Good afternoon everyone and welcome to Ryvyl Inc's First Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report which includes the company's results of operations ended March 31, 2024 was filed with the SEC today. A replay of this call is available on the Investor Relations section of the Ryvyl website in the events/quarterly earnings 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 belief, 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 for 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 our contemplated by the forward-looking statements. Other risk factors affecting the company are discussed in detail in the company's filings with 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 Errez, Chairman of Ryvyl. Please go ahead.

Thank you. Good afternoon everyone and thank you for joining us today. In the first quarter of 2024, we delivered solid growth with revenue increasing 49% over the same period in 2023, reflecting particularly strong international results, which grew 185% compared to the first quarter of 2023. Processing volumes continued to grow reaching $994 million in the first quarter of 2024, up 5% compared to the fourth quarter of 2023, with our international segment increasing 28% to $755 million. However, as expected and reviewed in March, revenue declined sequentially due to near-term issues affecting our North America business. I'll provide an update and review some of the actions we've taken to manage the situation. New regulations and the overall compliance environment related to some of the high-risk verticals we service led us to change banking partners and begin a product transition in the North American merchant services segment. In addition to implementing cost control measures, we are accelerating business development efforts to drive volumes in new vertical markets, such as insurance and online businesses. As we expand markets, we have built the sales pipeline in new verticals that we believe will begin to further ramp North American business volume in the third quarter of 2024. Additionally, we are investing in engineering and development to enhance our product offerings. One factor driving new business is the shift from terminal-based processing to mobile app-based processing. This transformative change will help us expand our customer base by reaching into new verticals and increased business retention by improving service and engagement with existing customers, both at the merchant level, as well as the consumer level. Now, I'll discuss some of our key growth initiatives and achievements. Expanding our international business is a strategic priority as the first Visa partner in the Balkan region. We completed testing the new Visa Direct integrated services and are pleased to share that we are now activated in production to offer Visa Direct payouts for our business clients. The integration will enable us to leverage Visa Direct network capabilities, provide superior banking as a service and create new revenue streams. Our partnership will enable customers to send funds to authorized accounts, e-wallets, and debit cards in over 80 countries across multiple currencies. In February 2024, Ryvyl EU formed a collaboration with ACI Worldwide, a global leader in mission-critical real-time payments software. We plan to onboard our e-commerce merchant payment service provider customers onto the award-winning ACH payment orchestration platform, enabling them to orchestrate payments using one solution, one platform, and one API integration for optimal conversion rates and minimal operational costs. This integration will allow merchants and PSPs to provide customers with a more seamless and secure customer journey. We are integrating the ACI solution into our offering and expect it to be released by early third quarter. We retained our Coyni technology to leverage as part of our total suite of solutions for more efficient and highly scalable transaction processing in both North America and eventually in the EU. Coyni provides an easy-to-use customer experience. We had been testing Coyni's mobile-based processing in the US in the first quarter and expect to formally launch this summer and ramp volume over the course of 2024. In the EU market, we received license and merchant processing approval for Coyni and we have a clear line of sight for additional business opportunities for our banking-as-a-service offering continued to gain traction this quarter as transaction volume exceeded an impressive $600 million with the support of several institutional and banking partners. Our banking-as-a-service platform offers API integrations and foreign exchange capabilities in more than 40 different currencies with local settlements. The service authorizes transactions 24 hours a day on business days and enables payout methods including real-time electronic funds or direct deposits. In addition, our banking-as-a-service regulatory transaction reduces fraud and maintains strict compliance requirements. We expect this strategic offering will be a long-term growth driver in a lucrative market. 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.

