POSaBIT Methods Company (OTCQX:POSAF) Q2 2024 Earnings Convention Name August 27, 2024 4:30 PM ET
Firm Contributors
Oscar Dahl – Chief of Workers
Ryan Hamlin – CEO & Co-Founder
Chelsea Bolander – Company Controller
Convention Name Contributors
James Baglanis – Rosenblatt Securities
Operator
Greetings welcome to POSaBIT Methods Company Second Quarter 2024 Earnings Convention Name. Presently all contributors are in a listen-only. An issue-and-answer session will observe the formal presentation. [Operator Instructions] Please observe, this convention is being recorded.
I’ll now flip the convention over to your host, Oscar Dahl, Chief of Workers at POSaBIT. Oscar, it’s possible you’ll start.
Oscar Dahl
Thanks, operator. With me on this name are Ryan Hamlin, Chief Govt Officer; and Chelsea Bolander, POSaBIT’s Company Controller. I wish to start the decision by studying the secure harbor assertion. This assertion is made pursuant to the Protected Harbor for forward-looking statements described within the Personal Securities Litigation Reform Act of 1995. All statements made on this name aside from historic details could also be thought-about forward-looking statements inside the that means of Part 27A of the Securities Act of 1933 and Part 21E of the Securities Alternate Act of 1934.
Though the corporate believes that expectations and assumptions mirrored in these forward-looking statements are affordable, it makes no assurances that such expectations will show to have been appropriate. Precise outcomes could differ materially from these expressed or implied within the forward-looking statements resulting from varied dangers and uncertainties. For a dialogue of such dangers and uncertainties, which may trigger precise outcomes to vary from these expressed or implied within the forward-looking statements, please see threat components detailed within the firm’s Annual Report and subsequent filed stories, in addition to in different stories that the corporate information once in a while with SEDAR.
Any forward-looking statements included on this name are made solely on the date of this name. We don’t undertake any obligation to replace or complement any forward-looking statements to mirror subsequent information, occasions or circumstances. The corporate can even be citing adjusted EBITDA, adjusted income and adjusted gross revenue into the dialogue. Adjusted income, adjusted gross revenue and adjusted EBITDA are non-IFRS measures utilized by administration that should not have any prescribed that means by IFRS and might not be akin to related measures offered by different firms.
The corporate defines adjusted income as gross income, minus license help income, plus precise licensing money acquired as a part of POSaBIT’s licensing offers. The Firm defines adjusted gross revenue as adjusted income much less firm value of products bought. The corporate defines adjusted EBITDA as internet earnings or loss generated for the interval as reported, earlier than curiosity, taxes, depreciation and amortization and additional adjusted to take away modifications in honest values and anticipated credit score losses, international alternate positive aspects and/or losses and impairments.
The corporate believes these non-IFRS measures are helpful metrics to judge its core working efficiency and makes use of these measures to offer shareholders and others with supplemental measures of its working efficiency. The corporate additionally believes that securities analysts, buyers and different events, regularly use these non-IFRS measures within the analysis of firms, a lot of which current related metrics when reporting their outcomes. We warning readers that adjusted income, adjusted gross revenue and adjusted EBITDA are usually not substitutes for gross income, gross revenue or revenue/loss respectively.
Now I wish to flip the decision over to Ryan Hamlin, Chief Govt Officer. Ryan, please proceed.
Ryan Hamlin
Thanks, Oscar, and welcome, everybody. As a reminder all numbers that we’ll be speaking about at present are going to be in US {dollars}. Our Q2 outcomes had a number of firsts for POSaBIT. It was the primary time that we have been each adjusted EBITDA constructive, ending the quarter with practically $100,000 in adjusted EBITDA revenue. We additionally completed the quarter with constructive free money circulate, including $200,000 extra to our money readily available. This can be a very important accomplishment for POSaBIT, we not solely have righted the ship from the challenges over the past 12 months, however we at the moment are rising and are money circulate constructive.
In Q2, we noticed strong quarter-over-quarter progress throughout the board. Income was up 13%, funds income was up 24%, gross margin {dollars} have been up 47%, and our total gross margin proportion grew to a historic document of 59% which is consultant of not solely the continued focus we’re placing on controlling our prices, but additionally a pleasant enhance in quarter-over-quarter income.
