Posabit Systems Corp

Welcome to Positbit Systems Corporation fourth quarter and full year 2024 earnings call. At this time, all participants are in listen-only mode. A question and answer session will follow the former 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, Oscar Dow, Chief of Staff at Positbit. Oscar, you may begin.

Thank you, Operator. With me on this call are Ryan Hamlin, Chief Executive Officer, and Chelsea Bolander, POSBIT's Corporate Controller. 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 will also be citing adjusted EBITDA, adjusted revenue, and adjusted gross profit in today's discussion. Adjusted revenue, adjusted gross profit, and adjusted EBITDA are non-IFRS measures used by management that do not have any prescribed meaning by IFRS and may not be comparable to similar measures presented by other companies. The company defines adjusted revenue as gross revenue minus license support revenue plus actual licensing cash received as part of POSBIS licensing deals. The company defines adjusted gross profit as adjusted revenue less company cost of goods sold. The company defines adjusted EBITDA as net income or loss generated for the period as reported before interest, taxes, depreciation, and amortization, and further adjusted to remove changes in fair values and expected credit losses foreign exchange gains, and or losses and impairments. The company believes these non-IFRS measures are useful metrics to evaluate its core operating performance and use these measures to provide shareholders and others with supplemental measures of its operating performance. The company also believes that securities analysts, investors, and other interested parties frequently use these non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. We caution that adjusted revenue, adjusted gross profit, and adjusted EBITDA are not substitutes for gross revenue, gross profit, or profit loss, respectively. Now, I would like to turn the call over to Ryan Hamlin, Chief Executive Officer. Ryan, please proceed.

Thanks, Oscar, and good afternoon, everyone. As a reminder today, all the numbers that we'll be discussing are going to be in U.S. dollars. Positively finished 2024 in a position of strength. due to the hard work and tough decisions we made as a company throughout the year. At the end of 2023 and into the beginning of 2024, we as an industry experienced an industry-wide pin debit payment shutdown. That significantly impacted our revenue. We were forced to switch out our entire payment platform. But ultimately, this has now set up positive for a brighter and more sustainable future. The new payment offering no longer includes merchant fees. So this reduced our top line revenue, but also reduced our cost of goods due to the fact that most of those merchant fees were rebated back to our merchants in our past solution. So top line revenue went down, but so did our cost. Our new solution now results in a lower gross revenue number, but a much higher gross profit percentage due to this change, as well as our overall product mix shift, meaning basically more POS revenue. Speaking of POS revenue, I now want to focus on our strong point of sale growth in 2024. Our point of sale had an incredible year. We grew our total base by over 50% year over year and continue to build a moat around our home state of Washington, where we now have our POS in over 70% of all stores and run over 85% of all sales in the state through our POS. This represents billions in sales, which down the road will be huge for us when credit card processing is allowed. We continue to expand into more states, most notably Oregon and New Mexico, where we are gaining a nice foothold and are looking to repeat the same playbook that made us dominant in Washington State. A couple of important notes about our PLF. First, we are executing this growth while still seeing almost zero churn. Any churn we do see is almost entirely due to dispensaries closing down shop for good. So really nothing to do with our product or our performance. The flip side of that is given the state of the industry right now, all of our new point of sale stores are existing dispensaries, meaning we are aggressively taking over point of sale businesses from our competitors. The market keeps telling us that we have a superior product to the competition. Installing a new point of sale is no easy feat, especially in cannabis. It takes a lot to convince the store to move to a new system, and we are doing that in a grand scale. Finally, I need to make this extremely clear. Point-of-sale merchants aren't just great for reoccurring revenue. They represent massive future revenue potential in the form of credit card payments. Once rescheduling happens or federal legalization or simply a change of heart or policy from the big credit card brand, we will immediately see a drastic increase in payments revenue from these point-of-sale stores. To put this into perspective, the majority of our point-of-sale locations are currently cash only. and the ones who use non-cash payments rarely eclipse 20% total usage of their transactions. Once credit card payments become normalized in the industry, we expect those numbers to reflect a typical retail environment, which means 90% of all transactions will run through Positivate's own credit and debit processing. If we just look at the current processing volume we have with our point-of-sale base today, switching to credit card payments due to legalization or descheduling Positivit would see an immediate $15 million to $20 million increase in top line revenue and $10 million to $15 million increase in gross profit dollars. So you can see why we are so bullish on Positivit moving forward. Keep in mind, this is what we mean when we say setting Positivit up for the future. Another key achievement in 2024 for Positivit was the launch of our e-comm menu products. We released our beta in Q3 and have now signed up nearly a quarter of our POS base. This was a major undertaking for our product and dev teams, and the response from merchants has been nothing short of phenomenal. This has and will continue to drive additional reoccurring revenue for Positivit, as we expect to add another 100 new e-commerce customers in 2025. This is an additional service for our point of sale merchants who pay around $300 to $400 per month for their monthly e-commerce subscriptions. This add-on is another great example of how Positivit is increasing our reoccurring revenue stream per merchant on an annual basis. Now I want to talk a little bit about our cost savings efforts in 2024. I mentioned getting healthy earlier. I talked about it quite a bit with our team. Probably the easiest way to see this is in our operating expenses from 2024. Last year, our OpEx was $12.2 million versus $18.8 million in 2023, representing a decrease of 35% in OpEx year over year. This decrease can be attributed to various cost-cutting measures, including a slight reduction in staff, better optimization of overall expenses, including things like cloud hosting, travel, marketing, and more. Our number one priority remains the overall financial health of the company as we build toward the future. Growth in reoccurring revenue is obviously great, but equally important is our focus on cost control and ensuring we are as lean and efficient as possible. Before I hand it over to Chelsea, I'm going to talk briefly about some of our financial numbers. Revenue for 24 was $15.3 million versus $43.6 million last year. Now, obviously, those numbers may be jarring. But the drop is almost entirely due to a decrease in how we pass through fees charged to the merchant for payment services. To that point, while revenue dropped 65%, our gross margin dollars only decreased 24% year over year. To further emphasize that point, our actual dollars in gross profit were $7 million in 2024 versus $9.2 million in 2023. And the thing I really want to point out is our adjusted gross profit dollars actually grew year over year to $10.6 million last year in 2024 versus $8.7 million in 2023, which is a 19% increase year over year. While 2024 was a difficult year, our overall cash only went down $500,000 throughout the year, demonstrating that positive remains roughly cash flow neutral. a testament to both our cost-cutting measures and ability to adapt to market disruption. In 2024, we also focused on paying off age payables, and we settled an outstanding lawsuit paying out $275,000 in 2024. These additional costs we incurred were the primary driver and difference from a cash flow positive versus a slightly negative cash flow year in 2024. We talk a lot about adjusted revenue and adjusted gross profit because we believe it is a better indicator of our overall actual health and growth of the company. Our adjusted revenue, which means we're adding back in the cash from our licensing deal, was actually $18.6 million this year, as mentioned already, and our adjusted gross profit was $10.6 million. It's important to include this cash in our adjusted numbers so our investors can see the cash impact of this license deal that is not represented fully in our top line revenue numbers. This is due to us recognizing the majority of the $20 million licensing deal back in 2022 when the original deal was signed. With that now said, I will turn the call over to Chelsea Bolander, our corporate controller, for a more detailed review of our financial results.