Thank you, Ben. I'll review our first quarter of 2024 financial performance. Revenue increased 49% to $16.8 million, compared to $11.3 million in the first quarter of 2023, reflecting growth in our acquired businesses and Ryvyl EU and our continued expansion of our independent sales organization known as an ISO and partnership network. North America revenue increased 10% to $9.7 million for the first quarter of 2024, compared to the first quarter of 2023. International first quarter revenue increased 185% to $7.1 million for the first quarter of 2024 compared to the first quarter 2023. Cost of revenue was $9.7 million for the first quarter of 2024, compared to $6.2 million in the first quarter of 2023. The increase is primarily attributable to growth in transaction volume, which resulted in higher processing fees paid to gateways and commission payments to ISOs in both North America and the International segment. Operating expenses were $8.9 million, compared to $8.8 million for the first quarter of 2023. Other expenses totaled $600,000 for the first quarter of 2024 compared to other expense of $4.3 million for the first quarter of 2023. Our debt reduction strategies resulted in a $1.7 million decrease in interest expense and a $1.7 million decrease in accretion of debt discount. Adjusted EBITDA was negative $0.8 million in the first quarter of 2024 compared to negative $3.0 million in the first quarter of 2023. Regarding liquidity, we are carefully managing our capital. Leveraging our strong growth in the EU, we repatriated $7.5 million to date from Europe to shore up the US capital resources. At the corporate level as of March 31, 2024 cash and restricted cash balance was $88.2 million. Unrestricted cash was $10.5 million and working capital was $3.2 million. I will now turn the call over to Min Wei, our Chief Operating Officer to provide a review of business operations and our outlook.

Thank you, George. I'll detail the processing volumes for our verticals, discuss some first quarter highlights and then provide the outlook for the second quarter of 2024. Our first quarter processing volume across all channels was $994 million versus our expected volume of $900 million to $950 million. This is about a 5% increase sequentially and an increase of about 76% from our first quarter 2023 volume. Our North American merchant services business including Ryvyl Block, Charge Savvy, American Samoa, and other portfolios processed $239 million in the first quarter, about 33% lower than the fourth quarter's $356 million volume, and 21% lower than the same period a year ago. This is primarily attributable to the reduced processing volume for some of the high-risk verticals we service and coincides with the product transition from terminal-based processing to mobile app-based processing. We expect North America volume recovery to pick up steam in the second half of this year, while FX and international payments portfolio including the acquired Transact Europe business now Ryvyl EU and our new banking-as-a-service offering, we processed $755 million in the first quarter compared to $590 million in business volume in the fourth quarter, an increase of 28%. This represents a 140% increase from the first quarter of $315 million in the first quarter 2023. We are making major strides in technology development to augment our product offerings and drive new revenue streams, as communicated on the last call. We introduced our mobile app payment channel and MPOS capability for delivery businesses in the US. We are making rapid progress on PayFac-as-a-service and Independent Software Vendor partnerships that will further complement our existing sales channels. In the EU market, we are close to completing a revamp of our banking system software that connects with our partners and allows faster money movements for our business customers. We expect the EU growth momentum to continue at a faster pace than planned and help offset part of the near-term slowdown in North America. Turning to our outlook for the second quarter, we expect processing volume to be in the range of $850 million to $900 million. This is lower than in the first quarter 2024 volume due to compliance and regulatory changes in some of the US high-risk verticals we service, and that has effectively curtailed transactions. We are improving our product solution that is being rolled out to rebuild the volume. Our total year 2024 volume expectation is over $5 billion. For our second quarter revenue outlook, we expect to be in the range of $12 million to $14 million, a decrease of approximately 17% to 28% sequentially and a 5% to 19% decrease year-over-year. As we rebuild the business volume for the verticals we service in the US, in the coming few months, we will advise if we have any material change to the total revenue guidance of $90 million to $100 million. We are maintaining our target for the full year adjusted EBITDA at $1 million to $5 million. This concludes my remarks. I'd like to now turn the call back to Ben Errez, our Chairman to begin our Q&A.

Thank you, Min. Prior to this call we have received a number of questions. There's a lot of interest to all shareholders. Before opening the Q&A to analysts, we will address those. The first question, although, it's for Fredi. Why are you confident that you'll be able to double the revenues in the second half of 2024, compared to the first half?

