INEO Tech Corp. (INEO) Earnings Call Transcript & Summary

Hello. My name is Pardeep Sangha, Head of Investor Relations at INEO. Thank you, everyone, for joining us today, and welcome to INEO Tech Corp.'s Fiscal Q2 2023 Conference Call. Joining me on the call today are Greg Watkin, Chairman, President and Founder of INEO; as well as Kyle Hall, the company's CEO. This call is being recorded. [Operator Instructions]. I trust that everyone has received a copy of our fiscal Q2 results press release that was issued this morning. Please note, portions of today's call other than historical performance include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors, many of which are outside of INEO's control that may cause the actual results, performance or achievements to differ materially from the anticipated results, performance or achievements implied by such forward-looking statements. These factors are further outlined in last week's -- or sorry, this morning's corporate press release and our previous quarter management discussion and analysis. We provide forward-looking statements only for the purpose of providing information about management's current expectations and plans relating to the future. We don't undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except as required by law. And with that, let me turn the call over to Mr. Greg Watkin, Chairman and Founder of INEO.

Thank you, Pardeep. Good day, everyone, from snowy Vancouver. We truly appreciate everyone for joining us today. Before we begin, I need to remind the audience that we are not able to disclose the names of some of our retail partners due to nonpromotional clauses in the agreements with these companies. For the benefit of everybody on the call today, we will do our best to provide commentary on the nature of our rollouts without actually naming the retailer. On today's call, our CEO, Kyle Hall, will provide a financial summary of our results and an outlook for the business. But first, I'd like to provide some brief commentary on the quarter and an update on our recent sales activities. I'd like to start my commentary by thanking all of our employees who have been instrumental in our continued growth and success. We have a small team that works very hard every day to make INEO Media Network a reality. Our team continues to evolve and perfect the technology and 2023 will be the year of execution as we focus on rapidly expanding our customer network. I'm very proud to report that INEO's outlook continues to be good. The company is actively working with several large retailers and has a growing pipeline of opportunities. Where some companies struggled to employ new technology with retailers, INEO has been welcomed with open arms by our customer base as we work to transform the retail media landscape with our Welcoming Systems. Well, we did it again. For Q2 2023, I'm pleased to report a 50% increase in quarterly revenue compared to Q2 of last year. Even more impressive is that INEO experienced a 92% increase in gross profit in Q2 2023 compared to Q2 of -- Q2 of last year. We're extremely excited for fiscal 2023 as we continue to expand our network to our large retail customers. Thus far, INEO has not experienced any recessionary impacts, and I'm pleased to report that the company is growing faster than ever as we begin to see our network of systems increase on a massive scale. I'd like to provide an update on 2 key developments. Since we last presented to investors, we've been busy on several fronts. First, I'm very pleased to announce that the company is ahead of schedule on its 2023 Welcoming System deployment plans. Since the beginning of the year, we've expanded our retail media network with the addition of more than 50 new locations in the United States. These deployment plans are with our major retail partners who together have over 3,000 retail locations across the United States, including a major office supply retailer with more than 1,000 locations. We've been focusing on expanding our retail media network in major cities, and we've completed significant installation bases in New York City and Los Angeles. In addition, we've deployed systems in 9 additional states, including Tennessee, New Jersey, Pennsylvania, New Hampshire, Massachusetts, North Carolina, Virginia, Washington and Florida. Second, I'm pleased to report that our strategic partner -- partnership with Prosegur is progressing very well. We have pilots installed or committed in 5 prominent chains in the U.S. in multiple markets, including pharmacy/drugstore, department stores, agricultural supply chains, sports franchise stores and a warehouse club. In addition, we successfully completed our pilot with Jumbo Cencosud, a major South American grocery retail chain, and the pilot has now converted to a customer order, and we will soon be shipping units to this retail. Prosegur has also been making progress in Canada, having landed trials with a major retailer of auto parts, accessories and sporting goods, a big box hardware store and a pharmacy/drugstore chain. We're very happy with the Prosegur results. The team has been presenting and pitching to a number of retailers around the globe. We're confident in Prosegur's ability to land these large international retailers and look forward to sharing those customer wins in the future. Overall, INEO is continuing to increase its sales activities with a very robust sales pipeline, including both our direct sales efforts and through our partnership with Prosegur. With that, I'd like to turn it over to our CEO, Kyle Hall, who will review the financials for the quarter and provide additional commentary on our outlook.

