Greenbox POS

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.

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.

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.