Ryvyl Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and welcome to Rival Inc. 3rd Quarter 2023 Conference Call. At this time, participants are in listen only mode. A question and answer session will follow management's remarks. This conference call is being recorded.

Operator

A replay of the call will be available through January 13, 2024 by calling 1-eight forty four 5,122,921 within the United States or 1-four twelve-three seventeen-six 71 when calling internationally and entering Access ID 10,183,517. An archived version of the webcast will also be available for 90 days on the IR section of the Rival website. Before we begin, I would like to remind you that today's call contains certain forward looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended concerning future events. These forward looking statements are based on the company's current beliefs, Assumptions and expectations regarding future events, which in turn are based on information currently available to the company. Such forward looking statements include statements regarding the timing of the filing of periodic reports with the SEC and are characterized by future or conditional words such as may, will, expect, intend, anticipate, believe, estimate and continue or similar words.

Operator

You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of Operations or Financial Condition or State Other Forward Looking Information. By their nature, forward looking statements address matters that are subject to risks and uncertainties. A variety of factors could cause Actual events and results to differ materially from those expressed in or contemplated by the forward looking statements, including the risk that the Completion and filing of the aforementioned periodic reports will take longer than expected and that additional information may become known prior to the expected filing and the aforementioned periodic reports with the SEC. Other risk factors affecting the company are discussed in detail in the company's filings with the SEC. The company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, I will now hand the call over to Ben Erez, Chairman of Rival, please go ahead.

Speaker 1

Thank you, Sarah. Good afternoon, everyone, and thank you for joining During the Q3 of 2023, once again, Rival delivered record financial results, the 4th consecutive quarter. Q3 top line revenues increased nearly 64% year over year to 17,500,000 This also reflects an 18% sequential increase from $14,900,000 in the Q2 of 2023. Revenue came in the upper end of our Q3 target range of $16,000,000,000 to 18,000,000 Our Q3 revenue was derived from transactions processing volume, which totaled 861,000,000 And represents an increase of 28% from the Q2 of 2023. Strong growth in our international business, Rival EU as well as growth in our North America business resulting from the establishment of additional processing In the U.

Speaker 1

S, for retail and online businesses paved the way for the record results. Rival's Chief Operating Officer, Min Wei, will provide a full breakdown of the various processing channel Overall, we're very pleased with the steady growth trajectory and our improved margin profile. Moving on to some key initiatives. 1st, for an update on RivalEU. On the heels of receiving approval to launch CEPA from the European Payments Council And being chosen as a Visa Direct partner, Rival EU revenue saw tremendous year over year growth for the quarters ending September 30, 2023 and 2022 respectively, increasing 100% And currently representing 28.5 percent of our total revenue.

Speaker 1

Again, with SIPA enabled, We expect Rival EU to target the more than 2,000 payment service providers across 36 countries In the Eurozone, with incoming and outgoing instant transfers, being Visa Direct partner We'll allow Rival EU to leverage its capabilities to provide superior banking as a service offering And we are working tirelessly on this initiative, which we believe will enable us to better serve our customers, Retain their loyalty and create new revenue streams. Once integration is complete, Expected by mid-twenty 24, we believe that the collaboration in the Eastern European region will revolutionize The way funds are transferred between accounts, offering fast, convenient and secure transactions. It is expected that our customers will have the opportunity to send money to authorized accounts, e wallet and debit cards in over 80 countries across multiple currencies through Visa extensive network of local banking partners and experienced the benefit of faster access to funds with money becoming available in many cases within minutes We remain quite optimistic about the opportunity in Europe and we believe we are positioned to capitalize on this important market opportunity, which also presents an important segue to the markets in Asia eventually. We continue to work with our large institutional partners on our Banking as a Service platform With the goal of ramping up to what we believe will be $100,000,000 per month in transaction volume.

Speaker 1

Our Banking as a Service solution offers API integration 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 payout By way of approved methods such as real time payments and direct deposits. In addition, the service allows for the ability to Readily trace transactions and reduce fraud, all while maintaining strict compliance requirements. We are excited about the long term potential for this lucrative market. We believe our technology is well suited to tap into. Next, we would like to speak about our planned spin off of Koineo.

