Q3 2023 RYVYL Inc Earnings Call
Good afternoon, everyone and welcome to rival Inc's third quarter 2023 conference call.
At this time participants are in listen only mode.
A question and answer session will follow management's remarks.
This conference call is being recorded a replay of the call will be available through January 13, 2024 by calling 184451 to two nine to one within the United States or one for 123.
3176671, when calling internationally and entering access I D 10183517, an archived version of the webcast will also be available for 90 days on the IR section of the rival website.
Before we begin I would like to remind you that today's call contains certain forward looking statements from our management made within the meaning of section 27, and eight of the Securities Act of 1933 as amended and section 21 E of the Securities and Exchange Act of nine.
<unk> 34 as amended concerning future events.
These forward looking statements are based on the company's current beliefs assumptions and expectations regarding future events, which in turn are based on information currently available to the company.
Such forward looking statements include statements regarding the timing of the final <unk>.
<unk> of periodic reports with the SEC and are characterized by future or conditional words, such as May will expect intend anticipate believe estimate and continue or similar words.
You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state.
Other forward looking information by their nature forward looking statements address matters that are subject to risks and uncertainties a variety of factors could cause actual result, actual events and results to differ materially from those expressed in or contemplated by the forward looking statements.
<unk> the risk that the completion and filing of the aforementioned periodic reports will take longer than expected and that additional information may become known prior to the expected filing and the aforementioned.
Periodic reports with the SEC.
Other risk factors affecting the company are discussed in detail in the company's filings with the SEC like.
Company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise.
To the extent required by applicable laws I will now hand, the call over to Ben Erez Chairman of rival. Please go ahead.
Yeah.
Thank you Sarah.
Good afternoon, everyone and thank you for joining us today.
During the third quarter of 2023 once it rivaled delivered record financial results the fourth consecutive quarter.
Q3 top line revenues increased nearly 64% year over year to $17 million.
This also reflects an 18% sequential increase from $14 9 million in the.
Second quarter of 'twenty.
Revenue came in the upper end of our Q3 target range of 16 to 18.
Our Q3 revenue was derived from transactions processing volume, which totaled 861 million and represents an increase of 28% from the second quarter of 2023.
Strong growth in our international business, where I believe you as well as growth in our North America business.
Resulting from the establishment of additional processing channels in the U S.
Well retail and online businesses paves the way for it.
It could result.
Rivals Chief operating officers mean weight will provide a full breakdown of the various processing channel.
Performance later.
Overall, we're very pleased with the steady growth trajectory and our improved margin profile.
Moving on to some key initiatives.
First for an update on rival EU on the heels of receiving approval to launch FIFA.
From the European payments Council and being chosen as the visa direct partner Ideally you revenue.
So tremendous year over year growth for the quarter ending September 30th.
2023 and 2022 respectively, increasing 100%.
And currently representing 28.5% of our total living again, we'd see by enable we expect driver in U two targets the more than 2000 payment service provider across 36 countries in the eurozone with incoming and outgoing instant transfer.
Visa direct partner will allow I believe you to leverage its capabilities.
To provide superior banking as a service offering.
And we are working tirelessly on this initiative.
Which we believe will enable us to better serve our customers.
Retain loyalty.
And create new revenue streams.
Once integration is complete expected by mid 2024, we believe that the collaboration in the Eastern European region will revolutionize the way funds are transferred between accounts offering fast convenient and secure transactions.
It is expected as our customers will have the opportunity to send money to authorized accounts.
E wallet and debit cards in over 80 countries across multiple currencies through visa extensive network.
Local banking partners and experience the benefits of faster access to funds with money becoming available in many cases within minutes instead of days.
We remain quite optimistic about the opportunity in Europe, and we believe we are positioned to capitalize on this important market opportunity.
Which also presents an important segway to the markets in Asia eventually.
We continue to work with our large institutional partners on our banking as a service platform.
With the goal of ramping up to what we believe will be $100 million per month in transaction volume.
Our banking as a service solution or for API integration and foreign exchange capabilities in more than 40 different currencies.
Local settlement.
The service authorizes transactions 24 hours per day on business days and enabled us to pay out the way of improvement such as real time payments and deposits.
