Greenbox POS

Good afternoon, ladies and gentlemen, and welcome to the Greenbox POS Second Quarter 2021 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following management remarks, the conference will be opened for questions. The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report, which includes the company's results of operations for the quarter ended June 30, 2021, was filed with the SEC today. On our call today is Greenbox POS's Chairman, Ben Erez, and Chief Financial Officer, Ben Chung. I'd like to remind everyone that statements made on today's call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's regulatory filings for a list of associated risks. The replay of this call and webcast will be available for replay on the company's website under the events section. At this time, I'd like to turn the call over to Ben Erez, the company's chairman. Ben, the floor is yours.

Thank you, operator, and thank you all for joining us today. I'd like to welcome you to the Greenbox POS second quarter 2021 financial results conference call. The second quarter of 2021 was a very productive and successful quarter for Greenbox. We continue to expand our core business merchant processing volume portfolios, deployed our new smart contract token technology, and made several major announcements demonstrating our progress towards continued execution of our long-term global strategy. I would like to thank the Greenbox team for their tireless efforts to move our business forward as we work to disrupt the payment landscape amidst a rapidly growing and evolving market with our blockchain and smart contract stablecoin technology. I would like to walk through some of the key operational highlights and the fundamental developments. We achieved another record-setting quarter, processing over $440 million in transaction volume. As a reminder, this excludes the impact of the charge-savvy acquisition, which was closed in July. This also speaks to successful deployment of Gen3 in the first quarter of this year, which dramatically improved the efficiency of onboarding merchant portfolios and paved the way for a large-scale processing volume seen in the first half of 2021. We also announced several strategic initiatives this quarter that should act as a roadmap for visualizing our long-term growth strategy. First, we completed two acquisitions, Charge Savvy and Northeast Merchant Services, while announcing a third, the pending acquisition of Transact Europe. ChargeSavvy brings a robust processing volume portfolio and POS technology solutions, while Northeast Merchant Services added a book of retail business, estimated to be $145 million in processing volume annually, and a much coveted bin, which will allow Greenbox to act as an acquiring bank. The bin is particularly important as it allows us greater flexibility in managing risk and bringing on large processing volumes quickly. We also entered into a binding MOU for the acquisition of Transact Europe, for which regulatory approval is pending and expected to be completed within 30 to 60 days. This strategic acquisition, if completed, is expected to provide Greenbox with the pathway for rapid expansion into the European market by leveraging Transact Europe's principal level membership of Visa, worldwide membership of MasterCard, a principal member of China Union Pay on top of that. Given Europe's large void in the payment processing space due to the departure of Wirecard, we believe that our technology paired with the right licensing assets, will position Greenbox as a key player in that region. The acquisition is also expected to be accretive, and management compensation will be based on processing volume hurdles that we believe will drive transaction volume and ultimately the adoption of COINI, or smart contract stable coins. Global expansion remains a core objective of Greenbox and will be key to the adoption and growth of our payment and smart contract token technologies. Aside from acquisitions, partnerships will also be an important component of our growth strategy. One such partnership we are pleased to form this quarter is with the Territorial Bank of American Samoa. where we expect to launch a fully customized financial solution to support the entire island of American Samoa. This is a great opportunity to showcase the impact of an adoption of our technologies in a closed-loop system. The initial proof of concept will be fully dependent on the Greenbox ecosystem, which supports merchant services, peer-to-peer payments, electronic bank transfers, ATM, blockchain ledger financial banking, card issuance, and banking-related services. The possibility for Greenbox, through a proof of concept, to ultimately be recognized as a provider for the island's financial services would be an important demonstration of our ecosystems. Another opportune partnership is an example of how our technology can be applied through joint development partnerships. As an example, IS Media will build an NFT platform for blockchain settled visual assets trading. Greenbox will provide the payment gateway and the payment settlement solutions for that platform, while IS Media will develops the NFT platform user interface and user experience. You can expect to see more of these types of partnerships that expand both the processing on our blockchain technology and also create demand for coin. As I mentioned last week on our stablecoin spin-off call, we are most excited about the opportunity that lies ahead with our smart contract technology, branded as Koine. We announced the pilot launch of Koine for early adopters during the second quarter and deposited $5 million into our token custodial signature bank. Currently, transactions are B2B as we test the technology and custodial architecture. Person-to-person deployment is set to be released shortly. and already is being tested internally here. Ultimately, we expect the key growth drivers for our Coinie business to be person-to-person and B2C transaction adoption. By allowing consumers and businesses to transact settled payments and money transfers instantly on our secure blockchain ledger, We believe we are well positioned to achieve significant adoption quickly. All of the discussed acquisitions and partnerships, in addition to the plans to continue these strategic initiatives, provide context for how we intend to build our coin platform into a separate spin-off publicly traded company. We are also evaluating several options to increase the funding of the revolver capital needed for the rapid scaling of our business. We will provide an update on that shortly. On the capital market front, Greenbox stock has been added to the Russell 2000 and the Russell Microcap Index in June. We announced a share buyback program that is still in effect. and a special dividend series based on the planned spinoff and an IPO of our coin platform towards the end of this year. We remain committed to embracing the investment community and our shareholder base by attending conferences and hosting strategic conference calls to more effectively communicate our vision. I'd like to now turn the call over to our Chief Financial Officer, Ben Chang, to walk through some of the key financial highlights from the second quarter of 2021.

