Ryvyl Inc.

accompanying this conference call was issued at the close of the market today. Our quarterly report on form 10Q, which includes the company's results of operations ended June 30th, 2024, was filed with the SEC today. A replay of this call is available on the investor relations section of the RIVAL website in the events quarterly results session. As a reminder, this call is being recorded.

Before we begin, I would like to remind you that today's call contains certain forward-looking statements from our management 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 and 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 events and results to differ materially from those expressed in or contemplated by the forward-looking statement. Other risk factors affecting the company are discussed in detail in the company's filings to the SEC. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except to the extent required by applicable laws. I will now hand the call over to Ben Erez, Chairman of Ryeville. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. In the second quarter of 2024, total revenue was in line with our expectations, bolstered by 134% revenue growth in international compared to the second quarter of 2023. I'll review our efforts to continue to expand our European operations through rival EU, address banking changes in North America, launch new licensing arrangements, and broaden our technology applications, as well as other product developments. Our Chief Executive Officer, Freddie Nissen, will discuss product initiatives and operations, and our Chief Financial Officer, George Oliver, will discuss our financials. BibleEU continues to deliver strong growth, and we expect it will be the largest generator of revenue in 2024. In fact, to ensure rapid onboarding of our EU customers, we've been leveraging U.S. resources. Our international banking as a service offering led to an increase in customers. as well as an increase in international transaction volume growth, which increased from $665 million in the first quarter of 2024 to $781 million in the second quarter of 2024. Our banking as a service offering includes API integration and foreign exchange and real-time electronic fund or direct deposits, which deliver benefits to our customers by ensuring compliance and streamlining operations. This offering continues to gain traction with customers and we believe offers us the opportunity for long-term growth potential. We completed our first Visa Direct integration in the first quarter and are now live in five countries out of a total of 80. And in acquiring, we are processing in 150 countries with additional integrations planned for the third quarter. This initiative delivers Visa Direct's network capabilities for our customers, fortifies our revenue growth, and proves our capabilities to Visa. Building upon this connection, we've expanded our partnership and are implementing the Visa Payment Enabler Network. This new platform will provide the infrastructure and services to facilitate electronic payments and financial transactions and leverages Visa's global acceptance, enabling various entities, including banks, merchants, and consumers, to perform secure and efficient financial transactions using Visa's widespread payment system. Our collaboration with ACI Worldwide is also contributing to recent growth internationally. We fully completed this integration in July. Now active, we are offering enhanced transaction processing and security features. Koini, our payment software that makes PayPal and other services available, is being deployed exclusively across Europe in coordination with our partner, First Data, allowing us to operate online. As a payment facilitator, our momentum in the EU has been strong over the past several quarters, and we've built a well-defined pipeline of opportunities to further fuel growth in this region. In the U.S., to drive growth, we strengthened our corporate structure, furthered our expansion into new verticals, and launched private and white-label licensing. As discussed in the first quarter, changes in U.S. Banking regulations impacted one niche industry customer base. As it had been a significant contributor, our North American revenue was affected, which continued into the second quarter. We have been implementing a multi-layered strategy to address this situation, which we believe is largely behind us. We began by right-sizing our U.S. operations to better align with lower processing volumes. We strengthened our leadership in the U.S., hiring fintech experts. As Managing Director of Northeast Merchant Systems and VP of Compliance, both newly created roles, as well as a new VP of Revenue, we have been building more vertical market opportunities. We expanded a long-standing, successful U.S. banking relationship that served low and moderate risk verticals to include high-risk processing that carries higher margins. We have embedded our proprietary technology into our Northeast Merchant Systems core offering that we call NEMS Core to focus on PayFac as a service and merchant service operation. This effort aims to expand our customer base and increase business retention. To leverage our technology, we are pursuing both private and white label licensing opportunities. Private labeling enables our partners to use their own banks, which increases our access to customers. and, we believe, reduces regulatory challenges for us while improving our operating leverage. White Labeling delivers customized branding to our partner while we retain the transaction processing. As announced last week, we licensed a legacy high-risk business to a third-party partner through private labeling, which uses our core technology to create revenue streams via quick card private label payment processing. as a service. While our per transaction fees under this private label structure will be lower than those based on processing volume, we will eliminate operating costs and expect to achieve higher gross margins and reduce operational risk. We are in the final stages of implementation and expect to start transactions in the fourth quarter. I'll take a moment to elaborate on the details of this agreement, which are illustrative of future opportunities. We will provide a fully branded implementation and hosting of the consumer e-wallet software and mobile app, along with our merchant management system, as well as a website landing page, assistance with merchant applications, and other ancillary support. We will also handle the deployment and maintenance of the rival payment processing as a service and its interface, and collaborate on the system integration and any add-on work. Our partner will manage implementation and ongoing operations of the point of banking system, procure and manage its own ACH solution for consumer purchases on the platform, and collaborate on systems integration. They will establish and operate banking connectivity for settlements to their merchants, recruit and grow the merchant business portfolio, and ensure timely payment obligations and audit rights of all overrides to rival. Additional product offerings include NanoCard and Rival Fabric, which were introduced in August. I will now hand the call over to our CEO, Freddie Nissen, who will discuss our product initiatives and operations. Freddie, please go ahead.