Speaker 1

We initiated the process in early Q2 as part of the broad value creation strategy and truly believe it is the optimal way to drive growth potential. We're currently in the process of completing a comprehensive review with FINRA to finalize the name change of our subsidiary to Koine. This has taken longer than anticipated, but we do expect it to be completed soon and believe that with the thorough review We'll provide greater assurance to investors of the viability of the Koinib business. During the Q3, we launched the Koinny Mobile Point of Sale, MPOS app, transforming iOS And Android devices into payment terminals for secure efficient transactions. The Koinee MPOS app Provides merchants with secure and convenient way to quickly add MPOS services, end users Through a straightforward registration process to begin accepting payments by integrating MPOS capabilities With the Koinny platform, businesses and merchants can benefit from the comprehensive and user friendly payment system coupled with the rounded foundation of the next data release of the Koinib business platform.

Speaker 1

We also have taken meaningful steps to reduce the debt on our balance sheet. During the Q3, we entered into an exchange agreement with our holder of a Rival issued convertible note, Initially in the principal amount of $100,000,000 to date, we have exchanged a portion of the outstanding principal And interest of such convertible note for 6,000 shares of our newly designated Series A convertible preferred stock, resulting in a $6,000,000 debt reduction and an increase in cash flow. A second exchange was also contemplated and received shareholder approval under the applicable exchange agreement, Which would further reduce our debt by $16,700,000 for a total of $21,000,000 of debt reduction. In consideration for our issuance of an additional 9,000 shares of Series A convertible preferred stock, We believe this type of institutional level commitment is a major win for all Rival shareholders And illustrates the conviction in our mission as a disruptive force in the digital payment landscape. We also implemented a 1 for-ten reverse stock split to increase the market price per share to better assure the maintenance of NASDAQ compliance.

Speaker 1

Operationally, we welcome George Oliva As Chief Financial Officer of the company, George brings over 30 years of experience As a senior finance professional with a background in Corporate Finance, Treasury, Financial Planning and Analysis, International Tax and Strategic Planning. We welcome George's capabilities in scaling Public Technology Companies. We believe that his achievements as well as expertise in financial management of Private and listed companies will make a significant contribution to the strategic operation and development of our company moving forward. To sum things up, we continue to demonstrate strong growth in our core processing business We strongly believe in our ability to execute our strategy and to generate long term value for our shareholders. And now to discuss the details of our financial results, I'd like to turn the call over to our Chief Financial Officer, George Oliva.

Speaker 1

George, the floor is yours.

Speaker 2

Thank you, Ben. I'll be referring to adjusted EBITDA and other non GAAP measures. For calculation of adjusted EBITDA, please refer to the reconciliation of this non GAAP metric in our earnings release issued before this call, which can be accessed on the company IR website in the press release or in quarterly earnings sections. Our revenue increased by $6,800,000 or 64 percent to $17,500,000 for the quarter ended September 30, 2023, up from $10,700,000 for the same quarter a year earlier. The change in net revenue in the Q3 of 2023 compared to the year earlier quarter was primarily attributable Significant growth in processing volume from our acquired business Rival EU and from a business in American Samoa.

Speaker 2

North America Q3 revenue increased 47 percent from $8,500,000 in Q3 2022 to $12,500,000 for the quarter ended September 30, 2023. EU Q3 revenue was $5,000,000 49 percent to $10,800,000 for the quarter ended September 30, 2023, up from $4,300,000 for the year earlier quarter. Payment processing consists of various processing fees paid to gateways as well as commission payments to independent sales organizations or ISOs responsible for establishing and maintaining merchant relationships from which the processing transactions ensue. Cost of revenues increased primarily due to increased volume, resulting in higher processing fees paid to gateways, Commission payments to ISOs and the cost of revenue acquired business in the U. S.