Thanks, Greg. Hello, everyone. I'm going to read through the results of the financials now, and I'll read them closely so I don't get them wrong. For Q3, our results are as follows: INEO achieved revenues of $386,000 during fiscal Q2 2023 compared to revenue of $257,000 generated in Q2 of '22, an increase of 50% year-over-year. This was driven by higher sales in our loss prevention products, but there was -- just a note for everybody looking at the holiday quarter, there is some seasonality in there for us. So as much as loss prevention products are still growing for us, they fall off a cliff in the middle of the month because no retailer is ordering any of those products for the last 2 weeks. But we did see a good uptick in advertising, yet it's still just a growing piece of the puzzle. INEO achieved gross profit of $181,000 in fiscal Q2 2023 compared to gross profit of $94,000 in Q2 '22, an increase of 92%, driven by the revenue mix greater amount of high-margin loss prevention products and advertising starting to kick in. For the fiscal Q2 2023, INEO had an adjusted EBITDA loss of $856,000 compared to an adjusted EBITDA loss of $762,000 in Q2 2022. The increase in this loss was completely attributable to the costs associated with the financing we just completed. Financing by a short-form perspective is expensive in Canada. We had well over $200,000 legal fees alone. So if we take out the cost of the financing, our expenses were actually down for the quarter, and we're quite proud of that. We've had our eye on the expenses, making sure that every dollar we spend is well spent. As at December 31, 2022, INEO had 76,143,709 shares issued and outstanding. As at December 31, 2022, INEO had $2.35 million in cash and cash equivalents compared to $1.7 million in cash and cash equivalents as at June 30, 2022. That concludes the financial update, and I'll now move to some business highlights from the last quarter. We filed a patent on our INEO G.A.T.E. product back in 2021. In October, we extended that through to a worldwide PCT filing, meaning given its priority rights for the filing of that patent in any of the PCT treaty markets, including in the United States and Europe. So now we're still into the process of getting that patent through in all those different countries, but we're well positioned with that to protect our technology and our design capabilities in those markets. On November 17, 2022, we completed the public offering of units, private placement of units and unsecured notes for gross total proceeds of CAD 2.74 million. We did this by a short-form prospectus. We're using the net proceeds to exist -- to build out our manufacturing and deployment of the systems. I think everybody well knows what our capabilities are and where we're going with this, but it's really to deploy any Welcoming systems for future customers as well as we have some working capital and general corporate purpose needs. The financial really strengthens our balance sheet to allow us continue and execute on the agreements that we have with these large retail chains, and accomplish our growth plans for 2023. As Greg mentioned, we're ahead of schedule early in the year, and this is attributable to us being able to deploy the capital as needed. The finance represents a key component of our rollout and our expansion plans across the globe for the year. We're very appreciative of shareholders who helped us in this financing, participated with us. The fact that we're able to close this under such challenging conditions, it's really a reflection of the faith that the investors have placed in us, and we acknowledge that and really feel rewarded by investors that we have with us. Another piece for the quarter was on December 30, we added Eugene Syho to the Board of Directors, and he is also the Chair of the Audit Committee. Eugene brings a wealth of finance and technology, public company experience to the Board. He's a seasoned finance executive, with 25 years of proven management experience across a diverse set of industries, but a lot of high-tech and some retail. So Eugene really fits the bill for us in what we needed in terms of some experience in that area. And then subsequent to the end of the quarter, on January 11, I attended the National Retail Federation Show. You can see me on the right there, looking very dapper, I might say so. We showcased the first radio frequency identification version of the INEO Welcoming System, RFID, the industry calls it. And we were demoing right on the show floor. We were taking products that were labeled RFID types in razor blades or hampers, diapers. And if you walk by our system, the system would detect them, and it was showing the product that was exiting the store on the screen. It was a big wow factor for the show. It built a lot of excitement. It was our prototype model that was on the floor. But since then, Greg and team have been building it out, and we're getting ready to ship it within a month or 2 here. It's generated a lot of excitement within the retailers to be able to add the -- not just that we're detecting a product leaving the door, we're actually showing, which products there and we're recording that within the database, which products are leaving store. So given in the much more data and much more knowledge of what's going on at the exit of that store. I want to talk about our product portfolio now. We've been talking about different products that we've released and announcing a few. The -- INEO Welcoming Pedestal is the core piece of the Welcoming system. It's our original product, it's a theft detection, digital advertising, digital analytics product. That's our core flagship product. And that's what we're pushing out in the retailers in the large numbers right now. But we saw an opportunity last year to pair it with what we call a Welcoming Gate, a traditional system that could work in doorways where we didn't have room to either put in 2 screens or there wasn't enough traffic for 2 screens. So why go the extra expense, we're not able to monetize extra screen, that's put in just a traditional unit. We came up with the Welcoming Gate, which we have a patent on -- patent filed, patent pending. And it's been a huge hit out there. We wrap it in -- it's got graphic capabilities on it, and it pairs really nicely with the Welcoming Pedestal and it gives us great theft detection capability. We've got some requests coming from some of our customers that they love the form factor of the Welcoming Pedestal. It just looks so elegant at the storefront. And they're asking us, "well, can we put this elsewhere within store?" And we kind of pushed back by saying, well, it's kind of expensive to put elsewhere in the store. It's got a lot of things going on inside it that you don't really need, just to use that digital signage, but they love the form factor in sort of pedestal 15 feet inside the front door, at the end of an aisle that sort of thing. So Greg and team worked to remove some of the electronics, remove some of the capabilities of the Welcoming Pedestal and turn it more into using the form factor and the footprint of the Pedestal to create what we call a Welcoming Greeter. And it gives us an opportunity of putting more signage within the store within the same retailer. In that vein, we also have the Welcoming Player, which is a device that Greg and team built to sit between the screen and the bracket holds it to the wall or the pulls down from the ceiling, and it talks to our system. What