Thank you, Ben. We pride ourselves on delivering innovative technology and solutions for our customers, and our latest product releases build on our proprietary capabilities with enhanced functionality and features for our clients. Additionally, we incorporated our latest generation 4Rival software into all our solutions, exclusively. Rival Generation 4 software is our backbone technology and offers highly customizable, advanced, and efficient FinTech payment solutions to businesses and merchants. Our NanoCard app offers users and alternatives to cash or charge cards, and we deliver merchants processing capabilities for these prepaid gift cards. By targeting select verticals for these gifts of convenience and security, We are bringing online a new product for high-margin processing. Rival Fabric is an innovative and cost-effective solution that offers tools and building blocks to ensure easy blockchain access with multi-layer security that is compatible with both R3's Corda and with Hyperledger. Rival Fabric's software layer enables customers to implement blockchain at a faster pace with a low-cost pay-per-API structure. Our partnership with R3 expands our reach for enterprise distributed ledger technology and services in regulated industries where trust is critical. Turning to operations, during the second quarter, several significant achievements highlighted our commitment to innovation, growth, and expansion in key markets. We expanded PayFac as a service which has been instrumental in broadening and growing our merchant base. Notably, We revamped our banking system software in Europe to improve efficiency and create more revenue streams. Additionally, as Ben mentioned, we added new verticals in both Europe and the US to further diversify our market presence. We expect these key strategic initiatives to broaden our verticals, lower overhead and reduce certain risks. Yet, they will change our financial model. As licensing increases as part of the revenue mix, processing volumes and associated revenue are expected to be lower. However, growth margins are expected to be higher. As licensing will earn transactional fees, going forward we will track the number of transactions. With strong business relationships, emerging private and white label licensing partnerships are proprietary rival technology as well as new products coming online. We are extremely excited about our growth prospects in the second half of 2024 and momentum leading into 2025. We have good visibility into our pipeline and are well positioned to further diversify our customer base and revenue stream. With that, I'll now hand the call to George Oliver, our CFO, who will review the financial results and provide an update for our 2024 financial guidance.

