Good day, and welcome to the POSaBIT Systems Corporation First Quarter 2024 Earnings Call. All participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Oscar Dahl. The floor is yours. Thank you, operator. With me on this call are Ryan Hamlin, Chief Executive Officer, and Chelsea Bolander, POSaBIT'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 SEDAR. 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, 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 POSaBIT's 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 uses 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. Welcome, everyone. As always, a reminder, all the numbers I'm going to be talking about today are in U.S. dollars. So I know we were just on the phone a few weeks ago when we announced our 2023 year-end earnings. So a lot of the topics, frankly, haven't changed a whole lot over the last couple of weeks, but where things have changed, I'll highlight it today on the call, and then after I get done and Chelsea gets done, we'll open up for some questions. I would encourage everyone who hasn't reviewed our year-end financials and the MD&A out on SEDAR+ for 2023 to do so. A bunch of questions came in, I know, and a lot of those questions are answered in our annual 2023 filings on SEDAR+. So as a reminder, you can always go out to SEDAR+ and grab those. I bring up the 2023 financials because I want to address upfront what I'll say is the elephant in the room, which is, "Holy cow, Ryan, you know, your top line revenue really went down this quarter. Why?" So there are a couple of big reasons for this decline. The first of which is due to the payment challenges we had at the end of 2023 and even the beginning of 2024. So whenever software services has a major change like we did with our payment services, that lasted about four months, starting at the end of 2024 and going, frankly, into early February, you naturally have a bit of a lag between the old service and migrating those customers to the new service. Usually, you will churn some of your base when that happens as well. So this was a big part of the drop. The other major reason is we changed the way we bill for our payment services. In the past, we billed both the merchant and the consumer for the use of our services. Now, we only charge the consumer. With the old method in 2023 and earlier, we had to offset the merchant costs by doing a rev share back to the merchant, using some of the consumer fees we generated. This is why we always have low gross margin, and I think I talked about this quite a bit, in like the low 20% range. So while our top-line revenue has definitely decreased, our overall adjusted gross profit dollars has remained relatively the same. I say this because gross profit is really how we operate at our business and frankly, how the board holds me accountable. This is why now you'll see our adjusted gross profit percent hit the upper 40s and even 50%, which we announced today, well, compared to what we saw last year. So keep that in mind when you see the lower revenue numbers versus the numbers you have seen in the past. I would encourage you to focus on gross profit and net income as the key success metrics for our business. The last point I'll make before we jump into the numbers of Q1 has to do with really how we started the quarter and kind of where we are today and how we exited the quarter. We recognize that we certainly had challenges in Q4 and even at the start of Q1. But these challenges have forced us to refactor our cost structure and be lean as we navigated through the rough waters these last six months. The good news is, we're now leaving those so-called rough waters and moving forward with a very fiscally responsible cost structure, and that means not only reaching profitability, but being able to put money back in the bank as a cash flow positive company. Our strength is not just our payments business. We are a complete fintech software company that is making money from licensing our software, rapidly expanding our point-of-sale business, and setting ourselves up for long-term profitability and growth. All right, let's jump into the numbers for Q1. Our adjusted Q1 revenue was $4.5 million, and our adjusted gross margin was $2.3 million, or a 50% gross margin percentage. Again, the top-line revenue decline is based on what I just explained due to the pass-through via revenue sharing, which drove up our cost of goods sold in the past, but now has returned to what you would expect from a typical fintech company, around 50%. Our adjusted EBITDA loss decreased significantly quarter-over-quarter, from a loss in Q1 of 2024 of $800,000, compared with Q4 of 2023, which was a loss of nearly $2.5 million, or a 67% improvement in adjusted EBITDA quarter-over-quarter. As we exited March of this year, we had an annual run rate of over $21 million in adjusted revenue and over $10 million in adjusted gross profit. On a monthly go-forward basis, we are now cash flow positive. In fact, this March run rate is nearly in line with our 2023 gross profit guide that we gave prior to the payment outages we had at the end of last year. All of this obviously wouldn't have been possible had we not made the tough cuts and cost reductions in the second half of 2023. This has now paid off for all of us, and we are not only achieving essentially the same gross profit as a year ago, but now we have less than 30% of our overall costs, allowing us to hit our profitability and cash flow goals. I want to talk a bit about our other sources of revenues. Sometimes investors just think of us as