Thank you, Ben and thank you for everyone who is listening. We're expected to continue great momentum in Europe, RYVYL ISV because I saw that Asian portfolio in Europe and in the US. We are opening new verticals and especially very excited about the PayFac-as-a-service solution and licensing model that we put in Europe and implementing as well in the US for our revenue stream and growth. Second is our relationship with ACI. We announced it a few months back about our relationship with this new gateway, and we are in the integration process. We hope to get it live in the beginning of Q3 and that will enable us to move our customers onto the platform, to allow a faster integration and other solutions that exist with this relationship for example, tokenization system within the new network of Visa/MasterCard or banking to offer a quicker push to cloud than Visa Direct and other great features that they bring to the table. And the third one that we are very excited to announce is Visa Direct. We just finalized the integration and certification with Visa. We can go live now and push money through the new network and relationship. This will allow us to leverage the Visa Direct network to push money in 80 different countries. We are starting with the first five, and we have already started pushing money in Canada. So I am very excited about this and leveraging that solution to offer to our businesses and our banking-as-a-service and of course our PayFac solution. So I am very, very excited. And this is how we see the company grow in the second half of this year. So, I'm very excited. Thank you.

Thanks Fredi. The next question is for Min. How did revenue trend in Q1? What is being done to rebuild momentum and what is your forecast for profitability?

Thank you, Ben. To answer the question, Q1 was affected due to changes in technology and banking compliance which is impacting some of our high-risk verticals, which have continued into Q2. As we reported, these issues have affected the US, while Europe continues on a stronger growth trajectory. In the US, we're expanding into new verticals to diversify and we're working on specifically identified business opportunities in these new verticals. In addition, we started to monetize our Platform as a Service licensing business and that do not have the same constraints that affected the Q1 results. Although this new revenue stream will take time to materialize, we are building momentum in these new verticals. In terms of the question about profitability, based on our expected revenue and expense run rate, we expect that adjusted EBITDA in the second half to be positive and the full year to be in the range of $1 million to $5 million. As we have stated in the past, at $100 million revenue, we should be at positive EBITDA and at the $120 million revenue, we expect to be profitable. It is our plan to continue focusing on resources to accelerate revenue growth and reduce non-critical spending to reach our profitability objectives.

Thanks, Min. The next question is for George. Are you comfortable that you have enough liquidity to sustain the faster profitability? Why did you pull away? And what is your plan to manage the note coming due in April of 2025?

Thank you, Ben. First, regarding the proposed raise, we had started the process in Q1 when the stock price was higher. However, as it came closer to fruition, pricing was not attractive. We made the determination that it was not in the best interest of shareholders to accept the terms, and so we canceled that raise. Rather than raising equity, we pursued a strategy to accelerate repatriating cash from Europe to the US. Fortunately, they are very profitable and are ahead of plan. We were able to repatriate $7.5 million to date from the EU to help subsidize the temporary loss of processing in the US. Our cash and cash equivalents are challenging in the North America segment. We are moving money between the other business units and we are being very aggressive with cost control to help manage the liquidity needs. But it's a challenging operation to have multiple business units, somewhat increasing revenue, somewhat decreasing revenue, but we're managing working capital very tightly and centralized at the US. Regarding the note, we have extended the maturity of the note in the past and we are again in active discussion with the note holders to do so again, next quarter then the note would be due within one year and affect our current ratios. So we're going to get that hopefully extended and continue to classify it as a long-term obligation. And with that, I'll go back to Ben.