You will need to observe when our year-over-year comparisons, our gross income decreased, however our gross margin % elevated. I carry this up so that they perceive why gross income was increased in 2023 than it has been in 2024. Prior to now, in 2023 and earlier than, we acknowledge each service provider charges and client charges in our funds income. In 2024, we moved to a brand new methodology of processing, which resulted in no extra service provider charges simply client charges.
In prior years, we had a a lot bigger income share pass-through to the service provider to offset their charges. Thus, our comms have been a lot increased and our gross proportion margin was a lot smaller. As we go ahead, a significantly better metric to trace year-over-year enhancements is to have a look at our gross margin {dollars} and gross margin % versus simply gross income. As talked about above, we’re laser-focused on rising our gross margin {dollars} and adjusted EBITDA profitability. We added $200,000 to our money reserves, regardless of paying down a number of excellent aged accounts payable along with our regular Q2 payables. So whereas we’re glad we’re ready so as to add $200,000 to our reserves, we’re much more happy that we have now been capable of pay down our giant AP steadiness that has amassed over the past 12 months through the tougher instances.
Our inside purpose is to pay-off a considerable quantity of our excellent vendor debt by the top of 2023, whereas nonetheless sustaining free money circulate and rising money readily available. To reiterate, financially, as we have now exited this quarter, we’re in a a lot stronger place for the current and the long run. I’d prefer to now briefly focus on just a few materials product releases we had in Q2. We formally launched our POSaBIT Pay utility, our Venmo sort cost app for each in-store funds and on-line orders. We count on continued progress with POSaBIT Pay over the rest of ’24 and into ’25.
Along with the incremental income POSaBIT Pay we’ll herald, it is usually one other instance of how we’re including redundant cost options into our total providing for our retailers. We at the moment are seeing about 50% adoption charge of all new debit cost retailers additionally signing up for POSaBIT Pay. We’ll proceed to share extra about POSaBIT Pay, as we proceed its rollout. In Q2, we additionally efficiently launched the beta of our very owned e-commerce and menu platform at a few dozen of our present point-of-sale shops. Whereas it’s nonetheless early, the suggestions thus far has been very constructive, and we’re listening to from a lot of our retailers that they plan to maneuver away from their present e-com supplier to the brand new POSaBIT menus.
We anticipate many extra retailers will undertake our menus in Q3 and This autumn and count on about 50% of our POS base to ultimately undertake our platform and transfer away from conventional menu suppliers. Our point-of-sale progress stays sturdy. We’re gaining traction exterior of our house state of Washington, particularly in Oregon, New Mexico and Colorado. Our important progress within the POS area over the past 12 months has had a cloth impact on the general proportion of POS income versus funds income. It at the moment represents roughly 23% of POSaBIT’s complete income.
The POS month-to-month reoccurring money circulate is regular, predictable and forecastable income supply. Lastly, our point-of-sale licensing deal continues to be an important supply of money that goes straight to the bottom-line. There’s nonetheless an anticipated $12 million in money that shall be paid to POSaBIT over the following 24 months.
With that, I am going to now flip the decision over to Chelsea Bolander, our company Controller for a extra detailed evaluate of our monetary outcomes.
Chelsea Bolander
Thanks, Ryan. Whole income was $4.3 million within the second quarter of 2024 up 13% in comparison with $3.8 million within the prior quarter. Adjusted income was $5 million within the first quarter of 2024 in comparison with $4.6 million within the prior quarter. We outline adjusted income as gross income as reported minus license help income plus precise money acquired within the present interval asset receivable for the licensing contract.
Adjusted gross margin was $3 million for the second quarter of 2024 or 59% of adjusted income. This compares to an adjusted gross margin of $2.3 million within the prior quarter or 50% of adjusted income. Adjusted EBITDA was a revenue of roughly $97,000 within the second quarter of 2024. The in comparison with an adjusted EBITDA lack of $684,000 within the prior quarter. Gross margin as reported within the present quarter was roughly $2.2 million or 51% of income in contrast with $1.5 million or 39% of income within the prior quarter.
The rise in gross margin % in comparison with the prior quarter is primarily the results of a [shipment] (ph) companions used for processing at a diminished charge, coupled with elevated income. Working bills have been $2.8 million within the second quarter of 2024 in comparison with $6 million in the identical interval of the prior yr. The first drivers of the lower in working bills for reductions in salaries and advantages, share compensation expense {and professional} charges, coupled with a good international alternate charge.
