George Oliva - Chief Financial Officer:.

Min Wei - Chief Operating Officer:.

Fredi Nisan - CEO:.

Good afternoon, everyone, and welcome to RYVYL Inc.'s Fourth Quarter and Full Year 2023 Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. The earnings press release accompanying this conference call was issued at the close of the market today.

The Annual Report, which includes the company's results of operations ended December 31, 2023, was filed with the SEC today. A replay of this call is available at the Investor Relations section of the RYVYL's website in the Events Quarterly Earnings section. 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 managements, 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 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 statements, 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, operator. Good afternoon, everyone, and thank you for joining us today. I'm proud to bring you our fourth quarter and fiscal year 2023 financial results. 2023 was a momentous year for RYVYL, our best year yet with strong growth in our business volume leading to a record company revenues.

For the full year 2023, we delivered revenue of approximately $66 million a remarkable 100% increase over 2022. Our fourth quarter 2023 revenue increased 100% year over year to $22.3 million exceeding our guidance range of $19 million to $21 million while setting a company record for the fifth consecutive quarter.

This also reflects a 27% sequential increase from $17.5 million in the third quarter 2023. This tremendous revenue growth was derived from processing volume, which totaled approximately $3.1 billion a company record and an 82% increase from 2022. We continue to bear fruit from our 2022 acquisition of Transact Europe.

The company is now rebranded as rival EU and experienced exponential revenue growth in 2023, increasing 294% to nearly $17 million. At the same time, our North America business revenue also grew an impressive 71% to $48 million.

Our Chief Operating Officer, Min Wei, will once again provide a full breakdown of the various processing channels' performance later during this call. Overall, we are very pleased with our operating performance and strong growth trajectory.

Now to discuss some of our key growth initiatives, during the quarter, we announced the collaboration with R3 to offer businesses a groundbreaking blockchain-as-a-service solution that enables streamlined and secure digital transformation.

R3 is a leading provider of enterprise distributed ledger technology software and services for the financial services sector. The new platform RYVYL Block is designed to be an innovative and cost effective solution, simplifying the adoption of blockchain technology for businesses in banking, payments and high volume processing environment.

RYVYL Block streamlines blockchain integration and will offer business customers effortless access to the essential tools and building blocks required to develop a secure distributed ledger infrastructure. RYVYL Block further features rich business APIs and rapid implementation.

By merging RYVYL's expertise with R3's leading distributed ledger technology, we're setting a new standard for accessible, secure and transformative blockchain services. Turning to RYVYL EU where we are seeing strong growth momentum.

We are now CEPA enabled and targeting more 2,000 payment service providers across 36 countries in the Eurozone with income in and outgoing instant transfer. We progressed towards completing integration with Visa Direct, which is now in testing.

The service allows RYVYL EU to leverage its capabilities and provide a superior banking-as-a-service offering. Once enabled, we will be able to better serve our customers, retain their loyalty and create new revenue stream. We continue to expect integration to be complete by mid-2024.

What makes us so excited about being a Visa Direct partner is that we believe the collaboration in the Eastern European region will revolutionize the way funds are transferred between accounts offering fast, convenient and secure transactions.

Our customers expect the opportunity to send money to authorized accounts, e-wallets and debit cards in over 80 countries across multiple currencies. We accomplished that using Visa's extensive network of local banking partners.

Visa affords 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 beyond.

We continue to work with our large institutional partners on our banking-as-a-service platform and have ramped up to over $200 million per month in transaction volume. As a reminder, our Banking-as-a-service solution offers API integrations and foreign exchange capabilities in more than 40 different currencies with local settlement.

The service authorizes transactions 24 hours per day on business days and enables payouts by way of approved methods such as real time payment or direct deposits. In addition, the service allows for the ability to readily trace transactions and reduce fraud all while maintaining strict compliance requirements.

