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spk01: Good afternoon ladies and gentlemen and welcome to the Greenbox POS second quarter 2022 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following management's remarks, the conference will be open to questions. The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report includes the company's results of operations, for the three months ended June 30, 2022, was filed with the SEC today. On our call today are Greenbox POS Chairman Ben Arras, Chief Financial Officer Ben Chung, and Chief Operating Officer Min Wei. 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 the 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 Arras, the company's chairman. Ben, the floor is yours.
spk03: Hello, and thank you all for joining our second quarter 2022 financial results conference call. We are delighted to announce that our second quarter of 2022 at Greenbox was marked by excellent financial results, along with steady progress on several key initiatives. Let's further establish our standing as an emerging force on the fintech landscape. We achieved yet another company record quarter processing volume of over $1 billion, more than double the volume versus the same quarter a year ago. As many others believe, we too consider processing volume as the best proxy to predict our growth trajectory in the global digital financial transactions industry. In addition to amazing processing volume results, we also accomplished a number of critical operational objectives, as well as strategic partner and customer enhancement. During the second quarter, we strengthened our core business infrastructure within the sales, marketing, and operational function, introducing our products in select territories, such as American Samoa, and made excellent progress on development of Koini, our stablecoin platform. We additionally integrated material business capabilities from recent M&As, such as Transact Europe, to launch service offerings in several business domains, including ACH, foreign exchange, and international payment. Despite the challenging macro environment, we remain hyper-focused on execution of our business plan for the balance of the year in order to continue growing processing volume and share of the global marketplace as we look to further scale in 2023. Market turmoil during the second quarter severely exposed certain stablecoin models, that while peg to currencies like the U.S. dollar, use a variety of algorithmic methodologies and non-liquid or risky investment strategies. Here is something that's very important to note. At Greenbox, we ensure that our stable coin, COINI, has available existing reserves in a custodial account to secure liquidity under any scenario. Should anyone want to exit at any time. This means that users of Koini always have the dollar-for-dollar assurance of their assets being available. And as proof of this essential distinction, in the second quarter we became one of the industry's first to ensure real-time custodial account attestation via a lengthy review process of IT compliance and specifically SOC 2 compliance certification from Armanino, a top U.S. accounting, consulting, and technology firm. We consistently challenge the stablecoin industry for improved processes and to 100% fund custodial account and attest in real time two elements that many stablecoin structures do not offer, but that we deem are vital to the industry's long-term success. So while our company has a diverse set of outstanding payment solutions, because of this critical differentiator, we view Koine technology as a significant long-term growth driver for our business. Another partnership in which we have seen major progress in Q2 is with the Territorial Bank of American Samoa, TBAS. After being named the Exclusive Payment Technology Provider in 2021, we are now deploying our plan of providing digital payment solutions in this U.S. territory. Here we have a closed-loop ecosystem that is mostly reliant on cash transactions and tracking these with pencil and paper, being catapulted into tech-driven green box solutions that offer secure, state-of-the-art, high-speed transactions delivering merchant and money transmission services credit and debit card processing, and more. Given the recent exit of a second bank in American Samoa, TBAS is now the only banking institution remaining on the island, allowing for greater green box growth. We have now achieved about 13% market share for this island territory, all gained during the second quarter. This showcases our agility and ability to use our unique technology to serve all types of customer needs. We firmly believe TBAST will prove to be the ideal model market for our COINI platform to implement the same offering to other similar closed-loop geographies. As we've previously discussed, at the end of Q1, we completed the acquisition of Transact Europe, or TEU. TEU is a vital piece of our growth plan, enabling us to effectively deliver the advantages of our customized payment solutions technology to European and UK merchants and begin foreign exchange transaction processing. It also serves as a gateway into the Asian market. During the second quarter, we have focused on infrastructure and packaging our key offerings to maximize the immediately available business building opportunities. Several key strategic initiatives are being deployed to drive growth from this acquisition and are on track to produce revenue growth in the second half of the year. This, coupled with the purchase of the Sky Financial portfolio at the start of Q2, will generate a significant processing volume portfolio for the balance of 2022. As we've grown in Q2, so has our Board of Directors. with the appointment of Adele Hogan, a highly experienced and well-respected transaction lawyer. Adele has already proven material to our recent acquisitions and securities compliance successes and will be an important contributor to any M&A and dividend plans in the future. In anticipation of our continued growth and evolution as a public company and indicative of our continued commitment to strong governance practices, We have also transitioned our auditors to Simon and Edward, an alliance member of BDO. This provides an overview of our accomplishments during the second quarter. I'll now turn it over to our Chief Financial Officer, Ben Chang, to walk us through the details of our financial results.
