U.S. Markets close in 11 mins

Edited Transcript of PAY.TO earnings conference call or presentation 25-Nov-19 6:00pm GMT

Q3 2019 Posera Ltd Earnings Call

TORONTO Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Posera Ltd earnings conference call or presentation Monday, November 25, 2019 at 6:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Akash Sahai

Posera Ltd. - Executive VP of Strategy & Business Development and Director

* Daniel Joseph Poirier

Posera Ltd. - CEO & Director

* Kevin Nathaniel Mills

Posera Ltd. - CFO

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Posera Third Quarter 2019 Results and Business Update Conference Call. (Operator Instructions)

Dan Poirier, CEO, you may begin your conference.

--------------------------------------------------------------------------------

Daniel Joseph Poirier, Posera Ltd. - CEO & Director [2]

--------------------------------------------------------------------------------

All right. Thank you, operator. With me here in Montréal, I have Akash Sahai; and we have on the line, Kevin Mills, our CFO; and Tom McCole, our Chairman of the Board. From an agenda perspective, Kevin will walk you through the Q3 financials, and I'll give you a brief update on the Maitre'D product lines and KDS product lines, and Akash will take you through some of the -- an update on our strategic review.

With that, I'll turn it over to Kevin.

--------------------------------------------------------------------------------

Kevin Nathaniel Mills, Posera Ltd. - CFO [3]

--------------------------------------------------------------------------------

All right. Thank you, Dan. I'll take a minute to read the ground rules for today's call particularly as it applies to forward-looking financial information. The discussion today could include forward-looking statements that are based on current expectations, which involve risks and uncertainties associated with our business and the environment in which our business operates. Any statements contained herein that are not statements of historical facts may be deemed as forward looking, including those identified by expressions of anticipate, believe, plan, estimate, expect, intend and similar expressions to the extent that they relate to the company or its management. The forward-looking statements are not historical facts, but reflect Posera's current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause the actual results or events to differ materially from current expectations, including matters discussed in the Risks and Uncertainties section of the company's annual information form, which was filed on April 1, 2019, with the regulatory authorities.

Posera assumes no obligation to update forward-looking statements or to update reasons why actual results could differ from those reflected in the forward-looking statements unless required by law.

Now that those formalities are out of the way, and prior to reviewing the financial results, I'd like to remind attendees today that seasonality does influence Posera's financial results, whereby, the first and third quarters tend to be seasonally weaker quarters, and whereas, the second and fourth quarters tend to be seasonally stronger.

On to the financial results for the third quarter of 2019 for Posera Ltd. Total revenue was $1.7 million for the third quarter of 2019. This represents a 26% decrease from the third quarter of 2018 and a 13% decrease compared to the second quarter of 2019. The decrease in revenues, year-over-year, was driven largely by a reduction in KDS sales given there were -- was a larger customer deployment of KDS units in the prior year, which helped boost revenues during the 3 months ended September 30, 2018.

Recurring revenues are a key non-GAAP financial metric measured by the company, which includes certain components of revenue, such as maintenance contracts, referral revenue-sharing agreements and other recurring revenue arrangements. Although the company experienced a decrease in total revenues, the company's recurring revenue increased 5.1% and 0.5% during the third quarter of 2019 when compared to the third quarter of 2018 and the second quarter of 2019, respectively. The company's recurring revenues are comprised of both contractual and transactional revenues.

During fiscal 2018, the company provided a $2.2 million secured loan credit facility to DLT Labs, Inc. As at September 30, 2019, the note receivable was overdue and IFRS accounting policies related to financial instruments require that the company, on a periodic basis, complete an estimation of credit losses. The company recorded a loss allowance based on the probability weighted default model of approximately $665,000 during the third quarter of 2019, which was in addition to the loss allowance of $768,000 that had been previously recorded, bringing the aggregate loss allowance to $1.62 million as at September 30, 2019.

The full balance of the net note receivable, which was approximately $2.4 million, including interest, as at September 30, 2019, remains owing and is secured by assets of the borrower.

The company's normalized EBITDA for the third quarter of 2019 was a loss of $687,000, which was an increase in the loss by $351,000 from the third quarter of 2018, but a decrease in the loss by $17,000 from the second quarter of 2019. Through the review of the 9 months ended year-to-date results for 2019 when compared to 2018, the company has achieved a year-to-date reduction in operating expenses, specifically relating to technology and general and admin expenses. The increase in the normalized EBITDA loss during the third quarter of 2019, when compared to the third quarter of 2018, resulted primarily from the decrease in quarterly revenues, which was not offset by a reduction in the operating costs between the comparative periods.