Thank you, Ben, for that. Just as a reminder, as I mentioned on the prior earnings call, the company raised substantial amount of capital through our offering in February of this year. which brought us net capital raise of approximately $46 million. This new capital has helped us tremendously for working capital to hire talented people, but more importantly, expedite our enhancements and continuous development of our new token technology, including onboarding process with our customers, including with the rollout of our token technology. Before I go through our quarterly results, I would like to point out that we are a calendar year-end company. Therefore, our second quarter of 2021 is for the three-month end of June 30, 2021. I'm now going to go through our quarter-end results. We had a tremendous net revenue growth due to increased processing volume with our merchants, and we will continue to have growth in our processing volume throughout the year. Our six months ended June 30, 2021 was 11.1 million compared to 2.5 million in the prior same period. An increase of 8.6 million due to strong processing volume. Our second quarter of 2021 quarter had a very strong quarter with net revenue of 6.4 million compared to 2.3 million in the prior year same quarter. which is an increase of 4.1 million primarily due to strong processing volume. Our processing volume for six months ended and three months ended June 30, 2021 was approximately 800 million and 440 million respectively. We had quarter to quarter increase in processing volume comparing to Q1, 2021 and Q2 2021, an increase of $80 million processing volume from $360 million in Q1 2021 to $440 million in Q2 2021. We expect continued quarter-to-quarter growth in the processing volume throughout the rest of the year. Our gross profit was $5.1 million for the second quarter of 2021 compared to $0.9 million in the same quarter prior year, an increase of $4.2 million. For the six months ended June 30, 2021, our gross profit was $8.2 million compared to $0.9 million in the same period, an increase of $7.3 million. Our gross margin was 79% in the second quarter of 2021, compared to 40% gross margin in the same quarter of prior year, primarily due to higher net revenue and improved efficiency in the current quarter compared to the same quarter of prior year. We expect to hold gross margin of between 60 and 70% throughout the rest of the year. Our margin will be primarily driven by our negotiated commission structure with our ISOs, which are independent sales organizations and gateway fees. I would like to now discuss about operating expenses. And more importantly, I would like to point out that our operating expenses are not directly correlated with our net revenue, primarily because of our scalability of our revenue from small number of employees due to our technology and the business we are in. Furthermore, when I talk about operating expenses, I would like to put them into two categories, our normal operating expenses and non-cash operating expenses. The first category of our normal operating expenses includes marketing, research and development, payroll, professional, and general expenses, while the second category includes stock compensation expenses for employees and for services, including depreciation. Our normal operating expense was $3.1 million and $1.1 million for the second quarter of 2021 and 2020, respectively, an increase of $2.0 million primarily due to increase in research and development related to token technology, payroll related to increase in headcount, and professional fees related to compliance. Our non-cash operating expenses primarily relate to stock compensation expense, for employees and services. Our stock compensation expense for services are non-recurring charges which we expect not to incur going forward. We ended our loss from operations for the second quarter of 2021 of $0.0 million compared to $0.2 million in the same quarter prior year. If our non-cash operating expenses such as stock compensation expense for employees and services and depreciation are added back, we had net income from operations of 2.0 million for the second quarter of 2021 and break even in the same quarter prior year, and 2.9 million for the six months end at June 30, 2021, and a loss of 1.4 million in the same period in the prior year. I would now like to go through our other expense category. Our other income or expense for the second quarter of 2021 was approximately none compared to $5.2 million of other income in the same quarter prior year. The $5.2 million of other income in the same quarter prior year was primarily due to non-cash income due to changes and gain in fair value of derivative liability and gain and extinguishment of convertible debt. Our other expense for six months ended June 30, 2021 was $4.0 million of which 0.6 million was related to interest expense, 3.0 million related to debt discount, and 0.4 million for merchant liability settlement expense compared to 1.1 million of other income in the six months ended June 30, 2020. Our overall net loss was 0.0 million for the second quarter of 2021 compared to 4.9 million of net income in the same quarter prior year. Our overall net loss was 13.4 million for the six months ended June 30th, 2021 compared to 0.3 million of net loss in the same period prior year. Our adjusted EBITDA, a non-GAAP measure for the second quarter of 2021 was $2.0 million compared to a loss of $0.2 million in the same quarter prior year and $0.5 million in Q1 2021. You can find reconciliation in our earnings press release related to the non-GAAP adjustment. Our cash flows from operating expense was negative of $13.7 million for the six months ended June 30, 2021, compared to a positive cash flows of $0.5 million in the same period prior year. The negative operating cash flows was primarily due to timing of settlement of gateways and merchants. We had cash balance of $29.8 million at the end of the current quarter. Overall, we believe our financial position is strong, and we remain well positioned for future growth and profitability. I'll now turn the call back to Ben Erez for our outlook.