Posabit Systems Corp

Welcome to the Positbit Systems Corporation fourth quarter and full year 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow today's presentation. I will now turn the conference over to your host, James Carbonara, Investor Relations. You may begin.

Thank you, Operator. 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 1955. 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 the 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 this call are made only at 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 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 welcome, everyone. As a reminder, all numbers that I'll be talking about today are in U.S. dollars. Across the board, 2022 was our most successful year for Positbit since the founding of our company in 2015. We continued our streak of doubling or nearly doubling revenue year over year, now for five years in a row. We continued to outpace industry growth, and we met or exceeded our core guidance in 2022 for both revenue and gross margins. We also executed our first point-of-sale royalty licensing agreement worth at a minimum $20 million in cash over four years. Lastly, in 2022, we laid the foundation for our acquisition strategy, which we have now started to execute upon in 2023. Our balance sheet remains strong, and we continue to successfully execute on our business strategy. Turning to financial results for the full year ending December 31, 2022, we delivered revenue of $49.8 million, which represents year-over-year growth of more than 134%, which greatly outpaced the cannabis industry and significantly increased our market share. Gross profit was $22.6 million, up 302%, and debit transactional sales volume increased 43% to $517 million. In our earnings release today, we alluded to a change in the accounting treatment of our software license agreement we had announced back in Q3. Had this change not been made, our 2022 revenue would have still been in guidance at approximately $37 million, and our gross profit would have been approximately $10 million, also in line with previously provided guidance. Matt will go into further details about this accounting treatment later in the call today. In 2022, we continue to drive strong growth in our core businesses of payments and point of sale. We increased same store revenue growth at our existing locations by nearly 20% via greater adoption of our fully compliant pin debit processing solution. Additionally, Positive added eight new states in 2022, further increasing our point of sale market penetration. We began 2022 servicing approximately 300 merchants. Over the course of the year, we added more than 250 merchant agreements to reach approximately 550 as we exited the year, an increase of nearly 45% year-over-year for both payments and point of sale. As I mentioned, we achieved our target of entering eight new states in 2022. We began the year with operations in 15 states and ended with 23. To support this growth, our team of high-performing sales, engineering, operations, and customer success professionals grew from 32 employees at the start of 2022 to 49 employees at the end of the year, a 35% increase year over year, putting us at approximately $1 million in revenue per employee, which is a great metric to demonstrate our ability to remain fiscally responsible while still significantly growing revenue. We are focused on the importance of scaling our business at a pace that aligns with our growth, an important factor in running a sustainable business in 2023 and beyond. In 2022, we continue to invest in our product capabilities. We launched our beta of Positive 2.0, the newly designed version of our Positive point-of-sale client. It is our most intuitive experience yet, elevating the day-to-day experiences of bud tenders, managers, and owners, whether they're a small retailer or a growing MSO. We've also continued to invest substantially in our robust payments platform, adding many enhancements to our payments portal for reporting and reconciliation, making our reporting tool easy to use by accountants and owners to ensure proper financial accounting, something that is valued in a highly regulated industry. As we go into 2023, We will continue to invest in our products and platform with a focus toward adding more merchant service offerings to our already robust suite of products. One significant investment that was already made in April of this year was the acquisition of Hyper for approximately $7.5 million to establish Positive as the top payments provider in the cannabis industry in terms of overall market share and number of processors supported. It is important to note that $6 million of the $7.5 million paid was in equity. This again demonstrates the value that Hyper and its investors placed in owning our stock versus being paid in cash. We treat our equity as a very valuable currency and continue to be careful in how we use this currency as we grow. For those not familiar with Hyper, Hyper is a leading provider of compliant, sustainable payment and bank-compliant solutions for high-risk industries, including cannabis. With this transaction, we added more than $100 million in additional debit transactional sales volume, moving our total forecasted payment transactional volume in 2023 to near $1 billion. Hyper has extensive partnerships with banks and credit unions throughout the U.S. that have used this technology to provide banking and payment services to the cannabis industry since 2016. This acquisition enables us to offer a comprehensive suite of payment and compliance solutions, including redundant pin debit payment processing, HyperPay, a leading cannabis ACH e-commerce and mobile payment solution, Hyper B2B ACH, which has robust invoicing functionality, and HyperComply, a leading compliance technology for financial institutions serving the cannabis industry. With the addition of Hyper's pin debit, it now makes Positbit the only pin debit provider in the