Thank you, George. I'm going to take the next question. How do you measure your success or another way you're saying there's one of the most important key performance measures in the industry? Where are you doing better? And what trends do you expect in 2024? So I do like data science, in fact, a shout out to my son who is a data scientist. The best way to measure success is using key performance indicators. The most meaningful KPI for Ryvyl includes the total volume of transactions, operating margins, and revenue. Our company business grew 83% to $3.1 billion in 2023, and we expect 67% volume growth in 2024. In terms of operating margin, which is always a challenge in a rapidly growing company, we continue to automate and streamline cost control. We are happy to report that our operating margin run rate is in the high 30s, low 40s, in spite of the substantial growth in revenue. In terms of revenue growth, we finished 2023 with about $66 million in revenue. Based on our robust pipeline and new offerings, we anticipate that to grow in 2024 at approximately 35% to 50%. Based on the current environment, we're quite pleased with this progress.

Thank you, Ben. Our top three sources of revenue are as follows. Number one is merchant acquiring service revenue. Number two is banking IT service revenue, and we are gaining significant momentum in the European market, as mentioned earlier. And number three, other revenues from the new verticals and the anticipated licensing revenue from payback as a service offering, which is due to go to market through the independent software vendor partnerships, Fredi mentioned earlier. In addition, we recruited more strategic resources, repayment experience, and the speed of onboarding is improving, giving us confidence in stronger growth in the second half of the year.

Thank you, Min. Operator, at this point, we would like to open the floor for analyst questions. We see that several analysts have registered for questions.

Sure. Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Kevin Dede with H.C. Wainwright. Please proceed with your question.

Thank you for having me on, Ben and Min. It's good to talk to you again.

Thank you.

So exactly when was the Visa Direct integration complete? Was there any contribution to the March quarter or how far through the June quarter? What kind of results have you seen so far?

I'm going to have Min address that. Go ahead, Min.

Hey, Kevin, thank you for the question. So it is reasonably the second quarter, so after the first quarter, and then we went live with services as Fredi indicated our initial currencies, we cover in Phase 1, five currencies including GBP, US dollars, Euro, and Canadian dollars. We already went live with the business in Canada, and after that, we expect to launch into the rest of the Phase 1 currencies. So we expect to see some improved revenue coming from the banking as a service part of our business as a result of that.

Okay. Ben, I'm a little tripped up on the slowdown in the March quarter on one hand, and this is on me, right? I'm not sure that I heard everything correctly. On one hand, I heard about the transition from a terminal to mobile platform. And on the other hand, I heard about an issue with regulations. So if we could drill down on each of those issues, please, maybe I can come to understand how you see a stronger second half?

Kevin, that's a complex question, but generally speaking, in Q1 we faced challenges related to technology and compliance due to changes in our processing channel, and we're addressing that immediately. The recovery path we're discussing relates to our transition to mobile payment processing. We've improved how we handle payments for our customers and merchants in a compliant way, allowing us to implement a better solution. However, it will take time to rebuild our user base, as we anticipated that consumers would need to adjust to the new payment experience. We are putting together training programs and communication materials to encourage this shift. Consequently, we've revised our revenue expectations. We believe momentum will start to rebuild in the latter part of Q2, with significant progress expected in early Q3.

I would add to that, Kevin, that we like this transition out of hardware into software. It's better for the company. It's easier to manage inventory. Updates are much faster, and all of that leads to better margins. We like that trend. Our customers like it. They have no expenses on hardware. This is a good trend. It just takes a little bit of time transitioning and onboarding the old paperwork or portfolio onto the new platform.

Okay. Maybe, Ben, you could offer a little color just on the regulatory side of things because I'm still a little confused by that?

To say that we are not confused by it would be an issue. We work in an environment that is an ecosystem that is fed by a lot of different contributors. A lot of times, we see trends that are influenced by perception. Sometimes it's a perception of risk by association. Sometimes it's perception of risk for verticals. Sometimes it's an interpretation of regulation that otherwise are not very clear. A lot of our partners are telling us, if you do business this way, we will have to reduce your bandwidth, and if you do it in another way then you have full warming ground, it's better for us to listen and follow these guidelines, even if they are not always mandated from the regulatory perspective.