spk06: Thank you, Ben. I will limit my portion to key results of our financials. A full breakdown is available in our 10-Q filing and in the press release that was distributed after market closed today. Please note that I'll be referring to adjusted EBITDA and other non-GAAP measures. For the calculation of adjusted EBITDA and other non-GAAP measures, please refer to the MD&A, which is available in our 10-Q filing, which you can find on our website under SEC Filings. We continue to see solid 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 net revenue increased by $0.8 million or 6.6% to $11.9 million for the six months ended June 30, 2022 from $11.1 million in the prior year's same period. Our net revenue increased by $0.6 million, or 9.2%, to $7.0 million in the second quarter of 2022 from $6.4 million in the same quarter the prior year. The increase in net revenue was due to the increase in processing volume, but offset by higher fees to gateways and ISOs. Gross profit for the six months ended June 30, 2022, was $5.2 million or 43.5% of total net revenue compared to gross profit of $8.2 million or 73.8% total net revenue in the prior same period. Gross profit in the second quarter of 2022 was $2.8 million or 40.5% of total net revenue compared to gross profit of $5.1 million or 79.3% of total net revenue in the same quarter a year ago. Our cost of net revenue and gross margin will be primarily driven by our negotiated commission structure with ISOs which are our independent sales organizations and gateway fees. The decrease in gross profit was primarily due to the increased cost of revenue resulting from higher processing fees paid to gateways and commission payments to ISOs. I would like to now discuss our 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 are in. We distinguish our operating expenses into two categories, ordinary operating expenses and non-cash operating expenses. Ordinary 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 ordinary operating expenses were $15.4 million and $5.3 million for the six months ended June 30, 2022 and 2021, respectively, an increase of $10.1 million. Our ordinary operating expenses were $7.7 million and $3.1 million for Q2 2022 and 2021, respectively, an increase of $4.6 million. The overall increase was primarily due to an increase in general and administrative expenses related to increased headcount to support operations and sales growth, as well as heavy investment in R&D to improve our technology. Our non-cash operating expenses are primarily related to stock compensation expenses for employees and services and depreciation and amortization expenses. We ended with a net loss from operations of $15 million for the six months ended June 30, 2022, compared to $9.4 million in the same period the prior year. Other expenses decreased by $8 million to a net other income of $4 million for the six months ended June 30, 2022 from a net other expense of $4 million in the same period the prior year. Interest expense increased significantly for the six months ended June 30, 2022, as compared to the same period in the prior year due to the $100 million convertible note issued in November 2021. We also recorded an income from changes in fair value of derivative liability in the amount of $18.7 million for the six months ended June 30, 2022, and none in the same period the prior year. Comparing Q2 2022 versus Q2 2021, other expenses decreased by $19.1 million to a net other income of $19.1 million for Q2 2022 from nil for Q2 2021. Interest expense increased significantly in Q2 2022 as compared to Q2 2021 due to the $100 million convertible note issued in November 2021. Amortization of the discount fees and the fair value of derivative liability associated with the note were also contributing factors. Furthermore, the company recorded an income of $26.4 million from changes in fair value of derivative liability expense for Q2 2022 and none in the previous year's same quarter. The company sustained a net loss of $10.9 million for the six months ended June 30, 2022, or a negative $0.26 per basic and diluted share compared to a net loss of $13.4 million or a negative $0.43 per basic and diluted share in the same period the prior year. The company recorded a net income in the second quarter of 2022 of $10.4 million, or $0.24 per basic and diluted share, compared to a flat net income, or $0 per basic and diluted share, in the same quarter a year ago. The increase in net income for the six months ended June 30, 2022, and decrease in net loss for Q2 2022 was primarily due to a decrease in change in fair value of derivative liability and offset by increases in research and development, general and administrative, payroll and payroll taxes, and professional fees as we continue to add staff and infrastructure related to our growth. We ended our cash and cash equivalence balance of $20.1 million in and restricted cash balance of $26.5 million as of June 30, 2022. Overall, we believe our financial position is strong, and we remain well-positioned for future growth and profitability. So with that, I'll now turn the call over to Min Wei, our Chief Operating Officer, to provide a review of business operations and outlook for the back half of the year.
