POSaBIT Systems Corporation ($PBIT)

Good day, everyone, and welcome to the POSaBIT Systems Corporation First Quarter 2026 Earnings Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Oscar Dahl. Sir, the floor is yours.

Thank you, operator. With me on this call are Ryan Hamlin, Chief Executive Officer; and Emily Egan, Vice President of Finance. 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 subsequent filed reports as well as in other reports that the company files from time to time with SEDAR. Any forward-looking statements included in this call are made only at the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events or circumstances. The company will also be setting adjusted EBITDA, adjusted revenue and adjusted gross profit in today's discussion. Adjusted revenue, adjusted gross profit and adjusted EBITDA are non-IFRS measures used by management that do not have any prescribed meaning by IFRS and may not be comparable to similar measures presented by other companies. The company defines adjusted revenue as gross revenue minus license support revenue plus actual licensing cash received as part of POSaBIT licensing deals. The company defines adjusted gross profit as adjusted revenue less company cost of goods sold. The company defines adjusted EBITDA as net income or loss generated for the period as reported before interest, taxes, depreciation and amortization and further adjusted to remove changes in fair values and expected credit losses, foreign exchange gains and/or losses and impairments. The company believes these non-IFRS measures are useful metrics to evaluate its core operating performance and uses these measures to provide shareholders and others with supplemental measures of its operating performance. The company also believes that securities analysts, investors and other interested parties frequently use these non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. We caution that adjusted revenue, adjusted gross profit and adjusted EBITDA are not substitutes for gross revenue, gross profit or profit loss, respectively. Now I would like to turn the call over to Ryan Hamlin, Chief Executive Officer. Ryan, please proceed.

Thanks, Oscar, and welcome, everyone. I want to start by apologizing for having to move this call to Friday, especially for East Coast folks that are listening in 4:30 on a Friday, I feel bad. We had to move it from Wednesday. Honestly, I was under the weather and not feeling good at all. And trust me, you wouldn't have wanted me on the call on Wednesday. But I feel better now and excited to have the call. And we will definitely not do these calls on Fridays. I know that's not a good practice, but we kind of had no choice we needed to do it and wanted to complete it before the end of the month. So sorry about that. All right. As a reminder, all the numbers that we're going to be talking about today are, again, in U.S. dollars. Q1 was a great start for POSaBIT in 2026. We kept our string of consecutive profitable quarters of adjusted EBITDA, and we meaningfully grew our cash in the bank. Our adjusted gross profit dollars also grew year-over-year, as we continue to expand our point-of-sale presence in the U.S. as well as show strong growth in both our e-com and our new brand portal. We continue to execute on the strategy we have been talking about for several years, growing our revenue, expanding our margins, driving profitability and putting more cash on the balance sheet. I mentioned in our annual earnings call last month, how excited we are for the changes regarding rescheduling of medical cannabis to Schedule III. We're already seeing some small wins start to happen. In fact, within just the first week of the application window opening earlier this month, over 400 operators have accessed the new DEA medical marijuana dispensary portal to begin the registration process for handling Schedule III medical cannabis. Also this week, a large MSO announced is preparing to uplist on a U.S. large exchange, whether that be the NASDAQ or the New York Stock Exchange. Both of these signal a change coming to the industry, which should have a very positive implication to POSaBIT. More investment capital coming into the cannabis market, more banking flexibility, including, hopefully, full credit card usage. We've talked about that many times in the past and freeing up more dollars for operators to spend more with companies like POSaBIT due to 280E tax exemption savings. Okay. I'm going to jump into just a couple of the key financial highlights. For the quarter, we were profitable and had a profitable adjusted EBITDA of about $1 million. Adjusted profit dollars increased by 29% compared to Q1 of 2025. We continue to drive down our expenses and currently only have $75,000 in aged payables. We increased our cash on hand by $0.75 million just this quarter alone. So we're putting away good cash. And we added over 50 cannabis operators across our full suite of point-of-sale, e-comm, our new brand portal and, of course, our payments business. And lastly, we successfully launched our first point-of-sale install in the New York market back in early January. So we're actively selling now in New York, which is exciting. We discussed our new brand portal in our annual earnings call last month, so I'll just provide a brief update today. We have signed on several of the largest brands in the State of Washington to our new portal. Brands love that they can finally see sales in real time and get deep insights into their retailers who they sell to. This is the first time for these brands to get real-time data straight from the point-of-sale. Now I'm going to turn it over to Emily Egan, our Vice President of Finance, to dive a little deeper into our Q1 2026 numbers. Emily?