a payments company, but we're much more than that. I want our investors to fully understand our business model. POSaBIT has three primary sources of revenue: obviously, our payments business, our point-of-sale software, and our software licensing contracts. Most of you are aware of the payments in the point-of-sale business, but not as familiar with our software licensing contracts, which represent a material portion of our new cash each month. POSaBIT has a recurring set of monthly payments made to us by several partners that have licensed our software. Today, we license our point-of-sale software and our compliance software. I bring this up because it's a strong testament to the quality of our software and the services we provide to this industry. The fact that one of the largest cannabis technology providers in the industry partners with POSaBIT for its point-of-sale system is huge from both a revenue and cash perspective, but a testament to the quality of our products. Our licensing contracts have been a great source of cash over the last year and a half and will continue to be so for the foreseeable future. This is cash that goes straight to the bottom line. In addition to our license contracts for our point-of-sale software, our compliance software is used by many banks that bank the cannabis industry to help them manage and operate their cannabis bank customers. This compliance software has been in operation for years, and again, is a strong statement to not only the quality of the software we write, essentially our software IP, but also gives us a nice, predictable source of recurring monthly revenue. All right. I'm going to touch very quickly and give an update on the application of our TSX Venture Exchange. As we've shared with you many times in past calls over the last several months, POSaBIT's been working to advance the proposed listing of our common shares on the TSX Venture Exchange or the TSXV. The company remains focused and committed to satisfying applicable regulatory and TSXV listing requirements as we continue this process moving forward. We've not really more I can say at this point, unfortunately, but we may address it in the Q&A as well. All right. With that said, I'm going to now turn the call over to Chelsea Bolander, our Corporate Controller, for a more detailed review of our Q1 financial results. Thank you, Ryan. As Ryan mentioned already on the call, revenue recognition for our current payment options has changed compared to prior years. Previously, we would recognize a non-cash adjustment fee in our revenue. This revenue was a pass-through item with no margin associated with it. As a result of no longer recording this non-cash adjustment fee, our reported revenues will be lower. Total revenue was $3.78 million in the first quarter of 2024, down 25% compared to $5 million in the prior quarter. Adjusted revenue was $4.5 million in the first quarter of 2024, compared to $4.6 million in the prior quarter. We define adjusted revenue as gross revenue as reported, minus license support revenue, plus actual cash received for the licensing contract with a large technology cannabis partner. Adjusted gross margin was $2.3 million for the first quarter of 2024, or 50% of adjusted revenue. This is compared to an adjusted gross margin of $600,000 in the prior quarter, or 13% of adjusted revenue, which represents a nearly 4x increase quarter-over-quarter in adjusted gross margin.... Adjusted EBITDA was a loss of $800,000 in the first quarter of 2024, compared to an adjusted EBITDA loss of $2.6 million in the prior quarter. Gross margin, as reported in the current quarter, was approximately $1.5 million, or 39% of revenue, compared with $3.2 million or 23% of revenue in the prior quarter. The increase in gross margin% compared to the prior quarter is primarily the result of the change in how we recognize revenue for our current services and product offerings. Operating expenses were $3.4 million in the first quarter of 2024, compared to $5.2 million in the same period of the prior year. The primary driver of the decrease in operating expenses was a reduction in salaries and benefits, coupled with a favorable foreign exchange rate. Administrative expenses were $2.3 million for the first quarter. The largest driver of administrative expenses are people costs. These were $1.9 million in the first quarter, compared to $2.6 million in the prior year period. The decrease year-over-year is primarily driven by a reduction in headcount. Net loss was $1.9 million for the first quarter of 2024. This compares with a net loss of $2.7 million in the first quarter of 2023. Cash on hand at March 31st was $900,000. This compares to $1.5 million as of December 31st, 2023. Our debt balance remains low at $4.5 million of debt, consisting of an SBA loan and a five-year term loan payable in 2028. With that, I'll turn the call back to you, Ryan, for closing remarks. Thanks, Chelsea. It's great to have you on the call today to review our financials with us. So thank you. All right, we're gonna jump into the Q&A portion of the call. We're going to take the call or the questions that were sent in. So in the press release, we announced to send questions ahead of time to investors at posabit.com. This is the same form that we used in the annual earnings call a few weeks ago, and it was received really well. It allowed people to submit questions ahead of time. After we go through the canned questions, we will open it up at the end for those that are online that have, for one reason or another, not had their question answered. So, with