Posabit Systems Corp

Good day, everyone, and welcome to the Positbit Systems Corporation first quarter 2023 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 Carbonera. Sir, the floor is yours.

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 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 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 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. 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 Hampson, 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. I know we just had our annual earnings call last month, so today's update will be relatively short and essentially will confirm what we stated on that call regarding our guidance and traction so far in 2023. But I do have a few other updates to share with you as well. But let's begin with our financial results. We delivered solid results in the first quarter of 2023 that are in line with our expectations and reflect the typical first quarter seasonality of our business. For the quarter, revenue was $11.5 million, up 82% year-over-year versus $6.3 million in Q1 of last year. Transactional sales volume was also up at $136 million. and gross profit was up 56% on a dollar basis from last year to $2.3 million. Our year-over-year revenue growth continues to outpace our competition and the cannabis technology industry at large. Our balance sheet remains strong with the most cash on hand at the end of Q1 than ever before, and we have the capital resources to execute on our plans for continued growth as we capture more and more market share. Across the market, Many of our competitors are underperforming in the first quarter, as witnessed by several of the publicly traded companies in the space who have already reported their Q1 results. We suspect this is due in large part to seasonality of this industry and the overall state of the economy right now. At Positbit, however, we remain in a solid position compared to many in the industry. Our first quarter numbers were right in line with our internal expectations, which relative to the industry still remain high. Looking ahead, we have already started to see the anticipated uptick in Q2 that we see each year coming out of the seasonality lows in Q1. The market is recovering, all of which points to continued growth as planned for positive in Q2 and beyond. I'd like to now briefly give you an update on how our acquisition of Hyper is coming along. As you may recall, Chris Baker joined our team in the newly created role of Chief Strategic Officer And Michael Sinwell, Jr. joined us as part of our acquisition of Hyper as our chief payments officer. The acquisition established Positivate as the top payments provider in the cannabis industry in terms of overall market share and the number of providers and processors supported. Chris and Michael have worked together with our team to fully integrate the assets and team from Hyper with our existing Positivate infrastructure. I'm pleased to report that the integration is now complete. and we are up and running as one fully integrated entity. Importantly, we are beginning to realize synergies and opportunities of cross-selling both customer bases. We have already sold several new pin debit deals on the Hyper platform and have been able to integrate the key components of the Hyper products into the Positivate suite of offerings. Our combined pipeline of Hyper and Positivate continues to be very robust with 175 to 200 deals in process that we expect will be sold and implemented over the remainder of the calendar year. I do want to take a moment and share some thoughts about the industry and the payments landscape as it stands today. Unfortunately, the cannabis payments industry is full of noncompliant solutions that offer credit card processing and cashless ATM products. This has resulted in a lot of industry confusion over what is compliant and what is not. There are many merchants, unfortunately, who are using these noncompliant solutions and do not realize that the potential penalties they are susceptible to and could be fined hundreds of thousands of dollars and even shut down with their money being held. Positive remains committed to being compliant and not putting our merchants in harm's way, unlike many of our competitors. It is unfortunate that the failure of safe banking and other federal measures have somehow created a false belief that it is okay to process with noncompliant solutions. This has resulted in a lot of misinformation and confusion by merchants when it comes to the best way to process payments in cannabis. Our team continues to spend time educating the industry and lawmakers about the dangers of these non-compliant solutions. However, the current poor economic climate has made it even more difficult for merchants to keep doing the right thing. While competition has increased, we continue to differentiate our business not only as one of the only compliant solutions in the market, but also having the best reporting, reconciliation, customer support, and scalable technology in the industry. The strength of our product is one of the key drivers of our growth. We will continue to make this a focus for us to further differentiate Positbit from others in the market. One example of our strong growth is here in the state of Washington. We are now currently serving nearly 40% of the dispensaries in the state with our Positbit-run solutions. both our point of sale and our payments. With such a large presence in Washington, strong brand recognition, and innovative products, we are building a wide moat around our business and making it much more difficult for new entrants to enter into the Washington market. Lastly, we continue to invest in our customer support operations and customer success, a key differentiating factor for us in how well we treat our customers. This is still a very small industry when you look at the available TAM or total addressable market of just over 10,000 dispensaries in the U.S., which makes it critical that we ensure world-class support to our customers. 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 first quarter ending March 31, 2023. Thank you, Ryan. Thank you.