we have here is a system that all these components, we put these in here, we can control the signs, the messaging on any screen anywhere else in store. And if you think about our cost of deployment, it's really about -- we get the Welcoming Pedestal and the Welcoming System in there. Adding an extra screen is minimal cost, minimal costs after you've already deployed the basis of the system. So it's given us the opportunity of increasing our revenue per store per location and really building out our suite of products. It gives us a complete set of products that, if you look at the digital out-of-home, the place-based advertising you have different form factors all over different signs, but it gives us that ability of building this out across the retailer. You can think about us as having a pedestal at the front entrance with the G.A.T.E. to detect theft and give signage and messaging there. But then as you walk into the store, you've encountered a greeter. You walked throughout the store and there I guess you see a media player running a sign over top of a different area. And not to be -- I don't want to forget it, but we also have the DUO system, which is a double-sided one, kind of hard to show on a picture, how do you show both sides, but we also have the DUO system, which we announced, and we filed patents on that 1 as well. So maybe Pardeep, I wanted to go through with everybody. So little bit about why we're so excited about having our systems into the retail, and what we see as the one of the major wins in our sales here, really pushing us along. And that is the retail media market. And we -- if you look at anything in terms of advertising right now, retail media is like just -- it's outpacing everything else in terms of the mentions and mind share. And I just want to explain a little bit to about how we fit into this. And if you look at the worldwide advertising market and use some big numbers, $689 billion, but TV, which used to be the bulk of advertising out there, it's dwarfed now by what is called digital advertising. Out-of-home, which is place-based signage, where traditionally we would have more fit in there if retail media hadn't taken off so much, it's still -- it's one of the few growing parts of the market. It's a bit smaller, but it's growing. Yes, those are all in kind of a secular decline. But digital is still growing. If you look at those numbers as it's going up year-over-year. Put the next slide, please, Pardeep. But if you look at that -- if you want to really break down that digital advertising, that $689 billion, where is it going? Huge chunk, that's going to paid search, Google, primarily. Huge section to social media, primarily Meta. And now there's this -- it's new segment called Retail Media, which is now 18% and growing rapidly. And it's basically the demise of cookies, the demise of being able to target effectively on mobile devices, and advertisers are looking for where can they get the most bang for their dollar, and they started line up, let's advertise on the Walmart site, let's advertise on Target, let's advertise with the retailer where the products are actually being sold and it's growing rapidly, and it's a huge chunk of the market. If you want to really see what it looks like on a retail site, look at the Walmart site, and you see that little sponsored ads everywhere. Those are all paid for. So you search basketball on the Walmart site, you'll get a couple of hits, but everything else has been shown there, those vendors are actually paying Walmart to display those ads. Same is on Amazon, same is on Instacart, same is on every other retailer right now. And that's where they're making a lot of money. Flip again, Pardeep. They also have banner ads. You'll see these within the site as well. So it's not just sponsored, but there's banner ads and there's placement of ads. If you look at what these ads actually look like, they look a lot like the signage that goes on our systems. Flip through the next slide -- next slide, please. This ad on the right is [Molson] ad that started playing on our liquor store network just yesterday. And you size it and place it and all the other ads that are running our systems. They looked very much like the ads that are being placed on retailers' websites. That's same ads within those same Retail Media Networks and flow into our signage network in-store. And there's a lot of talk in the industry about where is that going right now? And retail in-store media is the next frontier. And all of these retailers, these are the biggest and best names in retail. They all have their own retail media network. They're all pushing very hard at generating advertising dollars. And this isn't inside money and co-op trade dollars. This is pulling from national ad budgets. They're taking revenue away from Meta. They're taking revenue away from Google. And the revenue from the advertiser is flowing right through these retailers. And flip -- the next one, and why, because we're [ focused on], let's see -- if you look at grocery, the margins, maybe 20% at best. Home Improvement maybe 34%. Retail Media, huge margins. Just a little bit of movement for them on the retail media side, and it changes their profit profile massively. Walmart reported in 2022 -- or sorry, in 2021, $2.2 billion in advertising revenue, and it accounted for almost 30 -- I think it was 32% of their profit, all came from the retail media network. And this is why retailers are so enamored with us because we give them more inventory to sell, which they can sell actually in store. And they want that -- flip the next slide, Pardeep, because 85% of all shopping is still done in the store. These aren't quite the scale, but if you look at retail sales on the left, $4.5 trillion in retail sales, $850 billion of that online. It's a small number compared to what's sold in store, right? Whereas on the advertising side, on the retail media, right now, it's all being spent online and in-store is just starting. It's just starting to take off. They've moved from an out-of-home environment where advertisers say, let's place signs on signage around the city. Well, there's signage at retail. We need to advertise there, too. So it's coming, the industry is talking about it, and it's growing. And this is what's going to fuel our systems, and why we get so excited about getting placements with these large retailers because they're already making money from advertising, and we know they're going to flow it in. The consumer advertise -- or packaged goods industry, when they were asked in a survey, where have you bought advertising retail media networks? A year earlier, you would not have seen in-store display ads or in-store video ads even on here. So it's now getting mentioned. They're toying with it, playing with it. Even though the numbers are really low because there's not a lot of inventory out there. The revenue are -- the ones that are trying it and want to do it are there. But retail media in the store hasn't been a big thing for a couple of reasons. Flip to the next one, Pardeep. And it's because it's very hard. There are some failed starts out there. People put signs in stores, and they didn't have enterprise grade hardware. What happens if the sign goes down? What happens if you -- if it goes offline? What happens if you've got a blue screen up there, blinking cursor? Stores aren't going to be happy, customers aren't going to be happy, the retailers are going to be happy, nobody is making money. You