that, Oscar is gonna be playing the role of our question asker- Our moderator today. our moderator. And, and so why don't you start with, some of the investor questions that came up? All right. Well, first one, just going back on that, why are you not taking questions live versus submitting ahead of time? Yeah, we actually, we actually got that question a couple times. I think it's a couple of things. One, and for those of you on the webcast know this, on the webcast, you can't submit a question, so it's really the only people on the phone that are allowed to do that. So we had heard from a lot of people wanting to request questions but couldn't. So that's a big part of it. We also recognize that it's just more comfortable sometimes for people to submit questions. So we wanted to make sure that we focused on letting people submit questions ahead of time, but like we are today, we'll, we'll allow a little bit of time at the very end. But obviously, our goal is that we, we should be answering, hopefully, all your questions along the way. All right, next question that we got a couple times. Why are management and/or major insiders no longer buying? We know that insiders already own a lot of stock, but at the current levels, why are you not making at least small purchases anyway, given these absurd prices? Okay, that's, that's their word. I didn't say that. But, okay, as insiders, I mean, everyone knows this. We have blackout periods, the board does, and insiders. So one of the main reasons you haven't frankly seen a lot of buying is because we've been in a blackout period for quite some time. With our annual earnings pushing out a little bit, and then now our quarterly earnings pushing out a little bit, we really only have the opportunity to buy shares, 30 days after, an announced material event. And so material events can be earning calls, they can be things like the acquisition we made last year with Hypur. So certainly, our windows are pretty, pretty small, but, you know, now that we're coming out of that, I'm sure, and I'm not gonna speak for anybody else, but, you know, it's their personal decision. I'm sure, yes, at the current price, yeah, you might see some buying, but, again, that's a personal choice. All right. Next, there are a number of possible legislative bills, slash policies being considered that could dramatically change the cannabis landscape. What would be the best outcome for POSaBIT, and what would be the least favorable? We think that part of the reason the stock has seen such low interest is that investors are confused about how these outcomes would help or hurt the company. Yeah, we talked about this a little bit in the annual call when I answered, but I'll, I'll kind of reiterate some of the key points. I mean, it's, it, it's one of these things where it can go either way, and either way, I, I call it kind of it's a gray answer. Because if things don't move forward and rescheduling doesn't happen, and SAFE Banking doesn't happen, that certainly, you know, leaves a pretty small competitive pool who we're competing against, and we are winning today, and we are growing our revenue. So in that world, we're fine. In a world where rescheduling happens, and immediately, you know, more and more people can take and use credit cards, for example, we would see a drastic improvement in the number of cards processed through our system. So today, about 25% of the cards or customers use a card. That would jump to traditional retail, probably 80% or 90%. So our volumes would increase, which would be very good for POSaBIT. And then, obviously, I always say this to investors, I mean, with rescheduling, when it opens up for the larger competitors, the Square, the Toast of the world, I mean, I think POSaBIT right now is positioned very well as a potential acquisition target, you know, as they enter this market, because they're gonna look at who are the experts, who's been doing this in the past, and obviously, POSaBIT is gonna jump to the front of the line. ...Next, you've done a great job earning substantial market share in the state of Washington, specifically with the point of sale. Why have you not been able to do the same thing in a meaningful way in other states? Yeah, one of the things, and I'm not sure all investors know this, but each state has its own set of rules and regulations based on how much you can buy, the taxation. And so when we go into new states, it's not as simple as just selling the same product that we're selling in Washington. We have to make that product work in that particular state. So it's not, you know, really easy to just say, "Okay, we're gonna start to sell in every single state." We have to look at it strategically and focus our time with our limited resources on the markets that we think have the best opportunity for us to succeed. We're now starting to see, as one example, we're seeing that success in Oregon. So Oregon's our sister state, obviously, here in Washington, so it was a natural place for us to move next, and we're winning some big deals. We've been signing up several large multi-location Oregon retailers here in the last month or two, which is a great sign that as we expand beyond the Washington border, we plan on having that success. So, you know, I tell people it's we need to be smart with our resources. I mean, we have limited resources, and we want to go after the markets that are gonna be this bang for our buck, so to speak. All right, next one. Why has the investor communication been so limited over the past 24 months? Almost all updates and information are now