In addition, the service allows for the ability to readily trace transactions and reduced strong all while maintaining strict compliance requirements.
We are excited about the long term potential for this lucrative market.
We believe our technology is well suited to tap into.
Next we would like to speak about our planned spin off of <unk>.
We initiated the process in early Q2 as part of the broad value creation strategy and truly believe it is the optimal way to drive growth potential.
We're currently in the process of completing a comprehensive review with FINRA.
To finalize the name change of our subsidiary to Courtney.
This has taken longer than anticipated, but we do expect it to be completed soon and believe that with the thorough review.
We'll provide greater assurance to investors of the viability of the coin you visit.
During the third quarter, we launched the cleaning mobile point of sale M. P O S up.
Transforming iOS and Android devices and payment terminals for secure efficient transaction.
Yeah.
According to a M. P O S up provides merchants with secure and convenient way to quickly add M. P. O S services.
And users.
Straightforward registration process to begin accepting payments.
By integrating M. P O S capabilities with the core in the platform.
Businesses and merchants.
Can benefit from the comprehensive and user friendly payment system.
Coupled with the rounded foundation.
Over the next data release off the coin business platform.
We also have taken meaningful steps to reduce the debt on our balance sheet.
During the third quarter, we entered into an exchange agreement with our holder.
A rival issued convertible note initially in the principal amount of $100 million.
To date we.
We have exchanged a portion of the outstanding principal and interests of such convertible note for 6000 shares of our.
Newly designated series, a convertible preferred stock, resulting in a $6 million debt reduction.
And an increase in cash flow.
Our second exchange was also contemplated and received shareholder approval under the applicable exchange agreement, which would further reduce our debt by $16.7 million for a total of $21 million of debt reduction.
In consideration.
For issuance of an additional 9000 shares of series a convertible preferred stock.
We believe these type of institutional level commitment.
Is a major win for all rivals shareholders and illustrates the conviction.
You know our mission.
As a disruptive force in the digital payments landscape. We also implemented a one for 10 reverse stock split.
To increase the market price per share to better assure to the maintenance of NASDAQ compliance.
Operationally, we welcome Georgia lever.
As Chief Financial Officer of the company.
George brings over 30 minutes.
Yeah, well have experience.
As a senior finance a finance professional.
With a background in corporate finance Treasury financial planning and analysis.
No tax and strategic planning, we welcome George capabilities in scaling public technology companies we.
We believe that his achievements.
Well his expertise and financial management.
Private and listed companies will make a significant contribution.
Through this strategic operation and development of our company moving forward.
To sum things up.
We continue to demonstrate.
Strong growth in our core processing business and margin improvement, while making steady progress.
Those initiatives that we expect to further drive sustainable growth and profitability.
We strongly believe in our ability to execute our strategy.
And to generate long term value for our shareholders.
And now to discuss the details of our financial results I'd like to turn the call over to our Chief Financial Officer, George Oliva, George the floor is yours.
Yeah.
Thank you Ben.
I'll be referring to adjusted EBITDA and other non-GAAP measures for calculation of adjusted EBITDA. Please refer to the reconciliation of this non-GAAP metric in our earnings release issued before this call.
Which can be accessed on the company IR website, and the press release or in quarterly earnings sections.
Our revenue increased by $6 8 million or 64% to 17 and a half a million for the quarter ended September 30th 'twenty through 'twenty three.
From up from 10 million $10 7 million for the same quarter a year earlier.
The change in net revenue in the third quarter of 2023 compared to the year earlier quarter was primarily attributable to significant growth in processing volume from our acquired business rival EU and from a business and American Samoa.
North America Q3 revenue increased 47% from $8 5 million in Q3, 2022 to 12 and a half a million for the quarter ended September 30th 2023.
<unk> Q3 revenue was $5 million, an increase of more than 100 per cent from 212 million in the same period last year.
Cost of revenues increased by $6 5 million or 149% to $10 8 million for the quarter ended September 32023 up from $4 3 million for the year earlier quarter.
Payment processing consists of various processing fees paid to gateways as well as commission payments to independent sales organizations or iso's.