have to have enterprise-grade hardware, and that's what we have. We have built a system that is monitored. It's durable. We can maintain it. And we've proven it out that our hardware is exquisite. It's exceptional. It works really well. The other side is the software to run it. As much so we talk about the hardware, we're actually really a software company. Everything we do on the software side is what really makes us, and that's the usability piece that the retailers use for our software for either in the analytics, for the loss prevention, or for the digital advertising. It's all about us being really good at running a content management system to schedule and put advertising on at the right time, at the right place, on the right store, the right screen. We're really good at that. And the next piece is to be able to integrate these retail media networks. And we integrated -- you would have heard us talk about Hivestack and Vistar and Broadsign. I know that we integrated the out-of-home industry's programmatic people. But now we're in the middle of interfacing with all of the retail media companies, the ones that are running the online aspects of it so that they can actually just, at the click of a button within the retail media interface say, I want to sign that ad to the front store of those 1,000 stores, and have it come right into our system. So our open API's infrastructure that we've built, allowing us to talk to every other system and integrate with systems, it's key for us going in the future. And the last piece that we really got right, that a lot of companies haven't is the business model. How do you create a frictionless business model for the retailer that move ahead and deploy systems and be able to generate this revenue off of it. That's where we are winning right now. If you look at -- why is it bigger? Because companies haven't done this, but we [ have ] actually done it. And we're in a great spot, and that's why we're getting these trials and why we're getting rollouts right now. So this slide, this is U.S. specific spending. If you look at the -- it's obviously a big rise in the spend of digital media. But if you look at the green number, the pace of change is going down, even though the numbers are getting larger, a lot of large numbers, correct? But the overall percentage of digital ad spending going up, in-store is new frontier. You will hear a lot about this -- obviously, you'll hear from us, but you'll hear about a lot of it in the industry about in-store, placing signage in store, connecting signage. Walmart Connect is the Walmart's vision. They're already doing it in some regard, they're signs going up throughout the stores. Target's doing it. Different retailers are doing it. We are in an enviable spot because nobody else can place signage at the front door like we can. Nobody else can secure that space because everybody else will interfere with the loss prevention systems. We give them the ability of putting signs at the front door. And that's why we are very intriguing to these retailers and to the retail media companies, and why we feel we're in a great spot to grow. I'll finish my TED Talk there. If anybody has any questions on them, please let me know. But I'll just now kind of whip through the end of my presentation. Our key objectives for the year, we're tied to rollouts right now. We have to get systems out there. We're in good shape over January, February in doing that. Financing allowed us to do that. And now it's about having the systems in and having that revenue increase. Expanding into other geographic markets. We're doing a good job handling the cities throughout North America. Greg told you about a big initiative that we have in South America and Colombia with Cencosud. It's just on the verge of getting the rollout started and taken off there, a great digital advertising market in that country, and we're looking forward to that, and that's with our partner Prosegur. And then, of course, supporting Prosegur around the globe. They've been wonderful. Their team has been strong, putting systems out there, getting us meetings, and we feel really good about where that relationship is going. And the overall outlook then. If we look at our aggressive deployment schedule and ramping up of the -- in the locations that we have contract across the U.S., that's really going to drive things. We're at a tremendous milestone right now, where the retail media network that we're installing in these cities is getting to a critical mass. It's getting to a point where it's of interest to the retail media companies, and we'll see that revenue start falling into it for the retailer and for us, of course. The next phase is really commercializing our technology with the large wins, with large retailers. We've got the footprint ramping up in terms of the customers that we have under contract. But now it's about getting more of them out there and accelerating those revenues so that the revenues we see in the latter part of the year continue to grow like we've seen in the last few quarters. The technology has been proven out. We -- I think without a doubt, the technology has been proven out. It's validated by our global partner, Prosegur, but also with the large retailers that we're dealing with right now. And it's a real healthy pipeline that we have. The direct sales that we've done ourselves, but then the sales through Prosegur. It's across multiple areas, grocery, home hardware, apparel, I mean, wholesale clubs, and Greg's mentioned a few of them. But it's moving where we want it to go. So as the retailers continue to invest in retail tech, and they are investing, analytics is also a piece that we don't talk a lot about. But analytics is really key to us because it's also key to the advertisers and be able to report on metrics and numbers. But retailers investing in the customer experience. They're investing in advertising, they're investing in analytics, and it's going to be really important for the future of the modern retail environment. And with retail media being such a huge generator, it's well placed for us to be able to take advantage of these and getting one of our systems in there, but get revenue to where we want it to be. The current overall economic environments, it's challenging in some regards. But the retailers that are worthy, they're still investing. We are not seeing any decline in sales activity because of what's going on in the macro environment. In fact, I think you have some retailers, we saw a Loblaw report last week. They probably make money in an inflationary environment. Given that we operate in an advertising model, but also a SaaS model, our revenue growth will lag our deployments, right? We have to get these systems in the market. We usually get them in there. We get the analytics collected for a couple months to get the traffic, and then the advertiser starts getting added to the systems as we go. So it's where we want to be. But as the advertisers understand where these systems are, they're going to become more important to every retailer and partner that we have. So in summary, we're optimistic. Our outlook for the year still looks great. Prosegur, is our distribution partners, is doing what we want, and we're just happy to report on the additional opportunities as they come along. With that, I want to thank you all for joining us today, and we look forward to provide an update again next quarter, and I'll hand it back to Pardeep for some questions.