confined to earnings calls. Why doesn't the company see the importance of providing more frequent individual updates to better market the company and its efforts? Yeah, I mean, that's a true statement. I would say now we're in our ninth year, and we certainly did a lot more marketing and PR early on, probably not nearly as much in the last 24 months, like this person is asking. I mean, I think it goes back to two things. We focus our comms around our earnings call and then, of course, our annual shareholder meeting, which, by the way, is coming up in August, and all of you, you know, are welcome to attend that as well. But we think that where we're at as a business, and again, watching our capital, that it's more important for us to focus on the execution of the business with the limited resources we do have. So we have, you know, cut back our marketing expense, which is related to PR. We have cut back some of the things we were doing at conferences. We now will start to be a little bit more vocal. We have some really exciting new products coming to market in the next literally weeks and months, so we will be putting out a little bit more press here, and so keep an eye out for that. But that's, that's the real driver behind kind of the less information, I guess, so to speak, in the last 24 months. Okay. Can you provide more details on the cost reduction measures mentioned and how they will impact the goal of achieving positive free cash flow by Q2 2024? Yeah. So, you know, I think I said it, and Chelsea kind of defined it as well, but, I mean, the biggest thing is we, we've focused on a reduction of headcount, and that saved us quite a bit. In fact, if you look at our financials from Q1 of last year versus this year, if you look all up, staffing's gone down by $1 million a month. So we are... Or sorry, $1 million a quarter. So we have really cut back on our OpEx expenses around staffing. And what that's done is it's lowered our overall cost by about 30%. So that certainly was a big driver, but like I just mentioned in the prior question, you know, we, we looked at everything. We looked at marketing, we looked at comps, we looked at travel and deals, and took a pretty hard look at the prior year's expenses and what we spent our money on and made some tough calls. Again, I think it's paying off now that, you know, we are cash flow positive. What specific regulatory and listing requirements are still pending for the TSXV, and what steps are the company taking to expedite this process? Realizing there are limitations on what the company can share, investors need to better understand why it's taking so long as confidence gets eroded with the consistent silence. Typical uplist is two months, and we are approaching six months. Great question. Good, candid, raw feedback to us. Let me be real clear on this one. It's not the TSXV that's slowing the process down, it's us, it's POSaBIT. Obviously, moving to a bigger exchange like the TSXV is going to put more constraints on our resources, I mean, from just a standpoint of financials and what we have to report and audit our auditing of our quarterly and annual financials as well. The other thing is we didn't want—we wanted the company to be very healthy when we announced and when we start trading. And so it was a conscious decision by the board and management to pump the brakes and slow that process down. So it's not a TSXV thing. I, I'm not worried about that piece of it. Obviously, we have to get through those final barriers that, you know, of the application, but it's really a positive thing and looking at our business and making sure we're healthy so that when we do come out, we come out, like I would hope all investors want us to, very strong, and the stock has great trading and high volumes, and those are all the things that we look at to make sure we're ready. So I would just encourage you just to hang on. Progress is being made. We'll get there. All right. Why the drop in revenue from Q1 2023 to Q1 2024? Yeah. Okay. So obviously, this is a great question. I spoke about it. I want people to really understand it because it is such a big drop. I mean, it's again, it's a couple of things. One is, we did have the outages in at the end of Q4 that carried into Q1. But we also are, the new processes we have allows us not to have to charge the merchant and the customer, but just the customer. And so before, where we had a lot of pass-through revenue, which drove up our COGS, we don't have that now. So you have a little bit lower top line, but like like we talked about, our adjusted gross margin is relatively the same. So while it's a shocker to see the top line, we're very close and in line with what it was before. And I think that's why gross adjusted gross margin gives a much better apples-to-apples comparison to quarters in the past. All right. Can you please talk a little more about what you announced at the annual earnings call and any progress regarding the new POSaBIT One product? Yep. So we talked about this in the annual earnings call. POSaBIT One, it's now in the market. It's great. It's the only device that allows you to have multiple payment options on one single terminal. So imagine a customer coming up and having the option to pay via a debit card or pay via an ACH transfer through their checking account. On that device, we have our new POSaBIT Pay product, and I would encourage those of you that haven't downloaded, go out to the Apple Store, the Android Store, and download POSaBIT Pay. That'll give you a good feel for how to make payments at stores that accept POSaBIT