spk02: Thank you, Ben. We highlighted several revenue-generating channels in our recent CEO letter at the end of June. I'd like to take this time to take us through the material revenue contributors and provide an update before turning to our outlook for the second half of the year. Our Q2 volume across all the channels is north of $1 billion, about 50% ahead of our internal projection. This is a staggering 40% increase when compared to our Q1 processing volume of $754 million. In our acquiring business, including the recently added Sky Financial portfolio, Q2 volume was $769 million, which outpaced our expectations by over 38%. We expect our acquiring line of business to continue exceeding processing volume targets through the balance of the year. Next, ChargeSavvy contributed over 6% to our total processing in Q2, and it is currently tracking at 10% higher than the plan. When compared to the same period in 2021, this quarter's volume is 64% better. Our ACH business reported $17.9 million in volume since the service went live in the later part of Q2. This is 35% ahead of our expectation for the quarter. And it demonstrates great progress towards the $15 million monthly volume to be activated. We predict this business will represent 8% of our total 2022 business. Our FX and international payments business line, including Transat Europe, has seen significant momentum in the quarter. We over $184 million in business volume of which $164 million is attributable to FX conversion and international payment transactions. The actual volume is more than double our estimate for the quarter. As Ben Eris mentioned, we launched our merchant service business in American Samoa this past quarter. As of the end of the quarter, we have commenced services with about 13% of the total number of target merchants on the island. We are currently on track to complete our phase one loadout by end of October, servicing 40 to 50% of the merchant base. Turning back to Corny, allow me to provide an update on our roadmap and development progress. In Q2, we successfully deploy version 1.0 of the Corny public data and complete the core development of version 2.0. which is on schedule to roll out with customers already identified in the pipeline in Q3. We expect a good amount of volume to begin internationally at the end of that quarter. We expect to begin to see moderate volume for Corny domestically in Q4, with international volume ramping up significantly and contributing approximately 20% to our volume profile for 2022 while driving strong fourth quarter financial results. Looking ahead to the second half of the year at our KPI, we now expect to see the following. For processing volume, Q2 2022 set another new record as our best quarter ever. Almost double the volume year over year, which brings our year-to-date volume for the six months and the June 30, 2022 to about $1.8 billion. We look forward to a continuation of this trend during the second half of the year with new processing volume records in each subsequent quarter. We remain confident that we will process at least $4 billion for the total of 2022. Revenue from processing in Q2 is about $7 million as we saw margin during the quarter increase by 21% compared to Q1. As previously mentioned, we are planning for a solid ramp-up in revenue during Q3 and Q4, as ACH and quantity business volumes continue to grow in addition to our traditional payment processing revenues. For adjusted performer EBITDA, we now believe we will break even in Q3, which is a significant improvement as compared to Q2's negative $4.9 million. And we project Q4 to be a minimum of positive $3 million. In terms of operating cash flow, we expect to turn positive starting in Q3. So, operationally and from a growth trajectory standpoint, the landscape is very promising. I'd like to now turn the call back over to Baron Edwards before we begin our Q&A.
spk03: Thank you, Mim. Before moving to the Q&A, I'd like to address any concern pertaining to the $100 million note outstanding, such as the maturity date and the coupon costs weighing on the company cash flow. We have been in ongoing negotiations to modify the note and are pleased to report that we have agreed to terms in principle to the satisfaction of the executive staff and the board of directors. We ask that you stay tuned for a full disclosure of the amendments to the note that is currently being prepared and will be shared in a separate SEC filing. Also, I'd like to reiterate some key points from our recently issued CEO letter that are worth highlighting. We are cognizant of and continuously monitor industry development, the implications of the competitive landscape, and the overall business environment. While there has been a significant disruption in the cryptocurrency and the financial technology industry this year, Brainbox's focus remains on building the infrastructure, partnerships, communication, and technology to achieve our long-term business objectives. We remain highly confident in our ability to create differentiated, customized financial transactions technology and deploy it at scale. Despite the depressed stock price, our commitment to rewarding shareholders is unwavering, and we believe as we continue to build Greenbox into a disruptive financial force, we envision it will ultimately be reflected in a long-term sustainable value for our shareholders. Thank you for your commitment to Greenbox. We are truly grateful for your ongoing support. With that, I'd like to begin our Q&A session. In addition to Ben, Min, and myself, other members of our executive leadership team, including our CEO, Freddie Nisan, and CMO, Jacqueline Reynolds, are on hand to answer your questions. Operator, please guide us through the question and answer session. Thank you so much. Thank you.
spk01: Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Howard Halpern with Taglitz Brothers. Please proceed with your question.
spk05: Good afternoon, guys. Great job navigating these tough waters right now. But my first question is in regards to what was talked about just towards the end about driving EBITDA to break even and then positive. How is that going to be driven by? Reduced gateway and ISO costs? you know, reduced G&A expense. How should we model and profile that move from what you had in this quarter to the third quarter and to break even and how that's going to happen?