And let me add one more thing just for what Ben just mentioned. I think it's important. Banking and acquiring processing, the whole industry is changing. The FDIC is pushing hard on banking, on risk, on capacity. Visa just lost a lawsuit and needs to pay $30 billion in fees. The whole industry, the whole ecosystem is changing, and we are just part of that ecosystem. We are following the guidance of the partners, and we have to adjust to those requirements. And part of it is moving into technology that is more secure, more transparent, for example, mobile apps. In Europe, they have a new set of rules as well that are going into certain areas, especially in the crypto area in licensing. So the whole world is changing, and we're just adjusting with it. So that's kind of a high level.

If I look at revenue as a percentage of transaction volume, I get to about 1.7% in the March quarter, which is down from, I think, over 2% in December. So can you help me understand that trend and how you think it goes? Obviously, it's a function of volume, but given there's only a 5% change in volume, it's hard to see that much of a change in revenue versus a percentage of transaction volume.

Okay. Min?

Kevin, I'll address that question. That's a good observation, right? That means you really are into the details data analytics of our business. And at a high level, as I mentioned earlier, our top three revenue drivers, one is merchant acquiring service revenue, number two is banking as a service revenue, right? So what happened is, sequentially, between the last quarter of 2023 and the first quarter of this year, even though we have reduced volume for North America acquiring and processing revenue, and reduced volume in the process, that said, we more than offset that by increased margin increased banking as a service revenue and volume in Europe. So that's one observation, right? Two is, I think that's basically what you're looking at, is the rate being compared against volume. The residual percentage for banking as a service revenue is lower than the acquiring in the business we have. So as a result of that, when you have increased volume for banking and service revenue, but then has a lower residual percentage compared to higher residual percentage for the acquiring business, that's why you see, even though we have improved volume overall, but then the residual percentage probably declined quarter over quarter because of that. Okay? Hopefully that makes sense to you.

So, I would add, so that is basically a mix between Europe and the US. As Europe is a larger percentage of our business, that's why that overall rate declined. Even though Europe is very profitable, the residual rate is lower on the transactions than we had in the US. So I do think 2% is still a good ballpark metric long term.

Right. This is Ben again. This is the area where we anticipate the stabilized performance to go back to the original performance. I would also have to direct your attention to what I said before to a previous question about the KPI. Our gross operating margins have not changed, even though our percent of revenue out of volume may have shrunk. So that's a very important distinction.

Thank you for highlighting that, Ben. I appreciate it. Thank you very much for your explanations, gentlemen. I'll hop back in the queue.

Thanks, Kevin. We always appreciate your support. Operator, back to you.

Thank you. And our next question comes from the line of Kevin Dede with H.C. Wainwright. Please proceed with your question.

Thank you very much. I thought I'd just take a backseat for someone else. But help me understand the evolution of banking as a service, blockchain as a service, and Rivyl's block offering, and how you're positioning Coyni within the realm.

Okay. On that strategic question, back to CEO Fredi.

Thank you. Let's begin with banking as a service. In New York, this involves providing a license for other financial institutions and banks to leverage our infrastructure and licenses to offer various services, including payment solutions and now expanding into Visa's on and off ramp solutions. We are currently implementing these options in multiple ways and have already observed significant transaction volumes. This solution offers substantial growth potential for other banks and companies. Moving on to our cloud service, we are in the process of enhancing this solution and collaborating directly with core teams to determine the best approach for deployment. The Federal component is operational, albeit at a measured pace. Although this is a considerable undertaking, we are enthusiastic about the prospects and aim to provide more updates by Q2. Regarding Blockchain-as-a-Service and its benefits for Coyni, this is our payment software that facilitates services in the US, with plans to launch in Europe as well. We previously shared that Coyni has obtained the necessary licenses in Europe to operate as a payment facilitator, which permits us to manage payments for asset renewal. We are working alongside our partner First Data, seeing Coyni as a PayFac through them. We have numerous initiatives in motion that we aim to activate quickly for revenue generation. However, these projects require extensive time invested in compliance and regulation, and we are now at a stage where we can start implementing these solutions. I hope this addresses your question adequately. Through these tools and solutions, we anticipate a recovery in the latter half of the year.