Administrative bills have been $2 million for the second quarter of 2024. The most important driver of administrative bills are individuals prices. These have been $1.7 million within the second quarter in comparison with $3 million within the prior yr interval. The lower year-over-year is primarily pushed by a discount in headcount.
Internet loss was $454,000 for the second quarter of 2024. This compares with a internet lack of $1.5 million within the second quarter of 2023 and a internet loss final quarter in Q1 2024 of $1.9 million. Money readily available at June 30 was roughly $1.1 million. This compares to $900,000 as of March 30, 2024. Our debt steadiness stays low at $4.5 million of debt, consisting of an SBA mortgage and a five-year time period mortgage payable in 2028.
With that, I am going to flip the decision again to you, Ryan for closing remarks.
Ryan Hamlin
Thanks, Chelsea. Our focus for the following six months is straightforward. We need to develop our money within the financial institution and enhance our gross margin {dollars}. The purpose is for POSaBIT to realize long-term sustainable profitability, whereas executing a average and constant charge of progress. As I discussed final quarter, we’re prepared for rescheduling if and when it occurs, however we aren’t holding our breath. Simply yesterday, the DEA introduced it has now delayed the ultimate public listening to to be after the election, now scheduled for December 2 of this yr. Given this delay, it’s now actually anybody’s guess on what is going to occur to rescheduling till we all know the outcomes of the November presidential election.
Nonetheless we have now had some nice state wins of late. Ohio launched its leisure marijuana gross sales on August 6, just some weeks in the past. POSaBIT already has three shops dwell and processing in Ohio. Florida can also be on the poll in November for legalization of leisure gross sales. They’re already authorized for medical gross sales. This shall be an enormous enhance for the trade and for POSaBIT. We at the moment function in Florida and are dwell in over 40 dispensaries. So if rec passes, it is going to be a pleasant raise for POSaBIT in gross sales in that state.
All proper. Now we’re going to leap to the Q&A portion of the decision. Within the press launch, we requested for inquiries to be submitted forward of time, which I will be answering first. That is the identical format we utilized in prior calls. We like to try this as a result of for these that may’t make the decision, they get us ship in questions, we be sure they get an opportunity to have their questions answered, however we additionally shall be opening up the decision on the finish for any questions that callers could have. Operator, let’s go forward and begin the Q&A.
Query-and-Reply Session
Operator
Actually at the moment we shall be conducting question-and-answer session. [Operator Instructions] And whereas we ballot for questions, I’ll hand the decision again to Ryan Hamlin for some pre-submitted questions.
Ryan Hamlin
Thanks, operator, and Oscar, I believe you are going to ask the pre-canned questions go forth.
Oscar Dahl
In order that would be the buyers. Are you able to converse slightly bit concerning the outcomes of the share consolidation that was described as a part of the Annual Shareholder Assembly and within the data round?
Ryan Hamlin
Sure. I had this query. Most of you and hopefully, all of you voted in your proxy however we had one thing on the poll, which might enable us to do mainly a reverse inventory cut up. And the reason is is that numerous buyers take a look at shares like ours proper now that is fairly low, sadly as a sort of a penny inventory. And so to create extra visibility and extra investor eyeballs on our inventory, we could select to do a reverse cut up and enhance the worth.
Another excuse that we would do that is if we need to uplist to a much bigger alternate, just like the TSX and even as perhaps a possible merger that it makes enterprise sense to do a reverse cut up. So I’ll say nothing is deliberate to do any of that at present. However we needed to vote on it, in order that it’s an accessible software for us within the subsequent 12 months if we have to do this. And since it does requires shareholder approval, we needed to have as a part of the annual lien.
Oscar Dahl
All proper. Subsequent query. What does the corporate really feel it is to not be updating the market and buyers exterior of earnings calls?
Ryan Hamlin
What we undoubtedly suppose it is vital. It is not being deliberately quiet. We now have been fairly hesitant although. And I believe if in case you have been watching our funds and our inventory over the past 12 months, you perceive that, that was in all probability one of the best use of time for us is to focus in on our enterprise, execute and get our place again to the place, frankly it’s at present, the place we had the flexibility at present to announce constructive money circulate and adjusted EBITDA profitability.