Management continues to focus its attention on reducing controllable costs. The reduction in expenditures was driven by a reduction in headcount in specific functional areas in addition to reduction in facility expenditures incurred by the company, while also eliminating the lease obligation into the future. The company's net operating working capital was $4.8 million as at September 30, 2019, compared to $9.9 million and $6.6 million as at September 30, 2018 and June 30, 2019, respectively. The reduction in working capital in the comparative periods resulted primarily from the losses incurred by the company during those comparative periods.

We're almost there, everyone. My apology for taking so long. I just have one more section to discuss. The company in the first quarter of 2019 included a new disclosure relating to the adoption of IFRS 16 relating to leases, which became effective on January 1, 2019. From January 1, 2019, leases are recognized as a right-of-use asset with a corresponding lease liability at the date which the lease asset is available for use by the company. Each lease is allocated between the liability and financing costs. The financing cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is then depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. The company elected not to recognize right-of-use asset and lease liabilities for the short-term leases that have a lease term of less than 12 months from January 1, 2019 and the leases with low dollar value. These leases have been treated as expenses over the remaining lease term.

The change in accounting policy for IFRS 16, effective January 1 balance sheet, with the inclusion of approximately $180,000 of right-of-use assets and lease liabilities, effectively grossing up the balance sheet from what was displayed on the year-end audited December 31, 2018, financial statements. Further disclosures surrounding the adoption of IFRS 16 relating to leases can be reviewed in Note 2 related to the changes of accounting policies and Note 15 relating to right-of-use assets and lease liabilities in the third quarter of 2019 condensed, consolidated financial statements for Posera Ltd. With that, I'm going to turn the call back over to Dan.

--------------------------------------------------------------------------------

Daniel Joseph Poirier, Posera Ltd. - CEO & Director [4]

--------------------------------------------------------------------------------

All right. Thank you, Kevin. As Kevin mentioned, we had some softness in Q3 relative to Q3 2018. Now the key drivers for that were some softness in our KDS business relative to some success we had in 2018 as well as some softness in the direct Maitre'D business. Behind the scenes, we've been working really hard on our product strategy and bringing our strategy to our dealer network and our direct customer base. With that end, we -- in Q3, we had a dealer road show, whereby, we had more than 40 dealers in the North American sector engaged in 3 different conversations -- 3 different meetings to outline our product strategy and really, the 3 pillars of our product strategy going forward being: mobility, SaaS and cloud. Mobility is really a convergence of payment and table-side ordering onto one device, particularly around the U.S., where we have a prevalence of new Android-type payment devices, whereby the Maitre'D app could be running in that device as well as the payment app as well. So that's kind of driving some more convenience and product competitiveness relative to the requirements of that market.

We are planning on rolling out -- that was -- that tablet is a Microsoft Windows-based tablet, but in Q1, where we also are rolling out our Android and iOS solutions for that product.

SaaS is being rolled out as an augmentation to our existing business model. Right now, we're selling licenses effectively -- perpetual licenses, on -- through our dealer network and directly, but we're augmenting that business model with a new SaaS model that will include bundled Maitre'D software, data board, our analytics application as well as services -- a range of services from business day services through to 24-hour -- 24/7 services. And that's -- software support and help desk services that will be offered directly as well as through our dealer channel.

I mentioned cloud. We've rolled out data board advanced reporting over the past several months, but we're getting some traction with that. And effectively, what that is, is every invoice is posted to the cloud and our customers, our merchants and our dealers are able to access that information on a real-time basis or on a historic basis. It also operates as a backup for some of our sales data for our customers.

So the combination of the technology that we're rolling out and the new business models are focused on driving our recurring revenue. As Kevin mentioned, we continue to grow our recurring revenue, and that's clearly a focus as we go forward.

On the KDS side, we've released new software releases that will give us access to the table dining market. Historically, the KDS has been focused on the QSR world, or quick service restaurants, but the new software, and of course, its features that we built in will help us -- give us access to more table dining, especially as customers are looking for a greener approach or a paperless approach to running their kitchens.

We've also had some success over the past couple of years with KDS in the C-Store world, which represents a new market for us. And this is really around convenience stores and gas stations that have made-to-order food in-store as they're looking at diversifying their revenues, and the KDS system can help them manage their kitchen more efficiently and really focused on speed of service and analytics around that.

