Posabit Systems Corp

Welcome to the Positbit Systems Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Chris Baker. 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 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 21 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 file 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 that 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 compatible 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.

Thanks, Chris, and welcome, everyone. As a reminder, as always, the numbers I'm going to be talking about today are in U.S. dollars. Well, 2023 was quite the year. Change, volatility, and sustainability, I think those are the consistent themes I want everyone to take away from this call. The industry itself had an extremely rough year in 2023. Almost all cannabis businesses struggled, both public and privately held companies. Thankfully, over the past nine and a half years since our inception, the positive team has been battle tested and survived many ups and downs in the past and even thrived in the face of adversity. In fact, I am proud that we achieved a combined 23% year-over-year revenue growth in our core payments and point of sale business. This is excluding a one-time licensing fee booked in 2022, which we'll talk about here shortly. We are also coming off another successful 420, the biggest day of the cannabis year. While some of our POS competitors had outages that impacted thousands of dispensaries, we once again were able to serve our customer base with stable, outage-free, and user-friendly sets of products and services. Now, before we get into the numbers, I want to give a quick comment on our 2022 revenue restatement that I'm sure you read about in our press release this morning. This was due to how we accounted for revenue associated with the large point of sale licensing deal we completed back in 2022. If you recall, and I think I've talked to you on the calls many times about this, we signed a deal to license our point of sale software source code to a large technology player in the Canvas industry. This deal represented over $20 million in revenue and cash deposited over a four-year period. In fact, each month we are sent a deposit of approximately $400,000 that goes straight to the bottom line, in essence providing us with a consistent stream of non-diluted capital for the next several years. So why the restatement? Well, as part of the audit process, it was determined that the discount rate associated with the 2022 software license agreement should be increased to 12% versus 2.8%, which was the rate that was used. Following IFRS rules, the change in discount rate will reduce the revenue recognized in 2022 by approximately $3 million. The change in discount rate will shift some future recognized revenue from license to interest income, but I want to stress this does not affect the overall cash economics or the timing of cash receipts from this great licensing deal. All right, we'll dive into the financial results for the full year of 2023. Revenue was $43.6 million. This includes an increase in year-over-year payments revenue of 20%, or $40 million this year versus $33.4 million in 2022, and an increase in point-of-sale revenue by 51%, or $2 million this year versus $1.3 million last year. Overall revenue, excluding the large one-time licensing revenue that we recognize in Q4 of 2022, was, as I said, up 23% year-over-year. Gross profit was $9.2 million for 2023 versus $8.2 million in 2022. Again, excluding the licensing deal that we recognized in Q4 of 22. While the level of growth was not what we anticipated, we are pleased given the massive disruption with payments in the cannabis industry over the course of the last year. I'm very happy with how we responded. In fact, this forced us to increase our overall redundancy of payment offerings to help ensure we don't have a repeat of 2023. In fact, as I speak today, Positive Now offers five different payment options for dispensaries. Not only that, but we recently introduced Positive One, an all-in-one device that can run up to three different payment options on the same terminal. I want to talk about our POS a little bit as well. We all know that payments is the majority of our revenue, but our Anchor product is our point of sale, and it had another fantastic year of growth. From Q4 of 2022 to Q4 of 23, the number of active positive point of sale merchants increased by 46%. This extreme growth in a very tough market is a testament to our rich feature set and the stability of the product we have. We successfully rolled out Positive 2.0, our next generation POS software, to all stores in the middle of last year. The response has been overwhelmingly positive. We have continued to hone and sharpen our training and implementation processes allowing us to onboard stores at a much faster rate than previous years. Our customer support remains the best in the industry, which eliminates churn risk and keeps our customers happy and loyal. Lastly, here in our home state of Washington, we remain the dominant point of sale provider, accounting for over $1.5 billion in cannabis sales in Washington state alone. Now let's talk a little bit about our operations and, frankly, how we got lean in 2023. Often disruptions with existing revenue sources create opportunities to assess where you're at, where you're going, and frankly, the best path forward. Over the past six months, we have been hyper-focused on realigning our valuable resources to match our top revenue projects. This also gave us a chance to assess our efficiencies and frankly, get lean. Part of this involved two layoffs over the last six months, which are always painful, but also healthy and necessary at times. We have since increased our internal efficiency, reduced our overall costs, and are now tracking to being cashflow positive and profitable in Q2. Given the volatility of the industry, we have made the strategic decision to focus on profitability over urgent growth. Often companies spend too much time focusing just on growth, which at times is necessary, but also can run the risk of getting them in a position where they no longer can survive, because frankly, they aren't profitable. I know that may not be the proper way of looking at it these days, but we have seen far too many of our competitors get over their skis during the past few years. And now we're on the brink of having to close their doors. We do not want to get ourselves in a financial hole that we can't dig out. We want a sustainable, steady, and profitable business. We believe this is the path we are on now, and we will remain on for the foreseeable future. I now want to give a quick update on our application with the TSX Venture Exchange. Again, we talked to you about this in some of the past calls. Positive has been working to advance the proposed listing of our common shares on the TSX-V Venture Exchange, or what people call the TSX-V. The company remains focused and committed on satisfying applicable regulatory and TSX-V listing requirements. The listing of the common shares on the TSX-V is, of course, contingent on the satisfaction of all listing requirements, and there is no assurance that the TSX-V will approve the company's listing application, or for that matter, that the company will complete the listing on the TSX-V. That's really all I'm going to say on that. We talk about it every call. I'm sure I'll have another update for you when we do our Q1 call. I do want to talk about some really exciting news of the potential rescheduling of cannabis as a Schedule III drug and what that will mean for POSIBIT. I'm sure you've all Googled and read about it, so I won't go into all the details. But basically, the main point is this. There's no more 280E tax exemptions. So dispensaries will deduct standard expenses just like any other retail store. There's also talk that this is going to open up banking and even for credit card processing. At the end of the day, the credit card brands, as you know, will be Sin MasterCard. They'll have the final say and will decide if they will allow Schedule III drug to process credit card transactions across their systems. At this time, frankly, it's just unknown if they will or will not. So to be prepared, we have already been approved as a master ISO to process credit cards. This means that our merchants will not have to worry about if and when this happens. It will just turn on automatically for them when this is allowed because Positivit has already taken care of it. We look forward to seeing Canvas finally get rescheduled or descheduled and are excited for the massive increase in processing volume this will create for Positivit and the increase in additional cash due to 280 going away for merchants, which allows them to spend more on payments and software services. All right, with that in mind, I'm going to turn the call over to Matt Fowler, our CFO, for a more detailed review of our financial results. All you, Matt.