We continue to view this as a long-term potential growth driver in a lucrative market that our technology is well suited to tap into. During the fourth quarter, we made the strategic decision to retain coyni as a wholly owned subsidiary and not spin off into a new publicly traded entity.

This allows us to optimize the coyni technology platform to complement and expand payment processing and banking-as-a-service solution by maintaining a consolidated product roadmap, we expect to leverage coyni in both existing and targeted new vertical markets for better operating efficiencies and enhanced profitability.

In the second half of 2023, we made great strides in bolstering our balance sheet through the restructuring of our debt. This was accomplished through two exchange agreements with the holder of a rival issued convertible note initially in the principal amount of $100 million.

The execution of these agreements reduced the principal balance of our convertible note by $66.3 million lowering the total indebtedness to $19.2 million as of December 31, 2023. It also evidences the noteholder’s ongoing support and belief in our core mission.

In addition to cash flow from operations, in late December, we sold our Chicago office building for $2.6 million in gross proceeds.

Taken together, these steps have produced a much stronger balance sheet and significantly increased net shareholder equity, ultimately helping us to regain NASDAQ compliance by satisfying NASDAQ stockholders' equity requirement.

Operationally, in the fourth quarter, we fortified our management team appointing George Oliva as Chief Financial Officer of the company. George brings vast experience as a senior finance professional with a background in corporate finance, treasury, financial planning and analysis, international tax and strategic planning.

George has been instrumental already for us during our debt reduction initiative and will play a vital role in the future development of the company. In summary, RYVYL continues to be a growing force in shaping the future of financial transaction.

In 2023, we delivered meaningful operational execution and revenue growth while setting the foundation to rapidly scale our processing volume, number of transactions, partnerships and banking-as-a-service platform.

Looking ahead, in addition to the underlying momentum in our processing volume, we're excited about our partnership with R3 and the future of RYVYL Block to provide a scalable platform for businesses seeking agile and secure blockchain solution.

By retaining coyni as a wholly owned rival subsidiary and improved efficiencies, we believe we can accelerate business volume growth. We are well on our way towards being a revolutionary force in the digital payments landscape and expect another year of strong revenue growth leading to profitability in 2024.

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 will be referring to adjusted EBITDA and other non-GAAP measures. For the 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's IR website in the press release or quarterly earnings sections.

I'll first review our fourth quarter 2023 financial performance. Revenue for the fourth quarter increased 100% to $22.3 million compared to $11.1 million in the fourth quarter 2022, reflecting our continued expansion of our independent sales organization known as an ISO and partnership network and growth in our acquired businesses and RYVYL EU.

North America fourth quarter revenue increased 85% to $16.6 million for fourth quarter 2023 compared to the fourth quarter 2022. International fourth quarter revenue increased 165% to $5.6 million the fourth quarter 2023 compared to fourth quarter 2022.

Cost of revenue was $14.5 million for the fourth quarter 2023 compared to $5.4 million in fourth quarter 2022. 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 International segments.

Operating expenses decreased by $13.8 million to $10.6 million for the fourth quarter 2023 compared to $24.4 million in the fourth quarter 2022 reflecting lower depreciation and amortization expenses related to the write-off of the contracted acquisition of the Sky Financial portfolio during 2022.

Other expense totaled $27.0 million for fourth quarter 2023 compared to other income of $2.7 million for the fourth quarter 2022. The increase was primarily attributable to noncash direct ignition charge of $23.5 million associated with the conversion of convertible debt to equity.

Adjusted EBITDA improved to a positive $0.1 million in the fourth quarter 2023 compared to negative $2.9 million in the fourth quarter 2022. Turning to our full year 2023, revenue also doubled to $65.9 million compared to $32.9 million in 2022.

This reflects significant growth in processing volume, which increased from $1.7 billion in 2022 to $3.14 billion in 2023 driven by our ISO and partnership network expansion and growth in our global payment processing businesses, banking-as-a-service offering.