cannabis industry that has dual processors for back-end redundancy, as well as allowing us to optimize which solution works best for our merchants based on their location and processing needs. Lastly, on the product side, we continue to expand our breadth of point-of-sale features and partners we integrate with to provide the most open platform to ensure merchants have the choice of products to use. Many in our industry require merchants to use tools in a closed environment. We have always believed in the freedom of choice, and I know our customers, merchants, appreciate not being limited by the type of solutions they need to run their business. This is why Positbit has always placed a high value in our integration with industry partners who collectively support the entire technology ecosystem necessary to compete in the marketplace. As a reminder in August, we successfully executed our first software licensing deal with a large cannabis technology provider for the use of our point-of-sale technology. The deal guarantees licensing payments to Positivit of approximately $20 million over four years. It also improves our working capital position and provides an ongoing infusion of non-dilutive capital. Our open platform and strong reputation as a point-of-sale leader were critical factors for this partner to select Positivit. This partnership is a great proof point of the value of our solutions and how it is architected to handle tens of thousands of transactions a day. Now I'll briefly discuss our sales pipeline. We have our strongest pipeline ever as we exited 2022 and into Q1 of 2023, with more than 200 deals in process that should be coming online over the next two quarters. With Hyper's pinned debit processing now part of Positiv's overall debit processing, We are tracking to near a billion in transactional sales in 2023. Our acquisition of Hyper brought together the top two leaders in cannabis payments under one umbrella. We can now unilaterally provide compliant, reliable, and redundant payment solutions, further distinguishing us from our competitors. Let's talk a little bit about the cannabis market. It's really no surprise that the cannabis industry is getting hit, much like the rest of the industries right now in the US. We're seeing a decrease in the overall ticket price per transaction, down about 5% year-over-year. While there's a decrease in ticket prices, Positivit still is able to see strong same-store growth due to an increase in the number of customers that are using debit over cash during their return visits. With the industry's overall dip in consumer spending, many of our competitors are now struggling. The days of high valuations for privately held companies are no longer in play, and you're seeing investor frustration over a lack of business execution made on promises that were not kept. For companies like Positive, this represents opportunities for us to capitalize on distressed companies that no longer have the capital to survive or the longevity to execute out of this industry low. We expect that over the next 12 to 18 months, many businesses in our space will be forced to pursue strategic alternatives or face closing, which creates attractive opportunities for us. We are well-positioned and well-funded, and our brand recognition is rising, which gives us substantial leverage to be selective and patient with any M&A transactions we pursue. I do want to briefly touch on the current acquisition we announced earlier this year. we had announced an agreement to acquire MJ Freeway Leaf Data Systems and Ample Organics from Akerna for $4 million in an all-cash transaction. Since then, we received notice of termination of the definitive agreement from Akerna. The notice states that Akerna has determined that a third-party proposal for the acquired companies is reasonably likely to result in a superior offer under the definitive agreement. After considering all relevant circumstances, the POSBIT board and management unanimously agreed not to increase our offer to match the alternative offer. It is important to note that this does not impact the commercial agreements in place between MJ Freeway and POSBIT, including a payment services referral agreement, which grants POSBIT certain exclusive rights to provide payment processing services, including our newly acquired suite of hyperpayment products to MJ Freeway merchants. I'll end talking a little bit about some organizational changes and updates. We added three new C-suite executives to our team. Chris Baker was recently appointed to the newly created role of Chief Strategic Officer, leading our acquisition integration team, as well as several core operational roles, including HR, IT, and business development. Chris has more than 20 years of leadership in the technology industry, and has led award-winning multidisciplinary teams for global enterprise clients. Sarah Mirsky Terranova joined us in February and was appointed Chief Compliance Officer. As a leading provider of payments in cannabis, it's expected and needed to have a dedicated CCO on staff to ensure we remain fully compliant in this ever-changing industry. Sarah is a skilled compliance executive and attorney with extensive experience managing and advising in in-depth case investigations pertaining to BSA, AML, financing and trafficking, sanctions, KYC, and fraud-related matters. Lastly, Michael J. Swinwell Jr. joined us as part of the HYPR acquisition, where he was CEO and co-founder of HYPR. Michael is our new Chief Payments Officer and will be responsible for driving our payment strategy and execution as we go forward. Michael brings 25 plus years of deep payments and merchant services experience that will be invaluable to us as we continue to grow as the payments leader in cannabis. With that, I'm going to now turn the call over to Matt Fowler, our CFO, for a more detailed review of our financial results for the fourth quarter and full year ending December 31st, 2022. Thank you, Ryan.