Greenbox POS

Good afternoon, ladies and gentlemen, and welcome to the Greenbox POS Third 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 open 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 September 30, 2021, and will be filed with the SEC. On our call today is Greenbox POS 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 the next 90 days 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 third quarter 2021 financial results conference conference. The third quarter of 2021 was instrumental in laying the foundation for the next phase of our company's growth. We continue to make great strides in expanding our processing volume, which, again, set a company record. We're incredibly proud to have crossed the $1 billion mark in processing volume for the first time and reached over $1.4 billion year-to-date, only eight months after deploying our Generation 3 rapid-scale technology. The financial payment industry is racing towards digital currency adoption, and Greenbox is building both the infrastructure and scale to play a key role as the backbone of payment and banking solutions globally. Armed with a strong balance sheet, including our recent capital raise, we are well positioned to continue to successfully execute on our acquisition strategy while also expanding into the lucrative stablecoin market with the upcoming spinoff of Koini. I'm grateful to Greenbox and Koini team for their dedication and our shareholders for their ongoing support. I would like to walk through some of our key operational highlights. First, we continue to gain traction with our processing business and achieved another company record during the third quarter processing of over 540 million in transaction volume. This is nearly 14 times our transaction volume in the same quarter last year prior to the launch of Generation 3. As we have processed over 1.4 billion, and are on track to exceed our prior guidance of $1.85 billion for 2021. We expect this robust growth to continue both organically and through acquisitions of processing portfolios. In upcoming announcements, we will discuss particulars of any additional acquired portfolios. It's worth noting But some of these portfolios are in excess of $1 billion per year. And we expect them to close soon and fully contribute to our 2022 volume. One of our core achievements recently was raising the capital needed to fund our strategic expansion plan. In closing on a $100 million convertible note financing, we fortified our balance sheet to pursue accretive acquisitions and obtain key licensing assets, which will greatly enable Green Book's ability to offer payment and banking solutions to businesses. A portion of the proceeds will also go to the revolver capital in custody for COINI to continue and scale adoption. Finally, We continue to drive our payment solutions technology forward by investing in developers and infrastructure that will continue to enhance our customers' experience and offer new solutions leading to new business opportunities. Quick update on the Transact Europe acquisition. While the regulatory review to close this acquisition is ongoing, we were able to get approval for revenue sharing on the Transact Euro portfolios that are processed on the Greenbox blockchain. As part of the agreement, we also obtained approval to leverage Transact Euro licensing in Europe. This allows Greenbox to expand its offering, including merchant accounts, payment accounts, foreign exchange services, and a host of other service offerings to prospective European clients. It will also provide Greenbox the opportunity to offer our domestic clients a way to expand into Europe, greatly enhancing value for existing and prospective U.S.-based clients. As previously discussed, transactional management that is being retained will have earn-out compensation based on monthly processing volume hurdles of at least $100 million per month. We expect TransLux Europe to play a significant role in our growth and international expansion during 2022. We were pleased to strengthen our leadership team by adding Robert Horton as Chief Technology Officer. Robert brings an impressive background to Greenbox with over 25 years of experience in leading the design, implementation, and operation of mission-critical information technology strategies and systems for global enterprises. His skills will drive improvements for Generation 3 and future generations of Greenbox payment processing technologies. It will also ensure that technology from acquisition is seamlessly integrated and accompanies product suites. A quick update on the Territorial Bank of American Samoa. As a reminder, Greenbox is essentially becoming the processing infrastructure for the entire island. This is a very exciting case study, and we believe will unlock additional opportunities of similar nature. We will provide the Territorial Bank of American Samoa consumers and business banking customers with state-of-the-art technology, including merchant and money transmission services, credit and debit card processing, ATM processing, and EBT processing. Much has been made since our initial announcement And we expect to begin seeing processing results from this in early 2022. We continued to work diligently towards the eventual spin-off and IPO of Koini, our smart contract stablecoin business. We recently announced its corporate headquarters would be in Miami. Let me explain why this is chosen. Miami is an attractive hub for fintech companies as a multicultural region that is supportive of digital currency trends with branches to South America and the Caribbean. Additionally, their mayor, Francis Suarez, is a strong proponent of Bitcoin and digital currency. For example, the city hosted this year the Bitcoin Conference and is moving towards the acceptance of tax payment in Bitcoin, enabling city workers to be eligible to receive part of their pay in Bitcoin. We are very pleased to announce Paul Levine as the chief executive officer and co-founder of Coiny. For those of you who aren't familiar with Paul, he is a successful and versatile entrepreneur and technology innovator. with 30 years experience in the payment business with both Fortune 100 and startup companies. As president of payments at Planet Payments for the last decade, he led the development and management of its direct acquiring cross-border and e-commerce portfolio, resulting in over a billion dollars in processing volume. We're very confident that Paul is the ideal fit to lead our COINI business from upstart to IPO and beyond, and we couldn't be more excited to have him on board. We also plan to increase the revolver capital backing the COINI infrastructure at Signature Bank with a total of 25 million. COINI has been available for several hundred early adopters, who have been using it for a few months now. And we will continue to add users in short order as we ramp up the capital backing it. Finally, we expect the registration statement for COINI to be filed shortly, and we'll look to announce the first dividend record date as previously discussed. On the capital markets front, we continue with our share repurchase program through the quarter, and we'll continue to do so from time to time. I'd like now to turn the call over to our Chief Financial Officer, Ben Chang, to walk through some key financial highlights from the third quarter of 2021. Thank you, Ben.

