Posabit Systems Corp

Good day, everyone, and welcome to the Positive Systems Corporation third 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, Oscar Dahl. 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 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, depreciations, and amortization. It's further adjusted to remove changes in fair value and expected credit losses, foreign exchange gains, and our losses and impairments. The company believes this is a useful metric to evaluate its core operating performance. Now, I'd like to turn the call over to Ryan Hamlin, Chief Executive Officer. Ryan, please proceed.

Thanks, Oscar, and welcome, everyone. As a reminder, all the numbers that I'll be talking about today are in U.S. dollars. I want to actually start off by saying I'm actually doing this call from my hotel room in Las Vegas. I'm at the annual MJBiz Cannabis Conference. This is the biggest show each year, and I'm pleased with how well positive it has been received these last couple days by both current and new merchants. Our point of sale 2.0 version that completed its full rollout recently has received much praise and adoption. In fact, we now have over 50% of the entire state of Washington using our point of sale. This is a great milestone for our team. I just wanted to start with that, so we'll jump right into our Q3 financial results. Despite the massive service interruptions across the industry in Q3 and now into Q4, Positive still had a small gain in quarter-over-quarter revenue. I attribute this to the fact we have redundant systems in place and a heroic effort from our positive team members who worked long hours to ensure our merchants had minimal disruption. For the quarter, revenue was $13.6 million, up 32% year-over-year, versus $10.3 million in Q3 of 2022. Transactional sales for our payment processing merchants increased to $157.9 million, up 11% year over year versus 142 million in Q3 of 22. Gross profit was 3.2 million. While the level of growth was not what we had anticipated, we are pleased given the massive disruption within payments in the cannabis industry over these last few months. I'm very happy with how we responded, but also want to remind all of us of how unpredictable this industry has become. Even though our Q3 revenue had mild quarter over quarter growth, We were hit about two-thirds of the way through that quarter with the shutdown of the service that we had acquired from Hyper back in April. Fortunately, we were able to minimize this initial outage by migrating most of the merchants to an alternative solution. This outage did affect our Q3, but not as much as it would have without having redundant systems in place. This continues to show how important it is in this payments landscape to continue to build out multiple solutions with full redundancy to ensure minimal disruption to our customers. Now, I do want to address quickly the pin debit update from the early October press release we put out. I know this release caused a bit of confusion with our investors, and I apologize for that and not being able to provide more details in that release. It's always our priority to keep our investors aware of any changes that could affect our business. This is even more important, obviously, as a publicly traded company. In the end, our legal team recommended we keep the release short and to the point. We will do our best to continue to update our investors as necessary. On October 11th, we did announce a decline in PIN to EBIT acceptance rates. The impact of this decline was felt throughout the cannabis industry and was not in any way isolated to just positive it. Unfortunately, as long as cannabis is still a Schedule I drug at the federal level, there will continue to be a lot of scrutiny and reviews of all payment types in this industry that are not cash only. We, along with the entire cannabis industry, are hopeful that the government will move forward with descheduling cannabis to help provide a safer environment for consumers to transact. For Positbit, since the announcement on October 11th, we have returned to 98% acceptance rates on all debit cards and are able to offer our merchants multiple payment solutions they deserve. The work to get our merchants back up and running has been our number one focus for the past six weeks. I challenged our team when this outage occurred in early October, and our team really rallied around that, working long hours and weekends to ensure our merchants could get back to processing as soon as possible. In fact, I'm really happy to confirm that as of this last holiday weekend, Our transactional sales run rate is at nearly 75% of what it was prior to this disruption. The current volume, now coupled with the additional merchants either currently contracted or being onboarded, will put us on track to exceed our pre-October processing volumes by the end of this year. Throughout this process, we have not only focused on supporting current merchants, but have used it as an opportunity to approach and sign up new dispensaries who were left behind without a payment solution after the October industry-wide interruption. The implications of this decline in acceptance rates, while painful in the short term, will prove beneficial to the company in the long run. For the last several years, we've been talking to all of you about the importance of having multiple payment methods besides just cash. We've been successful in bringing out new solutions that now provide up to four different types of payment offerings merchants can choose from. This is a must for this industry to reduce the volatility and create more predictability with our business and keep our customers delighted with our service. In addition to this ability to run multiple payment methods, Positive has developed the ability to run all of these on a single payment terminal. We heard our merchants loud and clear about having one solution and one partner they can count on for payments. And I'm happy to announce that Positbit now has that solution. In early Q1, early next year, Positbit will be releasing the first ever cannabis payments device capable of processing multiple payments on one device. This will further differentiate Positbit as the leading provider of sustainable payments within the cannabis industry. Another key initiative for Positbit, in addition to having multiple payment methods, is to be capital independent by being cash flow positive. Even prior to the recent payment interruption, Positbit was focused on cost containment to ensure a clear path to profitability. With that in mind, in the first week of October, we actually implemented a series of cost reduction measures aimed at optimizing operations and put the company on the road to profitability in 24. The forecasted annual savings from these cost-cutting measures will result in an annual savings of approximately $4 million. This reduction was made up of a small decrease in our employee base, optimizing our partner contracts, and a reduction in travel and expenses. When building this cost reduction plan, we took extraordinary care to make sure that our best-in-class service was not adversely affected. Now, nearly two months later, we can confirm that positive service levels remain excellent and the company is operating with efficiency and precision. I also want to take this time to remind our investors of the point of sale licensing deal we made over a year ago with a large technology company in the cannabis industry. If you recall, we received the first year's cash payment last year up front of approximately $5 million in cash. Starting just two months ago, we began receiving a monthly cash payment of nearly $400,000. This increases to approximately $450,000 in the following 12 months, and then finally to $513,000 in the fourth and final year. At that point, the licensee will either continue to pay royalties per terminal or buy out the agreement for approximately $32 million. I wanted to bring this up and remind our investors of this very important and predictable infusion of cash on a monthly basis that goes straight to the bottom line for the next three years. Having this cash come in monthly, along with the combination of the cost reductions I just mentioned, and they return to normal processing levels, we are very confident we'll be cash flow independent in 24. Getting to profitability has and will continue to be a high-level focus for us as we continue to not only grow, but run as a cash flow positive company. Before I turn it over to Matt for our detailed financials, I'm really excited to announce the positive intent to apply to list common shares on the TSX Venture Exchange. The listing of the common shares on the TSX-V remains subject to the final submission by the company of a formal application, the review of the TSX-V, and the satisfaction of all listing regulatory requirements. This has been a lengthy process, but we are full steam ahead. This was a major milestone for the company, and especially for you, our investors. We do not believe our current stock price is in any way indicative of Positbit's true value, and understand the limitations our current listing has imposed, unfortunately, on our North American investors. We, of course, will be sharing much more about this after we have the specific dates that we can share publicly. Moving to the TSX-V is a goal we've had for some time, And I'm very happy that we're close to achieving that. Now, I'm going to turn the call over to Matt Fowler, our CFO, for a more detailed review of our financial results for the third quarter ending September 30th, 2023.