Pay via a Venmo-ish like experience, where it's connected up to your checking account. Can you talk more about profitability and reaching cash flow positive? Please provide some details about this. Yeah. I mean, it's really important that our investors recognize we're cash flow positive today. With that, in simple terms, that means we're bringing in more cash each month, and we're paying less out to support our monthly operations. Obviously, there's going to be months where we make investments. We may hire, you know, new people, or we may market a new product, so cash flow may fluctuate a little bit. But in general, we are profitable today. Again, meaning more cash is coming in than it's going out the door, which is great news for us. So that's kind of the main piece of reaching cash flow positive. And, you know, a lot of it is being ruthless with our costs, and it's historic. We, you know, we had a couple headcount reduction efforts in 2023, and basically, that all goes to helping the bottom line and getting us cash flow positive. Great. As an investor, I wanna make sure I understand your licensing deal with your Point of Sale. You said you get about $500,000 in cash royalty payments each month, and that will continue for a few more years. If I do the math on that, it looks like you have a guarantee of another $12 million+ in the next two years. I look at that, and then I look at your market cap, and it doesn't seem to add up. What am I missing? That's a hundred percent real question. Thank you, whoever sent that in. Amen. You know, investors, you know, I think, investors do need to realize, that there's real cash coming in. And, you know, this is, real cash, that comes in every single month that goes straight to the bottom line. And you're right, that is-- there is $12 million that's coming in in the next couple of years. You know, the -- asking why the market cap, I think investors are still a little hesitant about cannabis. I think if you look at our metrics today and how we position the company, particularly, around being lean, I'm very excited, of where we're going now moving forward. I think, you know, we had a long discussion as a board, and yeah, it was a bit of a difficult last couple of months where we had some of the outages, but we're clearly through that now, and we're on a very positive track and, you know, very excited to see where we go next. But, you know, hard to know why the stock is depressed. Would love somebody solves that for me, let me know. All right. That's the last question that came in prior to the call. I wanna thank the operator to see if we have any questions, before Ryan gives some closing remarks. Operator, it looks like we don't have anything in the queue right now, so I'll just send it to Ryan for closing remarks. Yeah. Well, hopefully, the sign of no questions is a good thing that we answered your questions, whether that's through the questions that were received or through the financial statements that we posted out on SEDAR. I do apologize that they came in late today. We typically release them before market close, and we didn't. We wanna make sure everything was buttoned up and correct, so yeah, that's why we released after market today. But, you know, my closing comment is just, the industry's in transition. I'm, as I shared, I'm very excited regarding the potential of rescheduling to a Schedule Two drug. I think new investors are starting to invest again, and then you just look at the larger MSOs, they're starting to get traction and more investor capital. Cannabis consumer sales have increased. You look at Q1 over Q2, as some of the initial kind of numbers are coming out, you're seeing an uptick there. And we're seeing it through the data that we have access to through our point of sale. So there's a lot of good things happening in this industry that, you know, is great for us as a company and frankly, great for the industry. You know, as I look back on the nine years of this company and what we've built, we've really been resilient through all the challenges. And, you know, this, what we experienced at the end of Q4 is no different than what we had experienced several other times throughout the years. And what we do is we learn from it, we adjust, and we keep executing. We find ourselves now in a much stronger position to succeed than we would have a year ago. I want people to also remember we have three strong sources of revenue, not just one. That's why I said we're not just a payments company. Our licensing software contracts are something that I think most companies would love to have, and we have that payment now for the foreseeable future. Our point of sale sales are growing, and we've built a really nice set of redundant payment solutions. I'm excited today about the future of POSaBIT, probably more so than ever before. And so as we, you know, leave the call, I wanna thank everybody for being an investor. Keep believing in us. We come every single day and execute like crazy to grow this company, so thanks for sticking with us through the thick and the thin of this, what I call cannabis craziness. But the light at the end of the tunnel is near, and, and I know POSaBIT is in the pole position. So thank you all for staying on the line with us this afternoon. Again, if I missed any questions or you didn't get a chance to ask them at the end, you can always send questions to investors@posabit.com, and myself or someone on our team will get back to you. Have a great rest of your day. Operator, you may now end the call. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.