So sure, you’ll hear slightly bit extra from us as we have now extra product releases. However to be trustworthy, our final 12 months has simply been numerous concentrate on simply getting again on observe to the place we all know the corporate wanted to be.
Oscar Dahl
Has the Board thought-about a inventory buyback? And why have insiders not purchased extra inventory when the costs so low?
Ryan Hamlin
Sure. We’re undoubtedly not contemplating a inventory buyback. I believe that’s performed sometimes by firms which have honest quantity of reserves of money. And proper now, as we simply talked by means of, we have now $1.1 million, sure, we’re placing money within the financial institution, which is incredible, however to make use of these very precious assets to do a buyback, simply would not make monetary and enterprise sense proper now. Nonetheless, the opposite query, I believe was about insiders and finish — one of many issues I need to be sure I educate buyers about is that blackout intervals for insiders, it’s not simply round earnings. It is also round any form of large materials occasions that we could pay attention to as an insider. So it’s not so simple as although we are able to purchase inventory proper after earnings.
If we’re engaged on large offers, which we have now previously, we have made acquisitions and mergers then that is one other signal the place we simply frankly cannot be buying as a result of we have now that insider data. I’d additionally remind our buyers that insiders personal about 40% of the corporate already. So consider me, we’re very invested in the way forward for the corporate. And not at all is it any form of an indication of something by possession if we’re not selecting up further shares? It is – we’re absolutely in with our 40% for certain.
Oscar Dahl
All proper. Your investor presentation on the web site is sort of previous. When can we count on an up to date model?
Ryan Hamlin
Sure. Fairly easy reply, sort of embarrassed that’s so previous and we do apologize. It may be up to date. There’s, in reality a few us already engaged on the draft, reviewing it, and you must see a brand new model of our investor deck up on the web site within the subsequent seven days.
Oscar Dahl
Proper. The hashish market and constructive inventory have been hit exhausting over the past 12 months. What are you able to say to buyers to instill confidence within the firm for the following yr? And why is the inventory value so low?
Ryan Hamlin
Sure. We talked about this final name, inventory value has been low. Nobody is aware of that. I want I knew the reply. The trade has been hit exhausting I’d say, your entire market has, however hashish, particularly given sort of the forwards and backwards rescheduling and secure banking. I believe that hasn’t helped investor confidence. I’ll say, we’re seeing more cash coming into this sector now lastly, I believe states like Ohio that legalized and are taking off and having nice success. And all indications appear like Florida goes to move the Rec. These are all good indicators — more cash pouring into this area and thus hopefully creating extra investor pleasure for what the long run holds for this trade.
So far as POSaBIT, it’s fairly easy. It is what I stated earlier. We’re actually focusing in on execution on rising our gross margin {dollars} and staying worthwhile and placing additional cash within the financial institution. I imply, it is we consider, and we have all the time stated this, if we execute and we do these issues, then naturally the great issues ought to occur to the corporate and to the inventory and — that is simply the place we’re at at present, and we’re excited for the following 12 months.
We’re in a a lot more healthy place, and we have now nice merchandise that we simply put into the market with our menus and POSaBIT Pay. So excited for what the following 12 months appears like for us.
Oscar Dahl
All proper. Operator, we’ll ship it again to you for any a type of questions on the road.
Operator
[Operator Instructions] We did have a query come from the cellphone strains coming from James Baglanis. James is a personal investor. James, your line is dwell.
James Baglanis
All proper. Thanks for taking my query. So I simply needed to begin by saying — and that is the primary time let’s imagine this shortly, only a actually spectacular nice quarter total. Sure. And I believe simply the execution because the October setbacks is simply actually, actually impressed me. I imply, your gross revenue has gone up from $1 million 1 / 4 to sort of the $3 million you reported. And — so I suppose simply as I take into consideration sort of popping out of the restoration, getting again to sort of enterprise as traditional, how will we take into consideration the trajectory of sort of the expansion of the enterprise going ahead? As a result of I suppose, run charge final quarter was $9 million of adjusted gross revenue. Now it is $12 million. And I do know you may present that disclosure going ahead. However simply how do I take into consideration that going ahead?
Ryan Hamlin
Sure. Nicely, thanks James. I recognize you all the time as an investor and in addition thanks for recognizing that. Sure, we actually have hunkered down and centered in on the enterprise and our prices and rising. Sure. I imply as I look out over the following 12 months, I believe we noticed very nice progress between Q1 and Q2, and numerous that was getting our funds enterprise again so as. I believe I will not say, it is a shock as a result of I believe our POS is a incredible product, and we have now had nice success with it.