2023 adjusted EBITDA loss improved to $3.9 million compared to adjusted EBITDA loss of $14.4 million in 2022. At December 31, 2023, cash and restricted cash was $73.3 million with $12.2 million of that being unrestricted cash and working capital of $4.3 million. Continuing to enhance our liquidity is a tough priority for us.

Our ability to fund working capital and other expenditures depends on cash generation from our two operating segments activities, short-term borrowings in the U.S. and capital raises.

As shareholders ourselves, we're committed to achieving positive cash flow while minimizing the dilutive effects in connection with any financing transaction consistent with our commitment to execute on our long-term strategy and continue our growth trajectory.

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'd like to first walk through our processing volumes for the verticals we serve and discuss our fourth quarter results and outlook for the first quarter of 2024. Our fourth quarter processing volume across all channels is approximately $1 billion versus our published indication of $900 million to $1 billion for the quarter.

We are pleased to hit $1 billion quarterly volume again, the first time since third quarter 2022. The fourth quarter volume is about 16% better than our third quarter 2023 volume of $861 million and an increase of about 98% from our fourth quarter 2022 volume.

Our North American Merchant Services business, including RYVYL Block, ChargeSavvy and other portfolios, processed $278 million in the fourth quarter, which is about 30% higher than the third quarter's $213 million volume and is 69% higher than the same period one-year early.

The increase is largely attributable to the increased block processing volume, partly negated by a reduced processing volume under ChargeSavvy.

For our FX and international payments portfolio, including the acquired Transact Europe business now RYVYL EU and our new Banking-as-a-service offering, we processed $590 million in the fourth quarter compared to $517 million in business volume in the third quarter, an increase of over 14%.

This represents an 87% increase from $315 million in the fourth quarter of 2022. We are very pleased with the growth we achieved in the international markets in 2023. For an update on American Samoa, we continue to serve over 60% of the target merchants market on the island.

In the fourth quarter, our processing volume was about $34 million about 10% higher than the prior quarter, and our monthly volume is sustaining at about $10 million. With respect to coyni in the U.S., we started the mobile based processing in the first quarter and expect to ramp up the volume in the coming months in our target service verticals.

In the EU market, we received our license and merchant processing approval for coyni and anticipate the initial business to be boarded soon. Now I'd like to turn to our outlook for the first quarter and the total 2024.

First quarter processing volume is expected to be in the range of $900 million to $950 million, this is lower than the regard fourth quarter 2023 volume due to us transitioning one of our North American products from terminal based to app based processing.

This transition coincided with a change in our banking partner that was prompted by recent changes in the compliance requirement and banking regulations. While we were able to accomplish this quickly, it has adversely impacted our first quarter processing volume and revenues. Our total year 2024 volume expectation is over $5 billion.

For our first quarter revenue outlook, we expect to be in the range of $15 million to $16 million a decrease of approximately 28% to 33% sequentially, but over 35% better year-over-year. For total year 2024, our revenue indication is at $90 million to $100 million.

With regard to adjusted pro forma EBITDA, please refer to the reconciliation of this non-GAAP metric in our earnings release issued before this call. Our fourth quarter figure is a positive $126,000.

This is lower than our targeted $500,000 to $1 million for the quarter, which is due to higher than planned expenses associated with payment processing, technology development investment, external legal spending and administrative expenses to regain trading compliance.

Some of these referenced investments and expenses will continue, coupled with the first quarter volume correction, and we are estimating our first quarter adjusted EBITDA to be a negative $1.5 million to $3 million in our total year 2024, adjusted EBITDA to come in at a positive $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..

So let's take a few of the questions that have come our way prior to this call. The first question goes to Chief Operating, Min.

Min, can you talk about the partnerships with ACI and R3 and how you see these developments over time and how you should think about the economics of those in near-term and long-term?.