Possible for establishing and maintaining our merchant relationships from which the processing transactions and sue.
Cost of revenues increased primarily due to increased volume, resulting in higher processing fees paid to gateways commission payments to ice I suppose in the cost of revenue acquired business in the U S and E U.
Operating expenses decreased by <unk>, 4 million or 4% to $9 million for the quarter ended September 30th 2023.
[laughter] from $9 4 million for the year earlier quarter.
The decrease was primarily due to a decrease in depreciation amortization and stock compensation expense.
While the increase in general and administrative expenses.
The higher general and administrative expenses in the quarter of 2023 are primarily attributable to nonrecurring provision for credit losses on non continuously continuing legacy accounts.
Other expense totaled <unk> 6 million for the three months ended September 30th 2023, compared to $12 7 million for the three months ended September 32022.
Changes in the fair value of derivative liabilities amounted to a credit of $6 9 million for the three months ended September 32023, and a charge of $4 1 million.
In the three months ended September 30th 2023.
Interest expense for accretion of debt discount related to the $100 million convertible note issued in November of 2021 increased by $5 8 million. Additionally.
Additionally, we incurred a charge of $1 3 million in the quarter ended September 30th Joy Joy three related to the conversion of the debt and we recognized a loss of $8 1 million in the quarter ended September 32022 in connection with the settlement of debt.
We recorded expense of $1 9 million relating to nonrecurring legal settlements in the quarter ended September 32023.
In summary, the company recorded a net loss in the third quarter of 2023 of $3 1 million or a loss of <unk> 60 per share basic and diluted share compared to a net loss of $15 9 million or $3 37 per basic and diluted share in the same quarter a year ago.
In the third quarter 2023, adjusted EBITDA was positive $50000 compared to a loss of 500000 in the third quarter last year.
We ended the quarter with cash and cash equivalents and restricted cash of $68 4 million of which $15 8 million of that is being unrestricted cash.
I'll now turn the call over to men way, our Chief operating officer to provide a review of the business operations and our outlook.
Thank you George.
It walks through our processing volumes for the verticals, we serve and discuss our third quarter results and outlook for the fourth quarter of 2023.
Please note that all the figures are exclusive of the Sky financial portfolio.
Oh, Q3 processing volume across all channels exceeded $860 million.
It's all a Polish indication of $720 million to $800 million for the quarter.
About 27% better than our Q2, 2023 volume of $678 million.
And an increase of about 24% from Q3, 2022 volume not including the Sky financial volume.
Oh Q3 in North America are acquiring business volume was $171 million, which is 17% higher than the Q2 was $126 million volume and it's 108% higher than the same period one year earlier.
Q3 charge savvy processing was $42 million or about 21% lower than Q2 2023 processing volume.
When compared to the 62 million volume in Q2, 2022 at least.
33% decline.
Year over year decline is due to reduced processing from select merchant base.
For FX on international payments portfolio, including the acquired trends like Europe business, and our new banking as a service offering we processed $517 million in Q3 compared to $425 million in business volume in Q2, an increase of over 21%.
This is a 52% increase from Q3 2022 is $340 million.
For an update on American smaller, we'll continue to serve about 60% of the target merchants market on the island in.
In Q3, our processing volume was about $30 million about the same as the prior quarter and a monthly volume is sustaining at about $10 million.
With respect to Connie we continued to ask the queue outside as they call them plan in the U S. S communicated prior due to the U S regulatory environment and digital asset banking dynamics, we adjusted our monetization path for Corning to be focus on the EU market in Q3 and subsequent period, thus far we are.
If successfully set up all corny your entity completed capital registration and I expecting to receive a license they mentally.
All of this out to enable us to onboard the first batch of business customers and.
It starts generating value sin.
In the meantime, we are pleased to share that in the U S. After taking a pause due to the above mentioned environmental factors well now moving ahead with a quality system for payment processing in the new business verticals.
Connie much in processing channel is now approved by our banking partner and we expect to start the processing in the near term.
Now I'd like to turn to I'll I'll look for the fourth quarter and the total year.
