time resources across all departments by the end of the year. Our queue of contracted locations is close to 100, and our pipeline now exceeds 200 qualified prospects that are advancing through the sales cycle. We handedly outperformed both the year-over-year and sequential comps in the second quarter. But more importantly, recent contract signings and the opportunities in our pipeline reinforce our optimism for continued growth in 2022 and a return to profitability on an adjusted EBITDA basis in 2023. With that, I'll now turn the call over to Matt Fowler, our CFO, for a more detailed review of our financial results for the quarter ending June 30, 2022. Thank you, Ryan.