Thank you, Freddie. I'll review our second quarter of 2024 financial performance. Processing volumes across all channels reached a total of $1,055,000,000, exceeding our guidance and 6% higher than the first quarter of 2024 and 55% higher than the second quarter of 2023. The growth in volumes is being driven by our banking business in Europe, banking as a service and ACH payments. These have a lower residual rate than processing for acquiring business, but has very low cost of revenues and therefore contributes to higher overall blended gross margins. International processing volumes were $902 million, and North America processing volumes were $153 million, reflecting, as Ben discussed, the growth in the EU partially offset by the subdued merchant activity in the U.S. Revenue in the second quarter of 2024 was $11.9 million compared to $14.8 million in the second quarter 2023. International revenue increased 134% to $8.9 million for the second quarter of 2024 compared to the second quarter 2023. Cost of revenue decreased $1.6 million to $7.2 million for the second quarter 2024, compared to $8.7 million in second quarter 2023 due to decreased processing volumes of acquiring in North America. Gross margin in the second quarter 2024 was 39.9%. versus 41.2% in the second quarter 2023, reflecting the shift in product mix. Operating expenses in the second quarter of 2024 were $15.6 million, including $8.3 million of mostly non-cash charges for goodwill impairment, restructuring costs, and employee severance. This compares to $9.6 million in operating expenses in the second quarter of 2023. excluding the non-recurring charges, operating expenses were lower by $2.3 million, primarily consisting of $1.3 million in lower professional fees and $700,000 in lower G&A costs. Other expense totaled $800,000 in the second quarter 2024 and mostly related to debt discount accretion compared to $8.5 million in the second quarter of 2023, of which $5.7 million was related to debt interest, debt discount accretion, and changes in fair value of the derivative liability. Adjusted EBITDA in the second quarter of 2024 was negative $1.6 million compared to $900,000 in the second quarter of 2023. We are carefully managing our working capital. Continuing to leverage our strong growth in the EU during the second quarter 2024, We repatriated $2.5 million from Europe to shore up the U.S. capital resources. At the corporate level, as of June 30, 2024, cash and restricted cash balance was $75.2 million, unrestricted cash was $6.4 million, and net working capital was slightly negative. During the second quarter of 2024, $200,000 of debt and $875,000 of preferred stock was retired as our investor converted these securities into approximately 736,000 shares of common stock. Turning to guidance, we continue to anticipate processing volumes to grow year over year to over $4 billion in 2024. However, as discussed, several factors are impacting the timing of revenue. As such, we believe our revenue recovery in North America may be prolonged by two quarters. Now we expect 2024 total revenue to be in the range of $65 to $70 million. Specifically, we project third quarter revenue to grow sequentially and be in the range of $14 to $15 million and Q4 to be very strong with accelerating momentum into early 2025. We believe that any growth in revenue will largely be driven by our international segment, which we expect will comprise the largest portion of revenue in 2024. We expect to achieve adjusted EBITDA profitability in Q4 2024. I'll now hand the call back over to Ben for some final remarks before Q&A. In conclusion, Rivo remains a dynamic company in a dynamic industry. We made the right adjustments in the first and second quarters of this year as one niche industry customer-based market in the U.S. experienced regulatory issues that impacted our business. We are now poised to rebuild that market via a white label partner and believe these transitory issues in the U.S. are largely behind us.

Europe has not slowed down at all and continues to deliver ongoing growth. and strong execution. We expect renewed sequential growth in the third and fourth quarters of 2024, positioning us for further growth in 2025. Before we go to the queue and a session, I want to mention some upcoming conferences we will be attending. We'll be at the H.C. Wainwright Conference in New York City September 9-11 and at the LD Micro main event in Los Angeles on October 28-30. Before we open the call to analysts, There are several questions we received in advance of the call that we will address. So here are some of the questions that we received prior to this call. First question will go to both George and Freddie. George will open. Freddie will continue. The question is, what are the areas in which you are focused to reach profitability? George, please begin.

Well, We focused on reducing costs in the U.S. primarily with reduction in payroll headcount, approximately 25%. Due to severance and vacation payouts and such, we should start to see the benefit of the reduced headcount in the second half of the year. We also have been controlling discretionary costs in the U.S., and we are maximizing cash flow in Europe and repatriating cash to cover the deficit in the U.S. That's basically what we're doing in the short term.

Thank you, George.

And thank you, everybody, for listening in. As George mentioned, we did a lot of adjustment in the past and now. And moving forward into the future as a company, Our focus is on the two areas that we separated in two areas. One area will be the licensing. We see huge opportunity in the payfax as a service, the banking as a service, and the other area is directly working with our partner, ISOs and banking to drive direct traffic onto our platforms as this is a higher margin when we have direct compared to licensing. But on the licensing side, we see a huge, huge opportunity due to regulatory change in different verticals, and we see the demand for compliance, KYC, ledgering services, and other banking-related services, for example, effects, bank accounts, card issuing, to support the ongoing change in the financial segment. And we are very, very excited about it.

Freddie, we'll continue with the next question.

Can you provide some color on trends in verticals and what you believe are or will be the most attractive opportunities in the coming year?

Thank you, Ben. That's actually a great question.

The financial market, working with Visa, MasterCard, working with other vendors, and based on their movement and how they perceive the future and how we perceive the future, is in three areas that are going to be in huge demand. Is the festival what we call a real-time payment? We see a huge huge huge demand in it when it comes to instant payment People looking and partner and our businesses looking for real-time payment 24-7 And I believe that's something that we're going to see more of in the near future second is the settlement globally, international settlement. We see huge, huge demand, especially working with Visa on our new Visa Direct. We see huge demand in South America, Asia, and especially U.S. to Europe. We see huge, huge demand. And the last one, and I'm sure there is not a surprise, but as the financial systems are changing, crypto become a huge demand. And we are looking into that in Europe. to certain partnerships and to see how to overcome the demand of crypto. And that's something we will see grow in the upcoming years. And we are very, very excited about it. Those are the areas. And the other side of that trend is licensing. Marketplaces that are looking for technology and services their own clients in this compliance and regulatory environment. And we believe that our software technology can help facilitate and accelerate the execution or the go live for a lot of companies and partners in this space.