We continue to have success in the hotel sector. Recently working with a company called protel, yet another -- the latest PMS, or Property Management System, partner we have in this sector, and we've received 2 orders on the West Coast of Canada that will be deployed very soon.

So I think that's it for me. I'm going to turn it over to Akash, who'll take us through an STP update and then a strategic review of -- the strategic review that we've been doing.

--------------------------------------------------------------------------------

Akash Sahai, Posera Ltd. - Executive VP of Strategy & Business Development and Director [5]

--------------------------------------------------------------------------------

Thank you, Dan. I'll be very quick on the SecureTablePay business because I'm sure most people on the call want to speak more about the strategic review process and the press release that was issued just a few minutes ago. But let me start with SecureTablePay and say -- we've made a lot of progress on the SecureTablePay product. You've seen some of it separating the 2 parts of the business. You've seen some of -- the significant part in Canada already with TD Merchant services, the one large processor we -- working for the last 8 years, and we haven't had a new processor added in Canada since 2015, and we're really fortunate to be adding the largest in TD Merchant services. It is -- we are just now beginning a project with TD in terms of going to market. We have probably about 15, 20 installations with TD so far, all without marketing. We issued a press release, and now we're beginning a marketing campaign with them moving forward. What we should see with TD in the next calendar year would be -- their representative market share in the business would be 20% or 30%, I think, of the Canadian market. And hopefully, we would look to see that kind of increase to our sales in Canada from adding TD.

The more significant part of the accomplishments for SecureTablePay is the completion and live installations of our new generation product. As you may remember, we have been working on for the last 1.5 years. We completed this summer our new generation product, which has a new architecture, a new design, a new user interface, and really, a new technology on new devices. So a really new product that we've been working on for about 1.5 years. And we now have around 20 live installations in both Canada and the U.S. with that new product. We actually have not -- which is an Android app that works for clarity, that works on a variety of the new-generation devices from Clover to PAX to the Ingenico mobi device. We have not actually done press releases about that yet because we are waiting for the pilot period to be over. All of those would be partner announcements with the partners as we go forward with a big bang launch of the new generation product.

But the great thing is that it's working well. We have a lot of receptivity in the market. In fact, our -- one of our earlier installations that we had with Briad, as you may imagine, we've actually been working on switching them now from the old product to the new product because it really is a slam dunk in the market for anyone who has our old product to want to move to the new product in the marketplace. And we are the leader, clearly, in Canada on the integrated pay-at-the-table solution. And -- but our biggest -- people often ask me, who's your biggest competitor, and my answer is, our biggest competitor are people who have a nonintegrated solution in the Canadian marketplace, which really makes up about 80% of the market. And I think now that we have a product that's truly different than the product that's been in the market for the last 10 years in Canada with a much better looking feel and functionality that we'll be able to not just increase our existing base by -- of merchants by 20% or 30% as we've been doing, I think, 35% growth over the last 2 years, but to move to tackle that 80% in the market that doesn't have a integrated solution by now, giving them an integrated solution. And similarly, in the U.S., where our old product was never going to be good enough to really penetrate the U.S. market, we know now that our new product is and that we're excited about now finally penetrating the big U.S. market with our new product.

But the -- so that's really the update on SecureTablePay. Let me turn to our strategic review process. As I think all of you have seen, hopefully observed over the last 2, 3 months, we have really hit a great inflection point for our business over the last few months. The investments that we've made in our business for the last 1.5 years on the product side for SecureTablePay, for Maitre'D, for KDS, allowing us to launch a new business model with SaaS, finally having our product have mobile and cloud functionality, which is now really -- I love the pun, so table stakes in the industry, and we're finally there and able to take stalwart, steady Maitre'D that -- up back to the forefront of the hospitality technology market. And just as we're reaching that inflection point, it's a great time for us to now have the next launching pad for our business. And as you'll see from the press release -- today's press release, that launching pad is PayFacto Inc. PayFacto has agreed, and we've signed an agreement just earlier today for PayFacto to acquire 100% of the shares of Posera in a all-cash transaction for all the shares of Posera on a cash-free, debt-free basis for an amount of $14.5 million.