Greenbox continues to be in a financially healthy position at the end of the third quarter. We are very pleased to complete a $100 million financing through our convertible note offering. The additional capital allows us to fund the TEU acquisition, secure additional accretive acquisitions, scale the custodial revolver that backs Coiny, our stable coin business, and last but not least, have additional capital to continue to develop our core blockchain-based payment technology. Before I go through our quarterly results, I would like to point out that we are a calendar year-end company. Therefore, our third quarter of 2021 is for the three months ended September 30, 2021. I'm now going to go through our quarter-end results. We continue to see solid 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 net revenue for the nine months ended September 30th, 2021 was 19.1 million compared to 5.5 million in the prior year same period. An increase of 13.6 million due to strong processing volume. Our third quarter of 2021 quarter had net revenue of 8.0 million compared to 3.1 million in the prior year same quarter, which is an increase of 4.9 million or 166% also primarily due to strong processing volume. Our processing volume for nine months ended and for three months ended September 30, 2021 was approximately 1.4 billion and 540 million respectively, an increase of approximately 0.9 billion. We had a quarter to quarter increase in processing volume compared to Q2 2021 and Q3 2021, an increase of $74 million from $466 million in Q2 2021 to $540 million in Q3 2021. We expect continued quarter-to-quarter growth in the processing volume throughout the rest of the year. As you can see from our net revenue results and processing volume, the margin profile for the portfolios we are onboarding continue to be in low category. This is not necessarily a bad thing, and as a reminder, this is absolutely necessary in order to process more high-risk, high-margin business to diversify our volume portfolio. We do expect margins to shift to higher mix in Q4 2021 as we complete the acquisitions scheduled for the year. Our gross profit was $5.6 million for the third quarter of 2021 compared to $1.2 million in the same quarter prior year, an increase of $4.4 million. For the nine months ended September 30, 2021, our gross profit was $13.8 million compared to $2.0 million in the same period, an increase of $11.8 million. Our gross margin was 70% in the third 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. As previously mentioned, 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 our independent sales organizations and gateway fees. I would like to now discuss about operating expenses. Once again, I would like to point out that our operating expenses are not directly correlated with our net revenue, primarily because of the scalability of our revenue from a small number of employees due to our technology and the business we're in. We categorize our operating expenses into two categories. normal operating expenses and non-cash operating expenses. Normal operating expenses include marketing, research and development, payroll, professional and general expenses, while non-cash operating expenses include stock compensation expenses for employees and for services, including depreciation. Our normal operating expense was $3.9 million and $1.5 million for the third quarter of 2021, and 2020, respectively, an increase of $2.4 million primarily due to increase in research and development related to token technology development, 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 will not recur going forward. We ended with a loss from operations of the third quarter of 2021 of $2.8 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 $1.7 million for the third quarter of 2021 and a net loss of $0.2 million in the same quarter prior year, and $4.6 million for the nine months ended September 30, 2021, and a loss of $1.6 million in the same period in the prior year. I would now like to go over, go to our other expense category. Our other income or expense for the third quarter of 2021 was approximately $42,000 compared to 0.2 million of other expenses in the same quarter prior year. The 0.2 million of other expense in the same quarter prior year was primarily due to derivative expense offset partially by changes in fair value of derivative liability and interest expense related to debt discount. Our other expense for nine months ended September 30, 2021 was $4.0 million, of which $2.9 million was related to interest expense of debt discount, $0.6 million related to interest expense, and $0.4 million related to merchant liability settlement expense, compared to $0.8 million of other income for the nine months ended September 30, 2020. Our overall net loss was $6 million for the third quarter of 2021 compared to $0.5 million of net income in the same quarter prior year. Our overall net loss was $19.4 million for the nine months ended September 30, 2021 compared to $0.8 million of net loss in the same period prior year. The increase in net loss can be attributable to higher stock-based compensation for employees and services, as well as tax provision. Adjusted net income, a non-GAAP measure for the third quarter of 2021, was $1.7 million compared to a loss of $2.0 million in Q2 2021. You can find reconciliation in our earnings press release or 10-Q file with the SEC. Our cash flows from operating activities was negative 14.0 million for the nine months ended September 30, 2021, compared to a negative cash flows of 0.1 million in the same period prior year. The negative operating cash flows was primarily due to timing of settlement of receivables from gateways and payables to merchants. We had cash balance of $29.7 million at the end of the current quarter. Overall, we believe our financial position is extremely strong, and we will remain well positioned for future growth and profitability. I'll now turn the call back to Ben Neres for our outlook.