Thank you, Ryan. I'm going to walk through our results for the 3 months ended March 31, 2026, compared to the same period in 2025. Starting on the top line. Total revenue for the quarter was approximately $2.1 million compared to $2.8 million in the prior year period. As discussed on our prior calls, this decline primarily reflects the strategic transition away from legacy payment processing revenue streams and continued focus on higher quality, recurring revenue and referral-based revenues. What continues to be especially encouraging is the substantial improvement in gross profit and gross margin. Gross profit for the quarter increased to $1.9 million compared to $1.5 million in Q1 of '25, representing a 29% favorable change year-over-year with gross margin expanding to approximately 92%, compared to 53% in the prior year period. This is an increase of 39 percentage points. Well done team POSaBIT. These improvements reflect the continued evolution of our revenue mix towards higher margin SaaS referral revenue streams as well as reduced exposure to lower margin processing revenue. On the expense side, we continue to maintain strong operational discipline. Total operating expenses declined to approximately $2.2 million from $2.6 million in the prior year quarter, representing an 18% year-on-year reduction. The improvement was driven primarily by lower professional fees, reduced share-based compensation expense, lower depreciation expense and continued focus on managing overhead and personnel costs efficiently. As a result, operating loss improved significantly to approximately $206,000 compared to an operating loss of $1.1 million this time last year. Net loss for the quarter also improved to approximately $291,000 compared to a net loss of $1.1 million in the prior year period, representing an improvement of about 74% year-on-year. Turning to the balance sheet. We continue to strengthen our liquidity position and overall financial flexibility, as Ryan outlined. Cash increased to about $2.5 million at the end of the quarter, compared to just $1.8 million from the end of the year, representing an increase of 42% during this quarter. The company also generated positive operating cash flow of about $737,000 during the quarter, compared to negative operating cash flow of about $254,000 in the prior year period. This improvement reflects stronger working capital management, ongoing collection efforts and continued operating discipline across the organization. Accounts receivable increased modestly during the quarter, primarily due to timing of processor settlements, while remaining at manageable levels overall. Current liabilities remained relatively stable at approximately $1.7 million, while we continue to maintain discipline around vendor management and accrued obligations. Our debt profile also remained stable with total credit facility borrowings remaining at $4.6 million, largely unchanged from year-end. Overall, the financial profile of the business continues to improve meaningfully. We expanded margins, reduced operating losses, generated positive operating cash flow, strengthened liquidity and continued executing against our strategy to build a leaner, higher-margin and more scalable business model. These results reflect the operational improvements and strategic changes implemented over the past several quarters, and we believe the company is entering the remainder of 2026 from a significantly stronger financial position. A huge thank you to the entire POSaBIT team for the execution and commitment that made these results possible. With that, I'll hand it back to Ryan to wrap-up the call.

Thanks, Emily. I appreciate it. These Q1 calls are always interesting because they're right on the heels of our annual earnings call just last month. And so honestly, not a lot has changed in the last 3 to 4 weeks, but I would encourage you all to read our press release, of course, that came out on Wednesday and our financials and our NDA filings are now out on SEDAR posted as well as on the OTC. I'll reiterate that POSaBIT is in a great position, and we'll continue to execute on the plans we laid out to achieve in 2026, and our Q1 results certainly reflect like good progress. We will keep you all informed of any new exciting product achievements or changes in the coming months. As a reminder, we will also be hosting our Annual Shareholder Meeting in early July. The informational circular will be coming out shortly. Please keep a lookout for that in your inbox if you are an investor. With that, as always, and I end every call this way, we do have some questions, so please stay on. But I end this statement, because I think this really is how we feel about you as an investor, and I want you to hear the commitment that we will continue to execute. We will continue to grow, we will continue to generate profit, and we will continue to generate shareholder value. So thanks for your time. Like I said, please stay on. We had a decent number of questions come in from our investors. And so I'll turn it over to Oscar now for the Q&A.

All right. Thanks, Ryan. [Operator Instructions] First question, Ryan, I read the press release on Wednesday, it shows slight growth in gross profit dollars. Were you expecting a larger percent of growth in gross profit dollars versus Q4?

Yes. Thanks for asking that question. In fact, if you look at Q3 versus Q4, that was a big percentage growth. It wasn't as much this quarter. And there's a real reason for that. Historically, our slowest quarter has always been Q1. So if you look at year-over-year, you see the dip in Q1. And that's really due to the seasonality of this cannabis industry. I don't know if it's just coming out of the holidays or it's people saving up for the big 420 campaigns in April, but Q1 just tends to be the quarter that has the least amount of sales for us and others in this industry. But it is why I highlighted prior in the call that our gross profit dollars, if you compare it to Q1 of last year, actually grew 29%. So again, while you look at Q4 over Q1, smaller growth percentage. But if you look at Q1 over Q1, which is really what we should be doing when you look at seasonality, it was a very strong quarter at 29% gross profit dollar growth.