Thank you, Kyle, and Greg. [Operator Instructions] And just to start off, we'll start off with a question from Gabriel Leung, Beacon Securities. Gabe asks, what has been the early feedback from customers, your retail customers -- with their initial deployments? And what sort of monthly ARPU, can you sort of expect coming from these sites?

Yes. I'd like to speak to that. It's been very, very encouraging, and I'd say overwhelmingly positive, specifically as it relates to our major office supply retailer. Something I found very curious in talking with the customer and actually really rewarding is that the new systems are being referred to, not as an EAS. They don't talk about all -- it's that EAS system at the front of the store. They call in INEO. And that's really encouraging when you get our customers say, "oh, yes, you're the new INEO system that's going in at the retailer." So that's been very encouraging for us. The systems themselves, they've garnered the attention of the senior executive team and have been part of the ribbon cutting ceremony on the relaunch, rebrand of the system. So the response in the network from our customer base has been overwhelmingly positive for the systems we're putting in.

And then also the question from Gabe Leung of Beacon Securities. When do you expect the revenues to start flowing from your initial retailer wins with Prosegur? I guess the Prosegur one is Jumbo Cencosud that you're just starting to install?

Yes. Jumbo Cencosud will start as the systems get in there. So we've had 3 test systems in there for a little over a year. Just took a little bit longer than we expected, just I think with some communication and travel capabilities into South America, but it's moving now. There's usually a couple of month lag, because say in between the timing for the system until the revenue kicks in. But we will have revenue from that in the next quarter. So it's moving in that direction. But overall then, with the rest of the Prosegur installs, we're growing, right? And we're demonstrating we're growing. It's just a matter of getting the systems out there and the growth is there.

Actually, for the benefit of most of the -- probably the people on the call today, maybe just give 2 minutes on what is, who is Cencosud? And who is -- [ humble ] on that, I don't think many people know who that Cencosud is.

Yes. So South American retailer, big in Colombia, big in Chile, a couple other countries there, but they have a division called Jumbo, which is an -- if you walk in our stores, you would not be able to place with our best-looking retailer grocery store chain that you have here in terms of the presentation of products and size of the store and the modernness of the store, it's quite impressive. So there's one location in, and we're expecting to get close to 50 locations with them, probably not all this year, but at least half of those will be in this year.