Well, thank you, Ben. This is a great question. We have an ambitious business plan for 2024, achieving $90 million to $100 million in revenue compared to the reported $55.9 million in 2023, a 35% to 50% growth. ACI Worldwide is a global leader in mission critical real time payment software.

Their secure and scalable software solutions enable leading corporations, FinTechs and financial disruptors to process and manage digital payments, empower omni e-commerce payments, present and process deal payments and manage fraud and risk.

RYVYL EU will bore its e-commerce merchant, PSP customers onto the award winning ACI payment orchestration platform, enabling them to orchestrate payments using one solution, one platform and one API integration for optimal conversion rates and minimal operational cost.

This migration will allow merchants and PSPs to provide customers with a more seamless and secure customer journey.

We are currently in the process of integrating the ACI solution into our offering and having this in place will enable us to increase capacity for the EU merchant acquiring business, which is set to scale by over 200% this year in volume. In terms of R3.

R3 has extensive international experience working with regulated institutes across the financial sector. This partnership between RYVYL and R3 aims to provide a scalable platform RYVYL Block that can adapt to diverse business needs, providing flexibility for seamless expansion and growth.

This project will leverage RYVYL's expertise in digital solutions and R3's cutting edge blockchain technology to ensure smooth integration into user facing business frameworks. This goal is to simplify and expedite the adoption process for blockchain for businesses of all sizes, delivering a user friendly experience.

RYVYL and R3 are committed to delivering a cost effective blockchain-as-a-service solution, eliminating significant upfront investments and reducing complexity typically associated with blockchain adoption. This is part of our 2024 plan to pilot, improve the business monetization for the RYVYL Block solution.

In the long-term, this can become a new significant business pillar for RYVYL and a new source of revenue and profit for us..

Thank you, Min. Next question, also to Min and Fredi.

On the coyni strategy, can you detail how you can leverage it into existing and new verticals and how it creates more operating efficiencies and profitability?.

I'll take that one. In our prior calls and communications, we shared that due to the regulatory environment changes and banking industry dynamics for digital asset banking, we adjusted our coyni monetization path to focus on payments and banking-as-a-service offering for the business verticals we serve.

Due to the change and as we already have a lot of infrastructures for payments and banking-as-a-service, it's more suitable for us to leverage our existing infrastructure and resources available at RYVYL to roll out the services versus spinning it off and incur additional costs for building new business operations around them.

That aligns with the interest of our shareholders. With respect to coyni, in the U.S., we started a mobile based processing in the first quarter and expect to ramp up the volume in the coming months in our target 30 verticals.

We also expect to introduce our coyni functionality through new releases such as what we previously announced as the end part to our customers in retail or delivery businesses. In the EU market, we receive our license and merchant processing approval for coyni and we have a clear view for the business opportunities to start with..

Thank you, Min. And to add to the question about coyni, coyni infrastructure is fully automated and part of the infrastructure of coyni is to reduce the amount of employees that's going to be needed to move money by utilizing coyni customization from onboarding to risk monitoring, to customer support, everything that's related to the operation side.

Coyni was designed to take care of about 70% of the operation. So we hope through this process, not just to reduce the cost of the operation, but speed up as well, the onboarding and the user experience of coyni..

Thank you, Fredi. Next question, again to Chief Operating, Min. You've alluded in the past that European market with the focus for growth. You still see that as the case and you expect to see growth in North America pick up as well..

That's another good question. So well, first of all, thank you to who raised the question for recognizing RYVYL's business growth potential in the EU market. That is a key reason why we acquired Standard Europe now renamed to RYVYL EU. We have a full suite of acquiring, issuing and banking licenses for the EU market.

With the licenses and our local team and capacity, we tripled our processing volume in 2023 and we launched our banking-as-a-service offering. We've turned the business around we're now generating greater revenue and profit there. We expect 2024 to be a more successful year for RYVYL EU.