Thanks, Freddy. The next question pertains to our growth in Europe. Why is Europe doing so well?

As this is going to be the major growth driver in the balance of the year, can you elaborate on your strategy and operations there?

What gives you the confidence in your financial projections? Thank you, Ben.

Another great question. We're working really hard in the last two and a half years since we purchased the entity, implementing a lot of the infrastructure that needed Europe is changing as well, and we implemented a lot of partnerships, including Visa, ACI, and other to offer our payback as a service, business banking as a service. And Europe has a huge, huge demand for high risk. We as a company registered with Visa MasterCard as a high risk provider, and we see a huge, huge growth in the gaming, adult, and crypto business. And those are three verticals that are being scrutinized right now by a lot of banks that don't want to touch it. But we welcome this business, and we have the full support of Visa and MasterCard and other banks to onboard such verticals. And we are very excited to support them, and that's why we see a huge growth in our portfolio.

Thanks, Freddy. We're going to give George an opportunity to answer the next question. George, what are the data science points that you track and monitor to manage the health of the business?

Well, historically the revenues were coming from acquiring, from processing credit card payments. We looked at the transaction volume as a primary driver to revenue. As the mix between the US and Europe shifted and as we ramp up volumes in banking, then we have to drill down and look at residual rates of the different segments. Historically, in acquiring, we had 2% revenue for processing volume. The mix changes. The banking has a lower residual rate. and there's different gross margins in segments. So as the business mix shifts, we have to drill down and look at the residual rates of the different verticals at the different types of revenue between acquiring and banking. And we look at the gross margin in each and then predict the change in mix, and that helps us to forecast results. So that's what I'm looking at is all this data. Thanks, George.

Operator, at this point, we'll open it up for questions from the floor. Please proceed.

Yes, sir. If you would like to ask a question, please press star then 1 on your telephone keypad at this time. If you'd like to remove yourself from queue, please press star then 2. Once again, that is star then 1 if you have a question. And we'll pause for just a moment to assemble our roster. And our first question today comes from Kevin Deedy at H.C. Wainwright. Please go ahead.

Good afternoon, gents. Thanks for having me on the call. Hello, Kevin. So help me understand what – What's happening in the U.S. exactly and how you feel you're getting your arms around it?

Okay. Freddie, take it away. Hey. Good afternoon.

Thank you for the question, as always. In the U.S., there's a certain regulation and compliance. We as a company decided to license the technology to an entity that has the infrastructure and doing it for many years to utilize our technology to run the business faster, easier, in a more compliant way, and reduce certain burdens from our side. We decided to do that because of the challenges that exist and the instability that we see moving forward if we stay in that vertical. For those reasons, we decided to license. We maybe made less money on it, but it will be stable, and we can rely on that revenue for a longer time, less the burden of compliance, regulatory environment changes that may occur moving forward. And that recovery takes a little bit longer due to some challenges in going live on the banking side, on the partner side. But other than that, I think we're on track to recover in this vertical, in this niche.

So, Freddy, do you think that licensing agreement is exclusive, or is there an opportunity for you to offer it to other players to capitalize more on transaction services and processing in North America?

This license was issued to our partner only in the retail environment, only in the car-present or what's called car-present environment. The moment the regulatory environment changed to offer a little bit more support to the B2B, we were looking to, if we want to run it as a company, for example, or we want to give it to our license holder to do so. We have enough verticals we support. This specific vertical, it requires extra time and effort in the compliance and regulatory environment. But at the moment, it's an exclusive license. in the retail space. It's more in the retail and e-commerce. Kevin.

So, obviously, we are in the election year, and depending on the administration, we end up with the handling of our economy, our digital economy, currency or blockchain stance and a lot of other variables that impact our business may be dramatically different. And it's prudent for the company to set itself up for success regardless of who ends up in the White House. So as such, we put emphasis and focus on our European operations and we push forward as quickly as we can on these fronts in parallel to maintaining our position with the U.S.