Another question from Gabe Leung of Beacon Securities. Based on the deployment time table, when do we start seeing the increasing ramping up of top line revenue?

Yes. We're growing it. I know we want to see it faster. We do expect some acceleration, but we -- this quarter, we were slightly impacted by the seasonality of the loss prevention over the last few weeks of December, which made it not quite as high as the last quarter, but it's still up significantly. As the product mix changes and as advertising takes more of that, there will be less seasonality with it. We launched in January, and we had a great month. So what we're seeing is continual increases in all of our lines of business, really, even the older the loss prevention stuff is still growing for us. Because every time we put in INEO Welcoming System, we usually get some of those products, we usually get the byproducts and be able to sell the supplies that go with it. So it's hard to say exactly, to answer the question, but I think we're demonstrating -- it's growing. It's just matter now of how fast we can grow that.

Next question is from Daniel Rosenberg, Analyst at Paradigm Capital. Could you provide an update on your sales team? Any plans to hire or invest on your sales team? And I guess maybe just add to that, the Prosegur is doing a lot of that sales activity for you. So maybe just comment on that as well.

Yes. So we don't see that we need to hire anybody to secure the retailers. We've proven that we can do that on our own and with Prosegur. And we have -- we have more than enough to tackle. Of course, we'd love to sign up everybody, but we have enough to -- and we're going to work on keeping signing up everybody, but we have enough to keep us busy here in the short term. On the advertising side, the large retailers going to handle a lot of that on their own. So we're not going to have to hire anybody there. On our liquor store network, I think you saw that we put out the press release last year for Adapt Media and Western Media Group. And so they have larger sales forces. They have the ability of going through the media, the agencies and booking advertising. So we've kind of outsourced it in that sense to those companies. We end up paying them the percentage of fee of it, but then we don't have to hire anybody either. So I think it's an efficient model and it's working well for us so far. Greg, any follow-up on that?

No. I think, you've summarized that well, Kyle.

Another question from Daniel Rosenberg of Paradigm Capital. Just with regards to new customers and when you look at those new customers signing on, what sort of is the uptick for additional products than just Welcoming System, for example, the Greeter or the Player. What's sort of the penetration of additional -- how many -- how much interest is for additional products?

So the prime entry is the Welcoming System. The Pedestal, of course, we're getting invited in because we're really good at the loss prevention at the analytics and the placement of front door for the advertising. That's why they're inviting us in -- they're welcome us in the store. Once we get in there, then they start realizing there's other opportunities, right? Oh, can we get another system here? Can we get a sign over here? We're just really at the beginning stages of that. But we're getting requested. The demand is coming from us. We're not really even pushing that in yet. We've got enough to do -- enough busy to do. But as we said, incrementally, it doesn't cost us much more to put them in each location once we're already in there. So we are going to start working more at getting secondary and the third and fourth and fifth screens in the locations. But I don't have enough data to really give you much color on that right now.

Okay. Last question from Daniel Rosenberg of Paradigm Capital. When you're deploying customers, signing up the customers to deploy, what is the typical length of a contract? Is it annual? What's the renewal? Or how does that work?

So we'd love to get multiyear contracts and annual renewals on them, but it's really a retail-by-retail thing. And we negotiate as hard as we can, but we're dealing with some very large players, so we end up sitting into how they structure contracts typically. But all of the -- everything that we've done has kind of an evergreen mode to it. It can be renewed until canceled. But we haven't disclosed individual contracts, of course, because we can't. But every one of them, I would say, there's nothing out there that says it's done at a certain time and we're done. It's always an ongoing evergreen capability.

Yes. And I think to add to that, the typical longevity for systems that is measured in the 8-, 10-year range is very, very common for systems deployed to our customers, and we expect that our systems will be consistent with that.

We have systems that have been in some of those liquor stores in Vancouver now coming up on 4 years and they're still functioning. They're doing well. And they're not even our latest, greatest technology. And obviously, we've made things better and upgraded things over the year, but they just keep running.

Okay. Question is here from Neil Bakshi, analyst at Canaccord Genuity. He wants -- wondering about the run rate of expenses, and you can comment more about the onetime items in the quarter, such as the financing expenses? If you can comment on that run rate for expenses?

Yes. I made a little commentary on it in the prepared remarks, but doing a finance in Canada, a small financing is painful. The legal cost alone over $200,000 and the broker fees and commissions and everything will pay out of that, and we've got auditor fees and it adds up in a hurry. So we think we've had a very sharp eye on expenses throughout the year. We kept our team fairly small. There's lots of push that -- we have more people who can do this and that, but you have to bite off what you can do at the time and keep -- be aware of where you're at on it. So the exact number I don't have it in my head, but we're approaching probably for the quarter extra expenses because of the finance we're closing in on $300,000.