The North American market remains one of the key markets we serve and we focus on. In the annual report, we described near-term business volume correction due to one of our products, transitioning from terminal based processing to mobile app based processing. This coincided with some changes in the compliance environment.

Having more mobile based processing experience is a key transformative journey we see in the service verticals, we are supporting today and the new verticals we are pursuing. So we expect the business volume to recover over the coming quarters..

Thank you, Min. Next question to Chief Executive, Fredi.

What other regions of the world might we see RYVYL look to expand into in the near future?.

Thank you, Ben. This is a great question. RYVYL is a global company and we are looking into very, two regions actually. One is the Asia region and the second is South America. We already communicate with the market in regards to American Samoa and the location and the strategic goals and benefits of getting into that region.

So our expansion is into those two regions. We are very excited about it. We're still working on that, so we don't have too much detail at the moment, but we will share soon as they become available. Thank you..

Thank you, Fredi. The next question will go the combination of Min and Chief Financial Officer, George.

When will RYVYL look to be per share positive? George, why don't you start?.

Well, that's difficult to say. I think in terms of earnings per share is dependent upon noncash charges that are hard to predict, such as when we converted the debt to equity. But in terms of profitability, I think we're looking at $120 million revenue level.

We believe we'll be profitable, and that'll be large enough to that we could control expenses and be positive.

Then Min?.

Thank you, George. This is again something that we always on our mind, right. So achieving a positive bottom line and as a result, a positive EPS is one of our key objectives, it's our commitment to our shareholders as a team.

I do want to also take a moment by referring to adjusted EBITDA, as George mentioned earlier during the call that is a decent representation of normalized operating results for the company. It is hard to link to have achieved a positive adjusted EBITDA for the second half of 2023.

In 2024, we expect the total year to deliver a positive $1 million to $5 million of adjusted EBITDA, while we do anticipate that the first half to be negative as I mentioned earlier due to the product transition we're experiencing and as a result of that reduced business volume in the near-term.

The steps with getting us from a positive adjusted EBITDA to a positive EPS, as George mentioned, right, it's contingent upon us successfully either do away or reduce noncash expenses. Example of that is fully retired the convertible debt we have. As Ben mentioned earlier during the call, we successfully converted 78% of it in 2023.

With that momentum, we are optimistic that we can get through that, right? If that's achieved and if possible consistent with what George has said, once we get to $120 million revenue level, we anticipate to hit a positive earnings per share and the timeline for that, is indicative is 2025..

Thank you, Min. Operator, at this time, we would like to switch to analyst question, and then we'll take questions from the floor following. Go ahead..

[Operator Instructions] Our first question comes from the line of Kevin Dede with H.C. Wainwright..

Thank you, operator. This is Michael Donovan actually calling in for Kevin Dede. Congrats on the quarter, Ben, Min and George.

So first question, could you elaborate on the expected outcomes of the partnerships with R3 and ACI Worldwide, especially regarding the Visa Direct integration and its impact there?.

Okay. Thanks, Michael, for the question. Min will take that..

Hey, Michael, thank you for the question, right. The two parts, they are not necessarily directly related. So I'm going to go one by one. First of all, on the R3 partnership, as we indicated in the press release, R3 is a very reputable company operating in the enterprise financial institution space as well as enterprise customer space.

We partnered together with them, defined the RYVYL Block solution. So in a nutshell, RYVYL Block solution really is a way to enable the business to transform the day-to-day business workflows to a blockchain ledger enabled workflows.

For example of that, RYVYL ourselves, we are the first customer leveraging that, right, because we're leveraging the blockchain ledger for security, for completeness of data integrity, as well as leveraging smart contracting.

As Fredi mentioned earlier, the beauty of our technology platform is it allows us to be able to fast track our day-to-day business workflows, with a faster speed, with less dependency on human beings and that with lower operating costs. So we have done that successfully using our own, one of our portfolio to benefit from that.