With respect to your processing volume in Q4, we expect to attain a range of $900 million to $1 billion. If we achieve such processing volume, we estimate that all processing volume for a physical year ending December 31, 2023 will exceed $3 billion.
Based on Q3 revenue of $17 $5 million and continuing.
We believe our revenue outlook of $19 million to $21 million is achievable for Q4, which will bring our total year revenue to $62 million to $64 million.
Which is ahead of our forecasted revenue of $60 million for the year with respect to adjusted pro forma EBITDA. Please refer to it I'd be concentration of this non-GAAP metric in our earnings release issued before the call on Q.
Q3 figure is a positive $50000.
This is lower than I was talking to $1 million for the quarter, which is due to higher than planned expenses associated with cost scheme fees technology development investment external legal spending and demonstrated the expenses to regain compliance. Some of this reference to investments and expenses will continue in Q4, and we are estimating all.
Q4, adjusted you'd be it ought to be a positive.
Off a median to $1 million and our total year 2023, adjusted EBITDA to come in at negative $2 million to $3 million. This concludes my remarks for the third quarter and the total year I'd like to now turn the call over to ban aerosol Chairman two became all Q&A.
Thank you min.
Yes.
Thank you all for your interest and commitment to rival.
We are grateful for your ongoing support well with that I will begin our Q&A sessions now we have received.
Few questions by mailers.
I'll start with those and then we'll take questions from the floor.
So first.
Does the company continues to expect to see higher growth in Europe and if so.
But how should we think about the margins for I believe a U versus North America.
The EU revenues of 5 million on 500 million in processing it seems much less than the North American revenues are mainly will take that question.
This is a good question. So first of all definitely we would expect to see continuing growth.
Revenue in Europe.
When it comes to our margin for you, but just North America, but.
Yeah, I think it's a good adviser reservation data your revenue with five vessels in the $500 million of processing volume seems to be lower than the same ratio.
Compared to the North America ratio.
That's simply because you know are in the case of a European market.
Revenues, primarily come from our primary business and banking that service offering as we mentioned earlier.
The acquiring revenue for European market.
In terms of ratio to volume.
When compared to North America or acquiring business. However.
However, we do have currently lower revenue to volume ratio for the banking as a service offering and a part of which is due to the fact that we are still in the early phase of rolling out the services in the ear market and we are still testing the pricing points.
That new service offering.
We expect to adjust I'm, just kind of ratios as we continue to move along to ensure we achieve that through a balanced.
Tween reasonable pricing to our revenue and profitability for the business.
Thanks Ben.
A question too.
What is the process or the progress.
Of the Kony spin off.
What remains to be completed to finalize their transaction. So did the covered that in my remarks.
I'll, just reiterate and say that we are.
A fully committed to the process and intend to complete it as quickly as it's been really will allow us to do so.
The next question.
What would the recent NASDAQ stumbled deficiency issue.
Create a potential blocker for the Queenie spin off so the two are unrelated.
The NASDAQ a standard deficiencies.
Or a known issue and it will be dealt with within the NASDAQ organization.
And the hearing panel doing January the upcoming January.
Kony is not they are currently Nasdaq entity.
Ladies and an OTC spin off and therefore under a FINRA rules.
Our next question is what is the status of rival completing our transition to the networks for them.
I'll ask my question. So first of all technically we have completed all system and have asked us to migrate from network from two trusts explorer, which is a technology you know formerly owned by Testacean service provider.
However, if I may you know servicing fermentation point of view as we continue the rollout of corneas set this offering or introduced a feature.
Into Utah.
[noise].
Yeah.
Thank you and the next question is with regards to calling to your revenues.
Can you comment on whether the rival is generating revenue year to date from Queenie.
Since its Wayne operational and what those are.
If material.
Thank you for the question. So first of all we do have.
Some immaterial revenue from the service fees from the colony ecosystem.
I'm, asking why knives and became operational.
As I covered during my earnings.
Our remarks are in the U S and as also we communicated prior you know given that a default of F. T X and also the banking industries.
You know risk appetite for digital asset banking, we took we took a pass for colony in the U S market.
Oh, yes now.