Okay. And so basically, your adjusted EBITDA number would have been $300,000 less if you adjust for those financing?

Exactly. Exactly.

Neil Bakshi from Canaccord Genuity, another question here. Can you comment about the balancing -- the company's balancing between the growth and narrowing its EBITDA profile? And it's got a quite aggressive outlook, aggressive expansion for the same time, kind of trying to net to EBITDA profitable as well at some point. So just wondering about that balance between growth and EBITDA?

Greg and I modeled this so many times, and Greg has got some amazing spreadsheets. But the faster we go, the faster revenue comes. Faster we go, the faster cash goes, right? So you kind of have to balance it between the 2 because we're deploying capital, we're deploying systems, right? So we've struggled with that balance a bit, but we think where we're at right now, we're in a nice, sweet spot that we can absorb the capital that we need to deploy to put the systems out there and have the revenue then ramping up. We probably went a little faster than we'd expect in the fall, in the first few months here. Our 1 customer really front-loaded a lot of stores, which we thought we're going to be near the back of the year a little bit. But like I say, the fast they can -- they go in, the better in terms of the revenue. It's just we have to be careful because that's our -- that's where our cash goes, right? It's more on the capital outlay than even as our expenses.

Okay. A question here from private investor, [Giles]. This one is probably more directed towards Greg. If you can elaborate a bit more on your RFID technology and product and how this all fits together and what the road map there is?

Yes. Actually, the RFID project is quite interesting. And Kyle alluded to it a little bit in terms of the technology that we've put into our systems. RFID has been -- one of these things that evolves actually from one of our major retailers who came to us. And it's nice when the customer is coming to you asking for additional features, different types of screens and helping to build a the product line. But what -- RFID, to answer your question, what it allows us to do is to give you direct tracking of specific items on there. So customers are better able to manage their inventory, better able to identify items. So for example, we introduced at the NRF show in New York, an RFID-enabled system such that if a product is going out the door, which has not been deactivated, i.e., you put an RFID tag on something to identify what it is, and if it hasn't been deactivated at the tail, we actually flash up a picture instantly on the screen so that the person who's walking the door that realizes that product has not been deactivated, that we're able to better track the stuff. So the customers got better track of their inventory. There's a whole bunch of really good benefits for the retailer on this, and we're happy that our technology is going to play a key part in that for reducing the shrink of products going out the door with these customers.

Right. Also a question here from [ Giles ] another one. With regards to Prosegur, you managed to do a lot of work, Prosegur building pipeline in the U.S. Prosegur is not going to have a strong presence in Canada. How does Prosegur develop in the Canadian market, any comment on that?

Prosegur actually -- they've done a lot of brand awareness, right? People don't know much of them, but they have a good presence in Canada. They actually have 2 hunter type salespeople that are out chasing new business for them. They're growing their capabilities here behind and to support those 2 individuals, they've got a few other team members they've added in the Canadian market. We're actually impressed with a couple of trials that we've gotten out of them in the Canadian market. They -- I would not say that they're lacking in this market at this point in time. We expect to have some good customer wins come out of it in the short term.

There's been several questions here from a couple of different people asking about Q2 revenue lower than Q1 revenue. That sequential -- I mean, year-over-year growth is 50% year-over-year growth on revenue, but sequential Q1 versus Q2. I think you already addressed this. You mentioned about the seasonality and the Christmas time. Maybe just please, comment on that again just because it seems like a couple of questions has come up a couple of times here on the list.

Yes. The loss prevention, which is still a majority of the revenue as the advertiser and the SaaS is ramping up, it literally stops the middle of the month. It just stops. There's no retailer order in loss convention products in the run up to Christmas and the week afterwards. We expect that there will be very strong advertising parts of the market, and that's going to help us with long term, and we should not see as much of a slowdown next quarter. If anything, we should see a ramp-up as we have more screens out there and advertising is a big part of the mix. But yes, it's one of those things that, you just kind of have to roll with a little bit. January, however, the G.A.T.E.S., took off on us. So there -- I guess, that pent-up demand, retailers getting back to it. So we're not reading anything into it. I mean we would love to have reported another $20,000 to $30,000 higher as well, but it does fit the model.

And sorry, if we look back over the last 5, 6 years of our financials, and look at Q2, this is typical this time of year that retailers just are not going to be spending a lot of their energy on loss prevention type systems around that time of the year. And that's -- this is our historical pattern. So there's nothing abnormal about this at all.

