Good day, ladies and gentlemen, and welcome to the POSaBIT Systems Corporation Q1 2022 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. I would now like to hand the call over to James Carbonara, Investor Relations at POSaBIT. James, please go ahead.
Thank you. Once again, welcome. 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 a 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 subsequently 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 earnings call are made only as of 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 in today's discussion. Adjusted EBITDA is a non-IFRS measure used by management that does not have any prescribed meaning by IFRS and 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, depreciation, and amortization. It's further adjusted to remove changes in fair values 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, James, and thanks everyone for joining the call today. We have a few prepared remarks, and then we'll open up at the end for some questions. Before I jump into our Q1 results, I wanna reiterate a few key points we shared just a few weeks ago in our special Q&A session we held on May third, which I'm hoping many of you attended online. As you remember, during the Q&A call, we discussed that we had more than 100 contracted retail locations queued up to go live over the next 60 days. Since that time, we have already onboarded nearly half of those contracted locations. They are now fully operational and represent an estimated $50 million in annual transactional sales volume. By the end of Q2, we expect to stand up the remainder of those 100-plus retail locations.
We are well on our way to achieving our commitment of 100 locations live in 60 days. Just as important, since early May, we have increased our funnel of new contracted stores by approximately 20%, adding nearly 30 additional store locations that we expect to go live over the next 75 days, further increasing our visibility on revenue and reinforcing our confidence in our 2022 guidance. Now turning our attention to an overview of our Q1 financial results. As a reminder, all numbers that we're reporting today are in US dollars. During the Q1 , we continued to onboard new merchants, focusing on high-volume stores and MSO locations. Q1 revenue was $6.4 million, up 79% year-over-year, and essentially flat on a sequential basis.
Our transactional sales volume increased 61% to $103 million year-over-year and decreased 3% sequentially compared to the fourth quarter of 2021. Sequential trends over the last two quarters have been the primary drivers, and there are two key factors. First, industry-wide headwinds impacted transactional sales volumes beginning in the Q3 of last year and continued through most of the Q1 of this year. Lower demand and lower average order sizes led to an overall decline across the industry. We speculate that this was due to both the loss of government-subsidized checks as well as a significant reduction in cannabis consumption industry-wide. The market dynamics are clearly one factor in the current slowdown. However, beginning with the month of March, pricing began to stabilize, and many MSOs reported that demand is coming back.
In fact, we saw evidence of this in our own transactional sales volume. We began accelerating again toward the end of Q1 . Our March volume increased more than 20% compared to February, representing the largest volume month in our corporate history. As we headed into Q2 , April outperformed March in terms of transactional volume and revenue. The second key variable for us in Q1, and not surprising, is that our revenue growth has become more of a stairstep function, and some would say even lumpy. Given our focus on high-volume MSOs, where we tend to onboard in clusters, which generally takes longer to onboard than single store operators. We are encouraged by the improving market conditions and the speed at which our teams are standing up new retail locations.
We are on pace to install more than 50 new payments in POS stores in May and even more in June. As of today, we have grown our store count to more than 450 stores that use our payments and our POS, and our sales pipeline is as healthy as it's ever been. The cadence of our installations, coupled with anticipated growth at existing stores and our pipeline of new business opportunities, reinforces our optimism for another year of exponential growth in 2022. Before I turn it over to Matt to give a detailed report of our Q1 financials, I want to share some exciting news that we reported on this morning. We have expanded our leadership team with appointment of Julie Solomon to the role of Chief Revenue Officer. Julie has more than 25 years of experience in the fintech space.
She comes to us from Synctera, a leading fintech banking provider. Julie has worked in a number of sales and executive leadership roles during her accomplished career, and has had great success leading teams to high growth. With Julie coming on board, we are now consolidating our sales, marketing, and customer support teams all into one organization under her leadership. This move strategically unifies our customer-facing resources and supports a single go-to-market strategy with one voice messaging to help fuel the next phase of our growth. I know Julie is listening in on the call today, so I just want to say hello to her and let her know how excited we are for her to start in June. With that, I'll now turn the call over to Matt Fowler, our CFO, for a more detailed review of our financial results for the quarter ending March 31, 2022.