Now that we have approved by our banking partners. We are now about to move out to you know make sure without we can process you know for our business customers, saying that U S. India approved verticals. So while we expect to ramp up revenue in the U S. And also as I mentioned earlier doing the earnings remarks, we now have gang.
You know the <unk> set up the entity in the European market.
Finish the registration of capital, we actually are getting a license you know this week. So we also are about to roll it out in the services and ensure that we got in revenue four corners in the EU market as well.
And I would add to that that the a lot of the koine activity depends on the spin off and one spin around gives us that go ahead, we'll publicly discuss.
What that business looks like and its potential.
Our next question.
Does the company intend to hire of a senior leadership role to fill vacancies in sales and marketing.
That's the easiest question to answer yes.
We intend to as we continued our growth momentum into existing verticals, that's about new verticals, we have with 'twenty 'twenty four.
We plan to fill the vacancies we have.
Basically.
Okay.
And a related question how does the company feel about.
Its current staffing level.
To support the growth of the organization.
Our customer support and operations roles adequate to respond to customer inquiries as well as initiative.
And efficiencies to support growth.
So we.
We appreciate the comment there.
For a business to be able to sustaining so fast you know together with our business partners with our business customers, we always maintain a satisfactory much on experience customer experience at the forefront of our operations.
So, yes, we do maintain adequate resources.
To support our current business as well as anticipated business growth you know when you're always very conscious of striking a good balance between Dubai resource level to cost and ensure that we also wholesale obligations for our shareholders.
Thanks, Matt.
The final question that was submitted in writing prior to the call.
Proteins to.
Legal proceedings.
With regards to the Sky financials.
Theres not a lot that we can discuss publicly today about this process is ongoing.
And it's being handled by our professional teams we will disclose it.
Any progress on that front.
Is appropriate and when the time comes.
With that operator, we'll move to our questions from the floor go ahead. Please.
Thank you.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone, please pick up the handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
My first question comes from Kevin debts with H C. Wainwright. Please go ahead.
And gentlemen, Kevin D D.
Hi, Kevin.
Hi.
Thanks for having me on I've got a few questions cut me off whenever you think that's reasonable.
Yeah, I think we'll try.
First of all I, just wanted to say band that I appreciate it real people and not an AI bot. So thanks for doing that.
Most of you are part of the reason that we did it this way. Unfortunately, we all have cold so you suffer the other way.
But hopefully people will appreciate the effort.
Well I I, certainly do and I agree hopefully they will.
First off can you help me understand the the.
The app that you're developing your developing with Queen.
And how.
How we should look at it and say these are V square.
Okay. So for that I will invite our new speaker of the Freddie Nissan see Oh go ahead pretty hey, Josef.
Thank you for the question Corey New mobile App.
<unk> was designed to replace the traditional.
It's pretty card processing through you want it.
There are a lot of us accordingly to.
We received payment in a closed loop very similar like you mentioned square.
With instant pay and reducing waste fraud and allow the merchants to receive payments from our customer that went through.
Sure why you see meaning no your customers. So we can showed the merchant as well who is on the other side. If it's a good customer with best customer and allow us to monitor the network and everything that goes through a doctor networks. So the imposes a first step in entering the REIT.
So space.
We don't use technology and then open up.
Other of course stuff, we got technology.
Okay. Thanks, Randy.
Okay.
The.
The convertible note I think it was hard to see how that level, a slit a little bit maybe George can.
You know point me in the right direction.
Where maybe that conversion was post September.
Yeah.
I'll, let George take that go ahead Joseph.
We we have a series of saves in two tranches. The first was in July and the second needed Board approval and we recently got that in the shareholder meeting.
I don't think that one is completely reflected yet.
But it will be shortly.
Okay. So we should see year end financials.
Yeah.
Yeah. So the current balance sheet only shows the July transaction. So the total is I believe 21 million and we only show six $6 7 million.
And these financials.
Okay. Thanks.
That helps.
Maybe Freddy or men can help me understand that's been why is it that the integration into visa is back end.
The better part of a year.
It's pretty well take that.
That's a great question.
<unk>.
Actually it would be.
The time that it takes to integrate these northern our site is actually on the visa side.
As you go through the compliance process and integration process.