Yes, okay. So, if I were to summarize, RYVYL Block is basically the name that you've given Blockchain-as-a-Service?

That's correct. Internally, yes, RYVYL Block is the correct name.

Okay. I apologize. You have a lot on your plate, and it's difficult for someone like me to sort it all out. I appreciate the guidance.

No problem.

Thanks for your continued support, Kevin.

Yes, my pleasure. Ben, you've discussed your international expansion with a focus on Europe, but it seems to me there are other countries, perhaps not classified as first-world, that might offer similar opportunities as some Eastern European markets, such as South Africa, Nigeria, or even Egypt. How are you considering expansion beyond Europe for your international growth?

That's a great question, and it shows that you are paying attention. This game hinges on efficiency. We have the capacity to onboard more business in a reasonable timeframe. Currently, we are focused on those easier opportunities, even as the company grows year-over-year at a rate of 80% to 100%. As we mentioned earlier, we expect our total business volume to rise from around $3 billion to $5 billion. Our goal is to maximize the most efficient revenue possible. For instance, our entry into the American Samoa market allowed us to capture the majority of transactions, positively impacting the national GDP, which we see as a successful case study. However, the quality of revenues we generate in the European market indicates that this is where we should concentrate our efforts right now. Ultimately, we will pursue opportunities wherever they arise, but we will prioritize leveraging our strengths first. While we might be leaving some potential revenue untapped, our immediate focus is on securing the most efficient revenue growth before exploring more direct markets.

Ben, you mentioned American Samoa, and I recall you discussing potential opportunities in similar closed systems during several calls last year. I understand that you have a lot on your plate and are focused on more immediate gains, which makes sense. I'm curious if you still see those opportunities or if your recent experiences in American Samoa have led you to want to allocate less time and resources to pursuing them.

So Kevin, I'll answer that question to demand. American Samoa continues to be very strategic in the business opportunity for us in our portfolio. We continue to process volume as we indicated previously servicing more than 60 days on the island and we have a quick reminder. We have a five-year exclusive partnership for the island, and we are continuing our conversation with our partner there for additional processing needs. We're not in a position to share more details, but we are in the dollar for that. Now secondly, for smaller contained ecosystems such as American Samoa, we continue to manage all the major business opportunities in our sales pipeline. As Ben mentioned, we prioritized based on the level of effort involved, alignment with our product roadmap as well as resource utilization. We do have adequate major big ticket opportunities in the pipeline in the near term that we are prioritized on rather than pursuing other island business even though we do have some potential in the longer term.

Let me add a couple of words on that. This is Ben again. Due to the technology migration, we experienced a slight decline in onshore revenues for Q1. I think it’s wise for the company to first address that with the most efficient approach before exploring other opportunities that are less certain at this time. I hope that message is clear.

Yes, yes. No, absolutely. But just to be clear, I mean, I guess, I was thinking of closed ecosystems sort of beyond a geographic implementation, maybe something more akin to Square's payment processing. And thank you very much for the explanation. I appreciate it and I'll cede the floor at this point. Thank you very much gentlemen.

Thank you, Kevin.

Thank you. And we have reached the end of the question-and-answer session. Now I'll turn the call back to Ben Errez for closing remarks.

Thanks operator. Thank you all for joining us today and for your thoughtful questions and participation. On a personal note, Fredi and I are the two largest shareholders at Ryvyl. We are excited about the 2024 growth plan to diversify revenues and hope to see everyone on our next update for the Q2 results in August. Have a great day everybody.

This concludes today's conference call. Thank you. You may now disconnect.