Thank you, Ryan. Our financial results for the quarter again include year-over-year top line growth along with reinvestment back into our business to the long-term benefit of our shareholders. Transactional sales for payment services totaled $103 million, up 61% compared with $64 million in the Q1 of 2021. Transactional sales, which is a non-IFRS measure, is a primary underlying driver of our payments business and more specifically, our revenue. Total revenue was $6.4 million, up 79% compared to $3.5 million in the Q1 of 2021. As Ryan mentioned and discussed during the May 3, 2022 investor conference call, industry-wide headwinds impacted consumer demand, average order values, and overall transactional sales volumes in Q1, 2022.
We saw this begin in late Q3 2021 and continue through the first two months of Q1 2022, with volumes rebounding to expected levels in March 2022. Revenue was also impacted by extended underwriting times associated with new clients adopting the company's PIN debit payment solution. The underwriting time for PIN debit merchants takes longer than the company's other payment services due to its more rigorous underwriting standards. Additionally, large enterprise-sized merchants can take even longer because they often have complex corporate structures. As a result, despite signing up many new merchants, our Q1 2022 revenue was impacted, coming in generally flat relative to Q4 2021. Gross profit was $1.5 million or 24% of revenue, up 69% on a dollar basis compared with $900,000 or 25.4% of revenue in the Q1 of 2021.
Sequentially, gross profit on a dollar basis was up 3% or $44,000 compared to Q4 2021. Operating expenses were $3.69 million compared to $1.1 million in the prior year quarter. The primary driver of the increase in operating expense was employee costs. This was made up of cash expense tied to wages and benefits and stock comp expense, which is a non-cash expense. To a lesser extent, the increase was a result of increased professional fees tied to legal and our year-end audit. Net loss was $470,000, inclusive of a $1.6 million non-cash change in fair value of derivative liabilities. This compared to the net loss of $514,000 inclusive of a $322,000 non-cash change in fair value of derivative liabilities in the Q1 of 2021.
The mark to market of embedded derivative liabilities related to our convertible debt is a non-cash accounting entry required by IFRS. It can cause significant differences in net income or loss quarter to quarter. Fluctuations in this line item of our income statement may be more extreme during periods of increased volatility in the price of our company stock. Adjusted EBITDA loss was $1 million or -16% of revenue, compared with positive adjusted EBITDA of $101,000 or 3% of revenue in the Q1 of 2021. Cash on hand at the end of the Q1 was $3.2 million, compared to $4.3 million at the end of 2021. Cash was used during the quarter primarily for working capital needs and to purchase equipment which is either sold or rented to our merchants.
Our debt balance remains low with just over $162,000 in long-term debt comprised of an SBA loan and convertible notes. Let me just add one final thought. We do not have anything new to report about an uplisting of the company's stock to Nasdaq or another market for trading securities. Other than to reiterate that positioning the company so that investors are easily able to invest remains important to management and the board. That's it for me, Ryan. I'll hand it back to you for closing remarks.
Thanks, Matt. I want to end today's call by reiterating our 2022 guidance and express our confidence in hitting these numbers. Revenue of $37 million-$40 million, which reflects year-over-year growth of 81% at the midpoint and continues our trend of doubling or nearly doubling our revenue for five consecutive years. Transactional sales volume of $675 million-$730 million, and gross profit of $9 million-$10 million, reflecting year-over-year growth of 64% at the midpoint. In closing, we continue to make tremendous progress operationally to add new merchants every week. We are seeing the cannabis market start to show signs of a full rebound as we exited Q1, which is great for both same-store growth and new store volume.
We have the largest backlog of contracted locations in the history of the company and a very robust pipeline of new business opportunities in the mix. We are very encouraged by what we are already seeing in Q2 for our business and confident that we will deliver another year of exponential growth. Operator, you can now open up the call for questions.
Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, please press star one if you have questions at this time, and please hold while we poll for questions. We did have a few questions come in. First question is coming from Thomas Carroll. Thom is calling from Stansberry Research. Tom, please go ahead.