Each country has its own compliance.
You open up all of those location, but we wanted to operate them.
For example, Columbia, South America or.
Canada It doesn't matter each one require separate compliance process from visa to be able to operate in this space.
I can tell you that the great news about that relationship even though we're trying to.
Pretty much all of that it's even a shorter period of time.
Is that yeah allow us to do as well the high risk through visa and that mean something that nobody else can offer like gaming.
Send money instantly globally.
We are very excited about it and we'll do our best to overcome the time by trying to accelerate the process, but that's depend on visa not on us.
Okay. Thanks for all of me see that better my understanding was.
One of the advantages that you bring to the integration is your understanding of the end customer and credit worthiness.
And.
I'm wondering how you've been able to develop a database and countries that you haven't necessarily operated in before.
And that's part of their technology and care, where I see so as we onboard new customers and we verify and who they are we are getting a better understanding of their demographic.
The people we serve it on the other side of it we require for Mt. Todd listeners.
Company's debt utilizing our surveys.
Who are created their own care why C N understand who the client as well so we could work together and servicing them. So it's requiring a little bit more work than the traditional business, but we have the technology and the partnership to do so.
As the integration process goes forward, well you'd be able to offer maybe more insight on the progress you're making.
Do you mean by integration with visa or in general.
Well first with visa because I.
I mean would we see.
Maybe like the number of countries that you have working on the platform or an increase in international revenue. How do you think are going to look at it.
Oh, absolutely at the moment these vertical that would be available we're going to share more details specifically on which countries. We operate in a weird visa what is the volume in each country, but it would be easier for us to educate the market with.
Because it's just the integration stage and we cannot share any more detail.
I'm going to switch quickly just to American Samoa.
The.
The idea of that closed loop system I at one point.
And maybe two three quarters ago, you saw an opportunity to take.
Take that.
Technology show it to other markets and have and hopefully pick up other customers. So I'm wondering.
How that process is progressing and maybe a little bit on why you think.
Adoption of stalled out at 60%.
So.
Kevin I'll ask my questions is a man of great question again.
They had really probably two or three Pos at the classroom right you know first of all.
We continue to work very closely with our partner on the island, the territorial Bank off American Samoa.
Two you need to put that would provide great services to the merchants on the island.
At the moment you know, while we are calling through foot of planning with them.
A couple of major developments you know what one of them is we reintroduced the impasse you know so bullish and I think this is actually a very ideal solution for the island for the business and the users on the island because it does provide a very slick way for us to you know why I make the.
You know our conversion from a conventional <unk>.
<unk> solution is something that's very easy.
Less restrictions quite quickly right. So that's point number one point number two is as we previously mentioned American Samoa Island. It's a you know it's a very contained environment to allow us to test Connie and we've been working very closely with our partner on the island and as matter of fact, we presented I propose.
Though.
Now for that 'twenty 'twenty four planned to vote. It out right. So that that obviously would go through they'd requires government approval and we are very optimistic that we'll move ahead in.
In the new year, that's really going to transform the payments experience on the island.
You know hopefully those two parts together will help enhance the question right and the conventional way of processing its plateauing, a little bit because you know there are better ways to deal with them. We have a plan to do it together with our partner there.
Okay, one one.
That helps a lot.
One little hole for me I.
I didn't quite understand.
Uh huh.
861 million total processing 517 in the U S on 100 and.
71 in Europe.
But there just seems to be a gap between those two figures in the 861, what am I missing.
Yeah, So Kevin it's actually the reverse is a 500 plus meaning out of your European market and 171 for the North America acquiring business, a 42 million and four charge savi.
And about study meaningful American Samoa.
And then yeah. They they they are probably a couple of other pieces, but those are the major pieces in that equation as I.
Well I know in my session. Okay.
Got it thanks men are all all.
I'll leave the floor back to you Ben Thank you.
Thanks, Kevin.
Sorry go ahead.
So with no further questions I'd like to turn the conference back over to that area.
Any closing remarks.
Okay.
Thank you all for submitting questions and your interest in rival.
So sorrow back to you and you can close the session.
Thank you. This concludes today's conference call you may now disconnect.