Obviously, it's still very early in the process. We're announcing the deal since we actually have a signed agreement. We now -- obviously, there's some time between the signature and closing so just making it clear for everyone on the market, you're all -- for those of you -- most of you or many of you are experienced investors and know that the next stages for us would be to call a shareholder meeting, which we will be calling in the next few days. We'll call our shareholder meeting. We'll need at least 45 days of lead time, so that meeting will happen in mid-January sometime and after both the -- an -- a shareholder approval as well as a court order and approval in front of a judge, the deal would close. So we're looking at a closing of the deal in the mid-January time frame.

In terms of some other specifics, I'll just tell you all a little bit about PayFacto. PayFacto is a very unique company in that it's really one of the only nonbank members of -- and shareholders of Interac. It has -- it's a new payment process. It started out as an -- really as an ISO, but has their own switch as well with a direct connection for card-processing transactions, and they're a Montréal-based company. We're really excited to work with them. Obviously, the synergies between payment processing and POS is not something new to the market, whether that's both in the Canadian marketplace and the U.S. marketplace. There are many examples of payment processors or ISOs acquiring POSs with a strategy to bundle the processing and POS products and take that to market to both of the collective base of customers of the processor as well as of the POS. I'm sure that strategy is clear on its face in terms of the acquisition and the justification for the acquisition.

I will say, having now had the opportunity to spend some time with the management team of PayFacto, I think the synergies between the 2 organizations goes far beyond just what you see on its face of payment processing and POS and that there is a really good alignment of culture, of objectives, of vision for the industry and the business. And so we are thrilled at Posera to be working with, and partnering with, and to be acquired by PayFacto. We -- I think it gives us the runway -- the financial runway that we'll need to complete the strategy that we've embarked on and the successful path that we've -- that we're now on in terms of putting out the best possible product that we can in the marketplace and moving to a greater recurring SaaS business model, and they're aligned with that strategy and will help fund that strategy as well as -- we have 30,000 more merchants now that our PayFacto merchants that will be trying to sell Maitre'D and SecureTablePay to. And obviously, they have 16,000 more merchants that use SecureTablePay and Maitre'D that they'll be trying to sell PayFacto's products and services to. So -- and really looking forward to working with them on it.

I know one of the questions that shareholders will have is, well, what's the exact price? We -- there are a few steps from today to closing and 2 months more to go by. We do have a, as you know, a little bit of a cash burn that we've made lots of steps to try to minimize, but there is some of that, that will still occur between now and close as well as a variety of closing costs that we'll incur. And we're not -- we don't have exact numbers for those 2 elements but are working on that. And those will be taking the cash minus the operating losses for the next 60 days before close as well as the closing costs and reducing that -- subtracting that, obviously, from the cash on hand and then adding it to the $14.5 million price. Of that $14.5 million, there is $1 million that will remain in escrow for the next -- up to 48 months. And so it'll be only the $13.5 million less the cash that then gets distributed to the shareholders immediately upon the close of the transaction, and then there will be a further distribution upon the release of the escrow amount as well as the collection of the loan from DLT. Hence, we've provided a range of potential values for the share that shareholders will eventually get from the transaction.

I think that's really it in terms of sharing the key points, both in terms of the nature of the deal, the nature of the purchaser, the timing, et cetera, of the steps from here to close. And most importantly, I guess, can't emphasize enough that we think that this is a great transaction for Posera shareholders as well as for Posera employees. We're really excited to announce it to the market and to share it with you, and we're really excited to move forward over the next 60 days to close that transaction and begin the next chapter in Posera's history as well as to thank all of -- thank and reward all of Posera's shareholders for their faith in the company over the last few years.

Dan, I guess, turn it back to you for any wrap-up and then for Q&A.

--------------------------------------------------------------------------------

Daniel Joseph Poirier, Posera Ltd. - CEO & Director [6]

--------------------------------------------------------------------------------

All right. Thanks, Akash. Obviously, very exciting news, and we're really pleased that the path forward is clear. I guess, we'll open it up to Q&A at this point, operator, and Kevin.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And there are no questions in queue at this time. I turn the call back to the presenters.

--------------------------------------------------------------------------------

Daniel Joseph Poirier, Posera Ltd. - CEO & Director [2]

--------------------------------------------------------------------------------

All right. Well, appreciate everyone attending the call and look forward to talking very soon. Akash has mentioned, we'll be announcing a shareholder meeting in early January to go through the deal in more details and look forward to meeting you there. Well, that's it. We'll just sign off at this point. Thank you.

--------------------------------------------------------------------------------

Akash Sahai, Posera Ltd. - Executive VP of Strategy & Business Development and Director [3]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.