Hey, guys. Good evening. Not many questions for me. Wanna ask about transactional sales. You said March was great month, up 20% over February. I wonder if you could quantify what April was up over March. Similar?
Yeah. Looking at Matt right now and just to get an exact number. I don't think we'd share an exact number right now, Thom, other than just say that April was definitely a stronger month than March, and you know, we're seeing the same exact thing now in May again.
Oh, great. That was my follow-up. How's May looking? But that's good, you answered it for me.
Yeah.
Thank you for that. I did wanna ask about the Nasdaq uplisting. I know you mentioned it, but maybe remind us about kinda what you're doing here. What are the next steps? You know, could you put some timing around it at all? I know it's hard to do that, but maybe give us a sense of what you guys are doing internally and what your timing expectations are.
No, it's a good question, Thom. You know, part of it is we're a different kind of a company because we're in the cannabis space, and we also do payments. It's a very unique situation when you take a company like ours and you go to Nasdaq to get uplisted. There's a whole different set of requirements. Frankly, you know, while it's still federally illegal here in the United States, and there's a lot of unknowns around, you know, whether state banking will include this language or not, they've been a bit hesitant to really kind of, you know, move confidently toward allowing us to do it. We've engaged, we've had, you know, multiple conversations. We continue to do so, but in the meantime, you know, we have to kind of wait to see how it plays out.
We think, you know, the combination of both state banking and, of course, legalization changes it and, you know, makes it almost immediate for us to be able to do so. We are looking at other exchanges as well, right? You know, today we're traded on the CSE and on the OTC market. Our goal, and believe me, I hear it from our investors a lot, is, you know, we wanna make it really easy to buy and sell our shares. You know, you just look at the trading volumes, and I would love to open it up to create a lot more volumes on a daily basis. It's a high priority for us.
It's in our board discussions every time the board gets together, and we'll continue to push it as hard as we possibly can.
Who, who's got the next step, though? Are you in a kind of back and forth discussion with the exchange right now, or are we just kind of in a holding pattern, not knowing what's gonna happen next?
Yeah. It was in a back and forth for quite a bit. You know, some of the earlier conversations we had, you know, we shared publicly is that, you know, we're actively engaged. I would say right now we're at a bit of a standstill because we're waiting basically on Nasdaq to come back. We're looking for some other companies that are similar to us that are also looking at the same path. We're trying to get some synergies of a couple of the companies kind of working this at once. I would say it's a bit of a stalemate at this point, and if anything, the ball's in Nasdaq's court.
All right. Great. That's it for me.
Thanks, Tom.
Thank you. The next question is coming from Gary Ripe. Gary is a private investor. Gary, your line is live.
Hi, Ryan. How are you?
Good.
Good. Good. Just a couple questions. In terms of just the guidance that you provided, it seems pretty significantly back-end loaded. You probably have to onboard quite a few more units. Is that a fair assessment, or is it you got a pretty good line of sight to it with what you've already got, sort of under agreement?
Yeah. We have a pretty good line of sight, and I would, you know, I guess I'd reiterate the point I said around kind of stairstep growth. I mean, you're gonna see that, and it's why on that May third call, we expressed that we had 100 locations that we were gonna onboard over 60 days. You know, we've already done half of those. We expect the rest of them to be done by the end of this month. You know, we are very close to be able to kind of confirm that, yep, those are now in, and we have another, you know, 100 plus in the pipeline. I think between getting those on board, what we already see in our pipeline that have, you know, in essence, they're contracted merchants.
We're waiting for them to get through underwriting. It's not that the merchant is waiting to make a decision. They've made the decision. It's just a matter of us getting them through the underwriting process. I think the third, you know, thing that we feel confident about is we're engaged with several large MSOs that, and those are more difficult and lengthy conversations, and we're very optimistic that those will come to fruition here shortly. Not only will we be able to announce those, but we'll be able to onboard them as well. Yeah, we would have adjusted the guidance if we felt like we weren't gonna be able to accomplish that, and we feel still, you know, we still feel very confident in that $37 million-$40 million guidance we gave.