Okay, Ben. It seems that the European business just reflects a low residual rate. Is it fair to assume that'll be consistent going forward? I'll let George take that one.

yes i mean it's it's a function of a blend between the banking and the acquiring over there so the banking has a lower residual rate but it also has a lower processing cost and a high margin so we'll we'll we'll we'll have to look at it separately to be able to understand it uh but uh you know the blended residual rate has come down to about one percent

I know another question addressed this, but maybe you could add a little more color on how you see the growth in Europe and your confidence in the 65 to 70 that you've offered this year.

Well, that includes a tremendous growth in Q4. We have... application pipeline of business on board. And it's not a slam dunk. They're going to have to execute to hit those numbers. But whenever the ramp finally hits, I mean, we're going to start 2025 very strongly. Hopefully, we hit the number in Q4. But if we're a little bit late, we're still building a huge momentum into 2025. So I feel pretty good about everything that's going on.

George, can you talk to the visibility that you have with Visa? I know that program is still sort of ramping up. Maybe you can give us some insight on that.

I will take that, Kevin. As you know, or maybe you're not, but Visa is a brand-new product. Only a few companies in Europe have access. We are one of them. And Visa are deploying their infrastructure very slowly to make sure everything works. We're working with them in their pace. We always deploy five countries. And we're deploying about, we're trying to deploy about a country every couple weeks. But it's really, we are in the mercy of Visa as they are deploying this brand new infrastructure. This infrastructure is available, as I mentioned, Kevin, only for a few companies. And they're really testing every aspect of it, how money moves, how the banking reacts to all of it. But we see a huge demand for that already, especially in Colombia, Romania, Canada, huge, huge demand for visa services. And visa are fully aware of that as we are in communication with them on a weekly base. And I don't know if you saw on our post, but Visa just took our management team to Paris, to the Olympics. We have a great relationship with Visa, and we're working hand-in-hand to make sure that this infrastructure is being deployed as quick as possible.

Okay. Thanks, Freddie. I'll turn the floor over.

Thank you, Kevin.

Thank you. And as a reminder, if you'd like to ask a question, please press star then 1. Our next question comes from Howard Halpern with Taglet Brothers.

Please go ahead. Good afternoon, gentlemen. Good afternoon. I guess going back a little bit in history, and it maybe ties in with your high-risk opportunities, but what have you learned about the closed-loop system, and how does COINI play a role in that, in developing that type of program for high-risk customers?

Hey, how are you? Good to hear from you again. This is Freddy.

This is a great question. Coinie started as a stable coin and was with the focus on make that software or that platform available in a closed loop for high risk. In the US, due to changes in compliance and, as you know, banking and crypto, they tried to stay away. we rebranded that COINI US to what we call NEMS Core. We're going to use that first loop in the payment environment to offer more services. But we took the COINI platform and deployed it in Europe. We are fully licensed in Europe as a crypto exchange or crypto license, let's call it, to be able to hold what they call tokens or crypto. In our case, it's COINI. And due to some changes now called MECA regulation in Europe that's related to stablecoin or cryptocurrency, we are implementing those. But the goal and what we see is in a closed-loop environment, it's easier to onboard on- and off-ramp money because it's more secure, visible to the government, visible to the bodies that oversee certain aspects of that. That's why they changed what they call MECA regulation. It's more visibility into the ecosystem, and we believe that that structure will be adopted in many, many use cases in the financial structure, including JP Morgan just released their coin, and other banks and institutions will do similar things to have a better risk oversight and, of course, compliance oversight on the ecosystem. Okay.

Okay. That sounds good, interesting. And what are your opportunities in South America, and what are the regulations like, I guess, compared to Europe and the U.S.?

You know, each country has their own structure and limitation, but using the Visa network, Visa is doing the heavy lift. Visa is a body that work with the regulation and the regulatory bodies in each country uh visa is working on with us to deploy in 80 countries and they are the body that was assigned by the government or by the banking regulatory bodies in each country to me to basically oversee the compliance and and the structure and how money moves and aml policy bsa policies and that's why they allow money to move that quick because visa took the responsibility for that. And I think if you go directly to each country, you will face a lot of scrutiny and a lot of difficulties to operate in those countries.

Okay. Okay. All that sounds great. Looking forward to the next couple quarters. Thanks, guys. Thank you. Thank you.

Thank you. And this concludes our question and answer session. I'd like to turn it back over to the company for any final remarks.

Well, we thank everybody for listening in to this conversation. We look forward to an even better quarter in three months' time. Thanks, everybody, and have a pleasant day.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.