And working closely with the R3 team, sales and marketing, we believe that can be a great potential for the enterprise customer base with both service or targeted service. So for that reason, what we are doing this year is we are cashing out the pilot in a business case.

We plan to roll it out to a couple of pilot customers to ensure they actually see the same benefit as we have realized for ourselves. And once we get to that, we'll make sure that the commercial model structure is all laid out so that we can go full steam ahead to pursue the business in this space.

Now Michael, to answer all of your question is in case you have the question, this initial piloting, the initial rollout is in our 2024 business plan. So we're committed to that.

Now in terms of ACI Worldwide and you also mentioned about Visa Direct, right? So, ACI is a very reputable gateway service company and they also have a lot of strength in core monitoring and risk management. We see a lot of synergy and benefit for us to partner together because we are in the payment space on a day-to-day basis.

As we continue to build the momentum in the European market, as I mentioned earlier, for 2024, we're targeting to grow the acquiring business volume by more than 200% in the European market. It made logical sense. Its part of our commitment to provide better and more secure services for our customer base in the EU market.

Being able to partner with ACI, we're going to be able to get there, right. We have great mouse pack already today, but partnering with ACI is going to further elevate our service offering. Certainly, you mentioned about Visa Direct. Visa Direct is strong partnership we have.

As a matter of fact, RYVYL was invited to participate in the Visa Client Council which is a select community that come together to shape the future of the space we operate in to make sure that we all understand the evolving customer needs, understand the technology landscape, understand how we can collaborate working with major players like Visa and others to ensure that we have seamless payment experience.

Now coming back to the integration and monetization for that partnership for Visa Direct, we're in the process we already finished the initial integration work in the process of testing the integrated system, right, between us and Visa. We are in the kind of a process rolled out to the Phase 1 countries.

We support, we already have customers identified for the Phase 1 countries. So, all of that momentum is currently captured as part of our rollout plan for 2024. But that's not to say if we are proven very successful then we potentially can achieve more than what we indicate, right? So that's it..

Now with the cost of revenue slightly higher in fourth quarter, how should we think about margins going forward as a function of volume?.

Michael, very good question. I mean, perhaps with that question because that's something we care on a daily basis here as a team, right? Because as we continue to build volume, the scale, the cost drivers are relevant and important.

I think we have already gained a decent understanding, a reliable understanding of our cost ratio to revenue to volume, right, especially when it comes to the existing service vertical, meaning acquiring business. In the banking-as-a-service business, we also have some good understanding as we continue to build the volume and scaling.

I would say that if we look at the overall gross margin ratio for the company, we are in probably hovering around 38% to 40% as a company. So Michael, just kind of put myself in your shoes. I think you're really asking us potentially how that will evolve over time. I would say in the near-term, it's probably going to be pretty reliable in that range.

For the longer term, because as Fredi said, we have filled a good solution for coyni and we're going to continue to scale our business leveraging the coyni capabilities. I mean for the longer term we expect to see better cost ratio than the past..

Maybe one more Michael. And this is Ben. So profitability goes in both directions, especially margins. So efficiency obviously causes the margins to get better, but scale caused them to go in the other direction in the more common scenarios.

So the play for us is to maintain the margins that we have today and maybe get a slightly better as the numbers get bigger. But we're very happy with the performance, the operating performance expressed in the margins as they are shown today..

Now focusing a bit more on North America, slightly related to margins, I suppose.

Regarding the shift from terminal based to app based processing, what is the anticipated impact there on customer retention? And what trends do you see for this type of shift? Do you think it's going to decrease your acquisition cost in the short-term? Or how are you thinking about this shift right here?.

Min will take that..

Thank you, Ben. Mike, this is another great question.

As we have probably seen this transition or transformation in different business verticals or sectors, I would say there are some intricate dynamics on this journey, right? Because when you move the payments experience from a terminal based experience to the mobile app experience, there are a few facets of it.