Got it. The long story short is, the pipeline looks pretty good and full.
Yep, pipeline looks good.
Got it. You know, there's been a lot of, I'm gonna say carnage in the sort of the early stage, VC type companies in VC land. I know that you guys were or maybe still are, I'm not sure, in a hot space for some of the VC money. Are you seeing and are you aware of, I assume that you've attracted a lot of. This space has attracted a lot of people with, I'm gonna call them sort of stepbrothers business plans. Is there opportunity for you guys as some of the VC money backs out to either get some clients on the cheap or, you know, or anything like that? Is that going on, not going on?
I don't know if there's any color there.
Yeah. I mean, obviously we all know what the market has been up to the last couple of months and so when, you know, market conditions go south, you know, you always see companies that aren't, you know, properly funded and or have the right operational structure and strategy in place start to struggle. You know, one of the benefits of our business is, you know, we've in essence self-funded from day one. I mean, we've only raised $8 million of capital and have been able to to run the company for seven years. You know, you see our valuation of whatever it is these days, $150 million. You know, we have been wise with our capital and have executed on our strategy.
Long story short, I guess your question is, yes, we are seeing others in the industry that, you know, when capital was a little bit more free flowing, maybe didn't weren't as wise stewards of the money. Yeah, there I think there will be some definite opportunities for us, as this industry continues to consolidate, and there will be a handful of leaders, you know, three to four emerge and, you know, we feel strongly that we'll be in that list.
Got it. With respect to your new hire, what are some of the things she's gonna be charged with doing? Is it building out a robust sales force and pipeline? I mean, like, the pipeline sounds like it's pretty good.
Yeah.
How
Yeah, no, I'll give some more color. Yeah. You know, biggest thing is, and we've you know, Jon Baugher, who's been running our sales team, has done a fantastic job and has built up our funnel. Obviously, you know, a lot of credit is due to Jon and his ability to kind of get us to where we are today. I think the biggest thing with Julie coming on, and I reference, is that we're bringing organizations together. Currently, our sales, marketing, customer support organizations are not under one leader, and we felt it was prudent to bring them under one and so we could have one consistent voice, customer facing, and drive one strategy across sales, support and marketing. A big part of Julie's role is going to be establishing that kind of unified organization, unified voice.
Yes, the pipeline is strong, and we expect that, you know, she'll continue to do that. The other great thing is we're growing, and Julie brings in a great network of people and, you know, we're gonna continue to staff up our teams. Looking at her background and her experience in the Fintech space is very helpful for us, as being the leading, frankly, payments provider in this, in the cannabis space. Excited to bring her aboard, and she's, you know, been a CRO in other companies and brings that wealth of knowledge over.
Cool. Well, I'll let somebody else ask questions. Thanks a lot. I hear you'll be in New York next week, so maybe.
Yep
Our paths will cross.
I will be. Yeah, come find me, Gary. I'd love to talk.
All right. Thanks, guys. Take care.
Thank you.
Thank you. Once again, ladies and gentlemen, if you wish to enter the Q&A queue, please press star one on your phone at this time. The next question is coming from James Baglanis, who is a private investor. James, your line is live.
Hey, Ryan. How you doing?
Hey. Good, James. How are you?
Doing very well, thanks. Appreciate the incremental metrics you guys are disclosing and the emphasis on prepared remarks. I think that's a really good improvement. I just wanted to clarify one thing. Did I hear that correctly that April was a larger month than March, and then May was even larger than April? Was that correct?
That is correct, James.
Cool. Okay. Thanks. The other question is, if you can just, I guess what else needs to go right for you guys to achieve your guidance for this year? 'Cause as you know, a prior investor noted, there is a large step up and I understand again, the step function as you onboard merchants, but just if you can talk more about the things that need to happen, you know, what needs to go right to get to that number, $670-$730.