spk03: First of all, Howard, thanks for your continued support. Min Wei, our chief operating officer, will take this question. Min, go ahead.
spk02: Hey, Howard. Hi. Thank you for the great question. So as we continue to build momentum across all the major revenue channels, we expect to see increasing volume in the main acquiring business as well as ACH channels, FX, international payments channels. So we expect to see rising revenue while being able to sustain and control costs.
spk05: Okay, okay. And in terms of how the launch is going with American Samoa, how should we look at it in terms of you say right now you've got 13% market share? What should we expect the ramp to be in the second half of the year and into the first half of next year as you gain momentum there?
spk02: Yeah, sounds good. Just zoom in, Howard. So, you know, we have a very deep, great relationship with T-BAS. We work closely with the senior leadership at the bank. We have already charted out the merchant base on the island. As indicated earlier, you know, by end of October, we expect to get 40% to 50% of the merchant base on the island. And we already have planned to go beyond even phase one. to continue to ramp up because we can actually have the only exclusive banking relationship, and T-Best is going to be the only bank on the island. So we do expect to see revenue ramp up and improve contribution margin from that particular business project.
spk03: Howard, I will add to that. This is Ben Ayers. Okay. Our activities in American Samoa should be considered as a large-scale test case for other closed systems. And we anticipate that they already are working on additional such systems who are closely monitoring the success over there. Within one quarter, getting to 13% of market share and anticipating growing to 40% minimum in the third quarter of the year is a major achievement. The American Samoa is an amazing opportunity for the company, and we intend to capitalize on it to the largest extent that we can.
spk05: Okay. And so from my understanding of what you said, you actually have a growing pipeline of interested parties that are monitoring your activities in American Samoa to make sure everything is, it's a closed loop locked up tight. And once, once proven, you'll be able to green light many more projects, hopefully by the second half of next year.
spk03: That's exactly the case. We anticipate exactly that.
spk05: Okay. And one last one on the, you know, the acquisition of TEU and you talk about it being a gateway. but you've been building the infrastructure. Do you still have a ways to go building that infrastructure before you deploy a sales team or, you know, to try to break through and get into the Asia Pacific market?
spk03: I'll let Min Wei again take that. Go ahead.
spk02: Yeah. Hey, Howard. What we do is we... take a very kind of a full and mature business development and sales approach, right? We build a sales pipeline. We identify strategic channels and partnerships. And as we unblank and lay out additional opportunities in a peripheral business, we can ramp up and those will be executed in accordance with our business realization process. So we are having a lot of momentum in the European market. we started seeing rising, you know, interest both in North America as well as Asia Pacific leveraging the, you know, Transat Europe, you know, business, you know, platform and licensing. So that's how we approach it.
spk03: I will add to that. To your questions with regards to the gateway to Asia Pacific, I state in other calls and earlier on this call that the The company is looking very closely at opportunities on the M&A plane, both in Europe and in Asia Pacific. And we think that the great opportunities are waiting for us over there. Most of those are designed to operate through the pipeline in Europe that we already own and operate. But we are looking at other opportunities in Asia-Pacific as well.
spk05: Okay. Well, one last one since you mentioned the M&A potential. What are you seeing out there in terms of what multiples are compared to maybe even this time last year or the end of the year? Have they gotten more reasonable?
spk03: I think you're asking that question because you already know the answer. it is true we do see the global landscape accommodating the current situation we see shrinking channels for capital increased cost of capital and as such the market has reacted and multiples have come down significantly we think But that will actually lead to opportunities, and we're following that with redoubled efforts.
spk05: Okay. Well, congratulations on navigating this tough environment and keep blocking and tackling and, you know, keep moving forward.
spk03: Thank you, Howard. I appreciate your participation.
spk04: Once again, ladies and gentlemen, it is star one to ask a question.
spk01: There are no further questions in the queue. I'd like to hand the call back over to Mr. Erez for closing remarks.
spk03: Thank you, Operator. Before concluding this call, I would like to give a special thanks to Ben Chang. This will be Ben's final earning conference call with us. We appreciate all that he's contributed over the last 15 months with us and wish him the best in future endeavors. Additional information will be forthcoming. in a press release and associated SEC filings starting tomorrow morning before market opens. Thank you all for joining our earning calls today. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach us on our website or directly to our IR firm, the MZ Group, And we would be more than happy to assist.
spk04: Ladies and gentlemen, this does conclude today's teleconference.
spk01: Thank you for your participation. You may just connect your lines at this time and have a wonderful day.
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