First of all, you allow us as a service provider, as a technology enabler to have more customer touch points because the customer touch points is transitioning from previously to primarily interfacing with merchants and business customers to now we have customer interface interaction with both the merchants and the business customers as well as the general consumers, right? So that's important because I'm sorry for taking a little bit of time to get to the answer, because you did mention about customer retention and whatnot.

You gave us more direct interaction and feedback from the consumers, which gave us the feedback loop as needed to motivate us to continue to innovate based on user feedback. That way we're not just depending on second handed or direct feedback from the merchants, now we actually have the feedback directly from consumers.

And the second point is, it gave us better visibility in terms of flow management and risk management and monitoring. In the past, we are doing a great job on behalf of our merchants and business customers.

Now that we have direct interaction be directly involved in KYC, onboarding of the consumers onto the mobile app, a lot of this information is timely validated through our advanced risk monitoring management system. So that will also allow us to reduce risk for our business customers.

So all of this will lead to us in a long-term better business retention, customer retention, better engagement with customers, both at the merchant level as well as the consumer level, which we care a lot about. Now in the near-term, because we are talking about a transition, it is a significant change in terms of user experience.

So we do expect there will be a little bit of a time it takes to rebuild momentum, but that's not to say we have lost our customers. Many of our merchants still committed and are still in live contact with us. But we are taking the time to ensure we work closely with our merchants, our partners, our ISOs to educate them.

We also prepare them to educate the consumers to better use the system we have now on the app basis, and that can benefit from the user experience. So hopefully that answers your question, Michael..

Now you mentioned risk. I believe, not too long ago, we discussed North America and the high risk licenses.

Are PayPal and Stripe still the only players with this high risk license? And is RYVYL pursuing a high risk license in North America?.

I'll try to answer the question because this really depends, Michael. First of all, we do understand that PayPal, Venmo and others are very reputable renowned players in terms of P2P, B2C, C2B payment experience in the overall general market. RYVYL and our product offerings are focused on very specific service verticals and niche markets.

It is not part of our strategic vision go head to head with those big players in the general market. Our sweet spot and strength and focus is continue to be successful and excel in the space we serve. So whether that's considered medium risk, low risk or high risk. So we do have working, we have been working with our banking channels, both in the U.S.

and in EU, we have the requisite licensees to perform business in a compliant way and that's something we are absolutely committed to. So again, to answer your question about that is, we do not see PayPal and Venmo to compete in the near-term in the space we operate in. We do believe there is a barrier to entry.

We also do believe we have our unique offering that serves not just our merchants, our business customers, but also our partners, our agents, ISOs as well as consumers..

Fantastic answer there and very diplomatic. My final question before returning the floor is in regard to American Samoa and market penetration. I think you mentioned around 60% for all payments there.

What are some of the hurdles that you're seeing for increasing market penetration? And also, what are some of the perhaps pleasant surprises that you've seen in Americas Samoa?.

No problem. So Michael, you have the fair reservation there. As we indicated, we've been supporting and servicing over 60% of the target merchants market for the past few quarters already. And I believe your questions are twofold.

So number one is, why is that penetration not going higher? But bear in mind, American Samoa is a very contained environment or market for us.

There's a lot of added benefit for that because it gave us that protected territory for us to pilot and prove that we can do a good job to transform the payment experience for the market, for the customers and residents there on the island.

The reason for that kind of sustainment at 60% is in total we have a good determination of the total merchants market for the island. We have already penetrated all the significant ones. Most recently, we worked closely with our partner TBAS, Territorial Bank of American Samoa we ensure that we introduce to e-commerce online business as well.

So once that gain more momentum, we'll have more, but for the general retail merchant market, I think we probably hit the kind of a plateau there because at the end of the day, you're always going to have some mom and pop shots wanting to take cash, right, because they want to be mindful of cost of international credit cards on the item, for example.