Okay. A question from private Investor, Gareth. The latest press release indicated that you've shipped more units in the month of February than the previous year. Is that February month a one-off? Or would you expect this rate to continue?

Maybe a little clarity. It was January and February, we shipped, but go ahead, Greg.

Yes. And we expect this to continue to grow. The team has risen to the challenge. We're getting things better organized to be able to deliver our systems faster, and we expect an increasing velocity and putting systems out to our customers.

A follow-on question from Gareth. Can you just provide some more color on the current split between INEO and Prosegur in terms of installed number of units out there?

There's definitely more units installed by us directly. Obviously, the liquor store network, the legacy network that we approved out our systems on. And then our U.S. customer, our large U.S. customer is the one really rolling out a lot of those systems right now. But we're on that initial uptick from Prosegur, too. So probably -- I would say March will be their biggest one's ever, and we expect that to continue up the year. As we're just maturing through those pilots and into the next phase of either testing or rollouts.

But Prosegur -- just for clarity, Prosegur has more pilots out there that you need to...

Yes, they do. We focus most of our new customer wins or business development through them, whereas we had that 1 big customer of our own that we want to keep under our own umbrella, but the rest we put under that.

And so yes, this is -- Sarfraz, also a private investor also had a similar sort of question about the 50-plus retail locations those are direct channels, right? They're not the Prosegur ones for now, the new installed, primarily....

The large majority of those are direct, but there's some through Prosegur, too.

Yes. Another question from Sarfraz private investor. Can you just comment about the SaaS and ad gross margins with direct. And also to Prosegur, just provide some color about your 2, I guess, sort of ad streams, SaaS revenue versus ad revenue?

Yes. So long term, we would love to be virtually like 100% in SaaS, right? So the retail takes care of all the advertising, we just get the monthly fee. Some of them need to warm up to it, some of that to get their retail media online integrated. But we see the long term that, that's where it's going to flow. How do we characterize it? Do we characterize it as advertising our SaaS and some retailers that might have a revenue share event to it, where they're booking the dollars and share in fact. In the end, as honest, we have the number we want, whether we call it SaaS or advertising in the contract. I think we'll have to formalize how we report that in one bucket so that everybody understands what it is.

Right. Some questions around the theme here. A couple of questions around cash, cash flow and stuff. I guess you raised the $2.7 million, much of that went out for the financing and stuff. Maybe just sort of comment on sort of your outlook for cash and cash flow for the next couple of quarters?

Yes. I mentioned earlier how our cash needs, obviously, corporate needs and expenses on -- one but also on the deployment of systems. And so the deployment of systems is one that we can turn on and off in a heartbeat, right? Deployment system don't use any cash, but we don't obviously want to do that because that's our future revenue. So it's -- again, it's just creating that balance between the two. In terms of our corporate expenses, like I said, we have a small team. We're very vigilant on where the money goes. In terms of that, it's mostly the cash used will be around those deployments. So post your helps in that regard on all the customers that we put out to them, they obviously fund the hardware. So we get direct reimbursement for any of our costs on those in the hardware. So that's a good model for they're helping us the freight cost and -- or cash burn. And that's why a lot of those pilots -- almost all of those pilots -- so our big customers that we have ourselves right now are going up to Prosegur, then it relieves the need for us to spend cash.

Last question here from private investor, [Giles]. With regards to -- this is probably more a Greg question. R&D spending and kind of what are your R&D plans for 2023?

Yes. We continue to invest in RFID with the evolution of our products. We've got 5 engineers on our R&D team, which is quite a small number when you look at all the pieces of technology that we've managed to put together. We've developed a complete ecosystem with a broad range of products based on feedback and guidance from our customers, and we will continue to invest in it because this is where all the good ideas come from. Our customers coming to us and asking us for RFID, for Bluetooth low energy, beaconing, et cetera, like that. So we keep our ears to the ground, and our team small, and continue to roll out the advancements in the technology to keep us ahead of anybody who might try to enter into the market.

Okay. That's it for in terms of questions. I'll turn it back over to Greg and Kyle for any last comments.

Yes. Thank you, everybody, for joining us again. It's been a pleasure answering questions and presenting to everybody. We're as I said earlier, we're open to any follow-up anybody has. If you want a little bit more clarity, please send us a note. I also want to thank shareholders who have supported us from the beginning and through the last 2 financings, it's made a world of difference as to get this company to where we want to be. We're not happy with the share price, obviously. But it's what it is within the market, but we think of all the things we have going, there's a great story here, and it's going to get very exciting in the coming quarters. Pass it to you, Greg?

Yes. So I do -- I want to thank all of our shareholders who have supported us and continue to support us. And I can say, harder the bargain is, we will continue to work as hard as we can every day to build INEO to what we know that it can be. Thanks.

Thank you, everyone.