All right. Next e-mail question. I know it is early, but are you happy with the success of your new brand portal that you've mentioned and you just released?

Yes. So I'll start by saying, yes, we are happy. It's early. And I think whenever you release a new product, particularly when you release a new SaaS type product like we released our POS many years ago. These businesses take time. They're not transactional based. So it takes time to really get the train, so to speak, moving. But once that momentum is there, that train is very hard to stop. That SaaS train. And so given where we are, I'm definitely happy with the sign-ups we've had, and I think probably the biggest fact that would show success so far is that we've been live less than 60 days and we already have the #1 and the #2 brand in the entire state of Washington using our brand portal. So I think that's a strong testament, if you've got the #1 and #2 already using your product, and you've only been in market 60 days. So we're excited. This is going to be a product we're going to keep talking to you as an investor about as we grow, but having #1 and #2 already is a fantastic start.

All right. And this is the third and final e-mail question we got in. Ryan, please address what life after the 4-year mark of the software licensing agreement looks like. How much will adjusted revenue/gross profits step down once your partner is no longer subject to guaranteed minimum payments. How will you replace the lost profits, et cetera? I realize the partner cannot give termination notice before August 2026, but that is my baseline expectation.

So thank you for asking this question. And if you're a savvy investor and you're following POSaBIT, this is -- should be the top question on your mind. And believe me, it's been the top question on our mind as a company and our Board. We signed -- just a way of history, we signed this licensing deal back in 2022, and it was a 4-year license of our point-of-sales software to one of the large tech players in the cannabis industry. Those payments were spread out evenly, monthly over 4 years. And if you look back in all of our financials, historically, you can see that all reflected when you look at our SEDAR financials. Because we recognize all that revenue upfront, and majority of it in 2022, we always add back the cash. And that's why we always talk about adjusted revenue, adjusted EBITDA, adjusted gross profit, because that's really adding that cash that would have otherwise been true revenue had we not recognized it fully at the point of the deal. So we think that's a better way to manage our business is to look at the true cash. So again, having said all that, yes, the last payment for that large 4-year deal is coming to an end this August. And it's been a date, like I said, we've been planning for. And we knew that there was going to be that gap in cash, and so I think, if you just look at our progress over the last 18 to 24 months, you'll see we've done a couple of things. We definitely increased our cash reserve. We just said we have $2.5 million now in the bank. So we were not only like putting away cash, anticipating this, but we also launched several new products into the market to replace that potential lost revenue. Yes, our POS is going, but that's why we launched the brand portal. That's why we got into the e-com space. And both of those products are paying off dividends. So now that gap that we would have had, had we not done anything has really closed down. So we are, I would say, made up the majority of the potential cash loss that you may see in September of '26. There's a couple of other just kind of factual points I want to talk about. The license doesn't go away after 4 years. Yes, there is a termination clause. So technically, it could. But I don't anticipate this company doing that. They have a lot of customers using their point of sale. They paid a lot of money for that license. So I think it's highly unlikely, and that means we continue to get an ongoing residual. So just to be clear, the money doesn't stop. The set monthly payments due, but an ongoing residual does continue as long as that relationship is in place. And again, I'll just reiterate, we've grown a lot of our products since then. Our POS has done phenomenal in the last 18 to 24 months in its growth. So all in all, I would say come September, we will have covered fully that gap. If not fully, there might be a couple of months where we might have to dip into our reserves and cover some of that cash that we would have otherwise had. But that's -- we're looking at 300,000-ish kind of. And at that point, I feel like we should have over $3 million in the bank, we'll be able to easily cover any sort of burn that, that might cost. So -- and it is our goal, and we think it's very reasonable to finish Q4 with positive EBITDA, not adjusted EBITDA, not that extra cash, but true positive EBITDA. So full profitability without the dependence on that large cash payout from that licensing deal is where we -- what we are planning on finished Q4 with. So long answer there, but I think it is -- like I said, I think it is the question if you're a savvy investor in POSaBIT. This is the thing that's probably top of mind, and I want to give you comfort in knowing that not only have we been planning for this -- but because we've been planning for it, we've already taken that gap and condensed it down to a really small manageable number that we feel extremely confident we'll be able to recover and move forward and maintain our profitability as we go into Q4. So with that, I just want to thank everyone again, and I apologize for the moving this call to Friday. If you have any questions -- additional questions like Oscar said, please do e-mail [email protected], and we will respond to them. I will make sure I respond to all those. And I wish everyone a great weekend. And with that, operator, you can end the call.

you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.