Yeah. No, I think it's a couple of things. One is, you know, the speed at which we can get our contracted merchants through underwriting is always, you know. I won't say it's an unknown, but, you know, each of these different companies in the cannabis industry, some of them have multiple ownership groups, so it tends to take a little bit longer getting those live. So of course, just time through underwriting and getting them live is gonna be something we're gonna watch very careful. The good news is, you know, we had the 100 that we said were queued up, and we were able to get, you know, basically half of those live in the last 3.5 weeks. So I think it's a good proof point of, you know, once they're in the pipeline and they're contracted, we can get them live.
I think the other kind of unknown is just making sure that with the pipeline, you know, we keep it strong. It looks great today, but like anything, I mean, these are sales cycles, and given everything that's going on in the market and inflation and everything else, I mean, there's always gonna be some external pressures. You know, at this point, I would say the two things we're gonna watch carefully is ensure that the pipeline that's there stays strong and it really focuses on MSOs, and that's a huge part. You and I have talked about this a lot, James. That's a really big part of our strategy. The other part is just streamlining the underwriting process and getting it and speeding it up.
In fact, we just hired two more people to our underwriting department in the last couple of weeks. You know, the whole goal is just get them live and processing because then that gives us that confidence that we can see as we look forward to making sure we hit that guidance of the $37 million-$40 million.
Yeah. No, that makes sense, and appreciate that. Certainly, adding to the underwriting team too can help. Sounds like that would help accelerate that. In addition to then the onboarding, obviously I would imagine versus the same-store sales growth that you disclosed, you need to see that recover to a number that looked closer to fiscal 2021. I guess how much of a recovery is contemplated in your guidance as you look for that?
Yeah. No, it's good. In fact, we looked at it pretty closely and studied what was going on in Q3, Q4, and Q1. Just to give you some numbers, because I have them in front of me, I wanna share them with you. You know, we looked at our POS sales, and we saw a 6% decrease from Q3 to Q4 as an industry, and then we saw a 9.3% decrease in Q4 over Q1. That's an industry wide we saw a decrease. Now that's the downside. The flip side is, as we exited Q1, we saw that those same stores that had decreased over those two periods have now gone back up as they exited March, up 11%. In essence, a full recovery and in some cases even have grown a little bit.
We knew that this was part of the industry effect. It's unfortunate, you know, that the revenue was basically flat. You know, I guess the positive is that even though the overall sales declined by, call it, 10%, we were able to keep up by adding more stores and so that we didn't have a down quarter, but we had at least a flat quarter to kind of recover that industry dip. Then as we've now exited into Q2, those same set of stores are already up 11%.
That is really, really helpful, Ryan Hamlin. Thank you for that. I guess the good news is you have easy comps next year for Q1 and Q4.
Yeah. Exactly.
Exactly. Okay. Last thing as I just dig in again on guidance here is, okay, so we got the recovery in same-store sales. We got the onboarding and conversion of the current contracted pipeline as well as the, you know, likely to be moving from kind of contemplated into ultimate contributing. I guess, do you need to add more merchants into that pipeline to hit that guidance range now? Like, is there some amount of merchants that you need to be adding to get the number now? Or is it just purely it's execution and then stabilized recovery to get that number to be where you guys need it to be?
The pipeline as it is, you know, and there's multiple stages in the pipeline, as you know. When they get obviously the most confirmed is the contracted, and then you kind of move back in stages. If we were to look at our entire pipeline today and say, "Okay, that pipeline converts," then yes, we feel extremely confident we hit that guidance. You know, some of those are early on in the pipeline, so you kinda want, you don't wanna say with 100%, you wanna say, "Hey, I feel great about the pipeline.
We're still gonna add a few more merchants to make sure that we get to where we need. I will say, just looking at our exit, and I can't share it, you know, in this call, but just we're obviously paying very close attention to our exit volume even coming out of May and knowing and then doing extrapolating out over the next, you know, seven months, we feel very good that the current pipeline and what is already contracted is puts us in a really good position.
That is incredibly bullish and very reassuring to hear. Thank you so much for sharing that. That's all I got. Thank you.
Thanks, James.
That's all the questions that we had today. Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you for your participation.