But when there’s sort of a shock popping out of it, is simply the quantity of recent point-of-sale subscribers which are approaching board. And the rationale that — that is tremendous vital is that not solely is {that a} buyer that may be a set of reoccurring income as a result of these sometimes are yr to multiyear offers. However it additionally offers us a relationship that we are able to then promote our funds to — and in order that shift has occurred, and it’s fairly drastic within the final 12 months of simply the sheer variety of those that we’re signing up.
I used to be simply our stats only for the State of Washington. And I believe we are going to course of nicely over $1 billion in gross sales by means of POS. And I believe we now have one thing like 28 or 29 of the highest 30 shops in Washington alone. So I believe as you look out, you’re going to see sure cost progress, however I’d — let our buyers know that the POS progress is the factor that actually has been wonderful and can proceed to go. And as that goes, and grows — then I’d count on our funds to observe alongside as a result of we’ll be pushing our funds with that enterprise.
So sure, it’s a little little bit of enterprise as traditional, execute like we have now, but it surely’s additionally pleasure concerning the POS progress and now with our menus popping out as a result of our menus, that creates a complete new income as a result of now we’re within the area the place such as you consider Jane and Betsy and others which have menus we now bought to be in that very same area and get a pull from that income too. So I do know we did not speak a complete lot about menus, however subsequent quarter, you may in all probability hear much more about it, as a result of that really is a complete new income for us. Thanks, James.
James Baglanis
Sure. And I’ve a few different follow-ups too. As you talked about, the 23% of income that that is recurring income, I believe, from the purpose of sale, which I believe is admittedly fascinating and doubtless underappreciated level. However how do I take into consideration sort of the penetration inside the base of the 500-plus shops you may have, I suppose first of something that you simply monetize by means of recurring income? After which second of funds penetration into that base too, as a result of simply occupied with the completely different progress levers even earlier than you add within the further clients.
Ryan Hamlin
Sure. So if you happen to take a look at — and also you stated it proper, 23% of our income is from the POS. Once we take a look at that POS base, sadly, I might like to say 95% of these clients use our funds. It is about 50%. And in reality, it is only a shade under 50%, use our funds in POS. There’s two essential causes for that. One is within the state of Washington for some purpose, the ATMs are simply one thing that house owners love. It is — Washington being the second state that legalized ATMs have been the primary actual supply of creating certain that individuals like money to pay. And so we have had a tougher time promoting funds in Washington.
So it is unlucky as a result of Washington is our strongest POS market. What we’re seeing is as we enterprise exterior of Washington and into new markets, for instance like New Mexico, our hit charge is significantly better. So that you getting a significantly better funds to POS sort of %. So sort of the lengthy reply to your query is, we need to watch each that % of recurring income, that 23% progress. However we additionally need to see the % of POS retailers utilizing our funds develop to as a result of that, clearly in the long term, goes to have an enormous impact on income, but it surely’s additionally going to have an enormous impact when legalization ultimately occurs as a result of now you may have a way more safe buyer relationship with the point-of-sale buyer versus with simply the funds buyer.
James Baglanis
Sure. That is smart. And I suppose it’s fascinating, final yr 2023, your steerage was for [$12 million to $14 million] (ph) gross revenue, you have now returned to this type of run charge degree, and I count on fairly appreciable progress from right here, however the inventory is at $0.09 versus $0.60 to $0.70 final yr. And it is simply — I do not know methods to make it make sense.
Ryan Hamlin
Sure. I do not both, James. I do suppose — I imply my hope is, I imply, I believe we signaled that issues have been enhancing in Q1, and now we’re popping out and we’re displaying these outcomes. So the hope is that by means of these outcomes, persons are paying consideration and they’re seeing that, sure, we’re turning this factor round and the inventory is definitely depressed in my thoughts.
James Baglanis
Yeah, nicely that is definitely clear to me, however thanks a lot for taking my questions. Admire it.
Ryan Hamlin
Thanks James. Admire it buddy.
Operator
Thanks. There have been no different questions in queue at the moment. And that does conclude our convention at present. You could disconnect your strains at the moment. Thanks in your participation.