Now secondly, you mentioned about future momentum. So, again, TBAS is an amazing partner. Now that we have gained a lot of success there, transacting a decent percentage of the electronic payments on the island, I think you set a stage for us to continue to collaborate with them as we roll out coyni. I think that that will be a perfect opportunity.

As we previously indicated, we're working with them to explore different angles to roll it out. You also allow them to further transition hopefully over time from a traditional terminal base experience to more modern mobile phone based experience for the general public..

Thank you so much for the helpful answers and congrats on the quarter..

Thank you, Michael, and say hello to Kevin and your buddies at H.C. Wainwright. We thank you for your support and continued coverage. And when it's time for you to switch from being an analyst to real corporate job, give me a call. Let's take the next call..

Our next question comes from the line of Howard Halpern with Taglich Brothers..

It's been a while, but congratulations on all the progress that you've made. I guess my biggest question that you've talked about is getting into new verticals.

So in Europe, is there going to be a difference between the verticals you are going to seek to enter in between Europe and North America and then even South America?.

Howard, what a great way to have you back online with us. It's been a long time. Thanks. Yes. So this is Min. Yes, great question. We do look at different markets we serve tailored to the approach to market differently to ensure that we hit optimal results.

In North America, so far our journey has been very much focused on car present, general retail type business with, as Fredi mentioned earlier, with us now really getting Pony kind of up and running and getting to new verticals, we have been in conversations with our partners and the customers for e-commerce business.

Because again, it depends on the vertical we serve. We are going through the journey to transition from traditional methods to e-commerce and automotive payment methods. So I'll name a few examples of that.

So we are getting involved now into, for example, looking at telecommunication, looking at some of the travel, looking at pharmaceutical and peripheral business related to that, to name a few for North America.

By doing so, you will allow us to diversify our business portfolio, so we have less risk just dependent on fuel verticals, right, that's North America. For the EU market, as I mentioned earlier, we have gained tremendous amount of momentum in payments and in banking as a service offering.

Over there, we have full suite of license, not just for e-commerce business, but also for even retail business as well. We even have a license for landing to a certain extent. It's really a lot we can offer there. We gain a lot of momentum by being more selective in terms of the space we invest in and we brought out of services to.

In 2024, we're going to broaden that a little bit more. So we're going to accelerate the growth there a little bit more. So right now, our business focus over there focus on business register in EU market and we have also the UK market and you mentioned about Latin America, South America.

We actually welcome any business coming from Latin America as long as they meet our onboarding requirements at RYVYL EU because they do have, we do have the capability to onboard and then process for them. But then there are specific business requirements that we are happy to work with those potential customers so that we can board their business..

And in terms of I know in the previous question, you talked about gross margin.

But in terms of operating margin, should we see a nice improvement on operating leverage in the second half of the year because of all the technology and coyni being embedded within your systems?.

That's definitely right. So you already recognized what Fredi said that by continuing to leverage more streamlined processes and technology through coyni. We do expect to see improved operating efficiency and resource utilization ratio for operations.

The other bit, maybe George will wait in a minute, is that at a really high level, this year in 2023 we incur some onetime costs associated with legacy things such as regaining the SEC compliance, such as resolving some of the legacy cases and completing the restatement.

I'm not going to speak for George, but the hope is some of those will not repeat and continue. So go ahead, George..

Yes. I think, if we're targeting a 40% gross margin and operating expenses, I think long-term, once we've cleaned up these legacy issues is going to be at 40% or less. That's where we see us breaking even at the net income. I think we have enough levers to pull that down the road we should be able to manage under 40%..

That is all the questions that are in the queue. I'd like to hand it back to Ben Errez for closing remarks..

Thanks, operator. Thank you everyone for your continued support of the company and for your time today. Should there be any further questions that have not been answered today, feel free to reach out to M. Wei or to me directly, and we'll get those answers in the, posted on our IR website.

With that, thank you all, and we'll see you in the next quarter..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day..