Transactional sales through our payments platform were $136 million, up 33% compared with $102.5 million the first quarter of 2022. Looking quarter over quarter, transactional sales were down 5% compared with $143.5 million in the fourth quarter of 2022, which highlights the typical seasonality of a slow Q1. Transactional sales is a non-IFRS measure and one of the key drivers for our business. Total revenue was $11.5 million, up 82% compared to $6.3 million in the first quarter of 2022. Of our total revenue, 93% is tied to our payments business and 70% is generated from our point of sale business. Gross profit was $2.3 million, or 20% of revenue, up 56% on a dollar basis compared with $1.5 million, or 24% of revenue in the first quarter of 2022. The decrease in gross margin percent year over year is tied to a change in the products we offered in Q1 2022 versus Q1 2023. Operating expense was $5.2 million compared to $3.5 million in the prior year's quarter. The primary driver of the increase in operating expense was hiring that has taken place over the last 12 months in higher professional fees. Sequentially, operating expense were up 3%, largely driven by higher professional fees and stock-based comps compared to Q4 2022. Administrative expenses for our primary people costs were $3.3 million for the quarter. Stock-based compensation for the first quarter of 2023 was $624,000, and there was a negative impact for an exchange valuation of $257,000. Both are non-cash expenses. Net loss was $3 million, inclusive of the impact of $124,000 non-cash change in the fair value of derivative liabilities. This compares with the net loss of $470,000, inclusive of the impact of $1.64 million non-cash change in the fair value of derivative liabilities in the first quarter of 2022. The mark-to-market of embedded derivative liabilities is tied to our convertible debt and is a non-cash accounting entry required by IFRS. It can cause significant differences and net income on a loss quarter-to-quarter. Fluctuations to this line item or income statement may be more extreme for periods of increased volatility in the price of a company's stock. Adjusted EBITDA was a loss of $1.94 million, or negative 17% of revenue, compared to an adjusted EBITDA loss of $1 million, or negative 16% of revenue in the first quarter of 2022. Cash on hand at the end of the first quarter was $7.3 million. This compares to $3.1 million at the end of 2022. Our debt balance remains low at $3 million of long-term debt, consisting of an SBA loan, convertible notes, and a three-year term loan. Finally, we do not have anything new to report about uplifting the company's stock to NASDAQ or the TSX. Other than to reiterate, the position of how things so investors can easily invest remains important to management and the board, and we continue to discuss all options with the council. With that, I'll turn the call back to you, Ryan, for closing remarks.

Thanks, Matt. I'll end our call today by reiterating our guidance for 2023 and simply state that we are on track and growing as planned. For the full year 2023, we expect revenue of $58.5 million to $61.5 million and gross profit of $12.5 million to $14.5 million and to be slightly negative on an adjusted EBITDA basis. This represents a 62% increase in revenue year over year at the midpoint and a 35% increase in gross profit dollars year over year at the midpoint. Thanks again, everyone, for your time. I'll turn it over now to the operator for any calls that anyone may have.

Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Thank you. That concludes our Q&A session. I'll now hand the conference back to our host for closing remarks. Please go ahead.

Thank you again, everybody, for the call today. I appreciate it. And if you have any follow-up calls or follow-up questions, you can certainly reach out to hello at pausebed.com, and we'd love to hear from you. Thank you. Have a good day.

Thank you, everyone. That concludes today's event. You may disconnect this time and have a wonderful day. Thank you for your participation.