Speaker 2

And EU. Operating expenses decreased by $400,000 or 4 percent to $9,000,000 for the quarter ended September 30, 2023 from $9,400,000 for the year earlier quarter. The decrease was primarily due to a decrease And depreciation, amortization and stock compensation expense, offset by an increase in general and administrative expenses. The higher general and administrative expenses in the quarter of 2023 are primarily attributable to non recurring Provision for credit losses on non continuing legacy accounts. Other expense totaled $600,000 for the 3 months ended September 30, 2023 compared to $12,700,000 for the 3 months ended September 30, 2022.

Speaker 2

Changes in the fair value of derivative liability amounted to a credit of $6,900,000 for the 3 months ended September 30, 2023, and a charge of $4,100,000 in the 3 months ended September 30, 2023. Interest expense for accretion of debt discount related to the $100,000,000 convertible note in November of 2021 increased by $5,800,000 Additionally, we incurred a charge of $1,300,000 in the quarter ended September 30, 2023 related to the conversion of the debt and we recognized a loss of $8,100,000 In the quarter ended September 30, 2022, in connection with the settlement of debt, we recorded expense of $1,900,000 relating to non recurring legal settlements in the quarter ended September 30, 2023. In summary, the company recorded a net loss in the Q3 of 2023 of $3,100,000 or A loss of $0.60 per share basic and diluted share compared to a net loss of $15,900,000 or $3.37 per basic and diluted share in the same quarter a year ago. In the Q3 2023, adjusted EBITDA Was positive $50,000 compared to a loss of $500,000 in the Q3 last year. We ended the quarter with cash and cash equivalents and restricted cash of $68,400,000

Speaker 1

of which

Speaker 2

Sir, to provide a review of the business operations and our outlook.

Speaker 3

Thank you, George. We'll walk through our processing volumes for the verticals we serve and discuss our Q3 results and outlook for the Q4 of 2023. Please note that all the figures are exclusive of the Sky Financial portfolio. Our Q3 processing volume across all channels exceeded $860,000,000 versus our published indication of $720,000,000 to $800,000,000 for the quarter. This is about 27% better than our Q2 2023 volume of $678,000,000 and an increase of about 24% From our Q3 2022 volume, not including the Sky Financial volume.

Speaker 3

Our Q3 North America acquiring business volume was $171,000,000 which is 17% higher than the Q2's $146,000,000 volume It's 108% higher than the same period 1 year earlier. Q3 charge savvy processing was $42,000,000 All about 21% lower than Q2 2023 processing volume. When compared to the $62,000,000 volume In Q2 2022, there is a 33% decline. The year over year decline is due to reduced processing from select merchant base. For our FX and international payments portfolio, including the acquired Transat Europe business and our new banking as a service offering, We processed $517,000,000 in Q3 compared to $425,000,000 in business volume in Q2, An increase of over 21%.

Speaker 3

This is a 52% increase from Q3 2022's $340,000,000 For an update on American Samoa, we continue to serve about 60% of the target merchants market on the island. In Q3, our processing volume was about $30,000,000 about the same as the prior quarter and our monthly volume is sustaining at about $10,000,000 With respect to Korny, we continue to execute our service deployment plan. In the U. S, as communicated prior, Due to the U. S.

Speaker 3

Regulatory environment and digital asset banking dynamics, we adjusted our monetization path for Corning to be focused on the EU market. In Q3 and subsequent period thus far, we have successfully set up our KONE EU entity, completed capital registration And are expecting to receive our license imminently. All of these are to enable us to onboard the 1st batch of business customers And start generating value soon. In the meantime, we are pleased to share that in the U. S, after taking a pause due to the above mentioned environmental And we expect to start the processing in the near term.

Speaker 3

Now I'd like to turn to our outlook for the Q4 and the total year. With respect to processing volume in Q4, we expect to attain a range of $900,000,000 to $1,000,000,000 If we achieve such processing volume, we estimate that our processing volume for our fiscal year ending December 31, 2023 will exceed $3,000,000,000 Based on Q3 revenue of $17,500,000 and continuing momentum, We believe our revenue outlook of $19,000,000 to $21,000,000 is achievable for Q4, which will bring our total year revenue to $62,000,000 to $4,000,000 which is ahead of our forecasted revenue of $60,000,000 for the year. With respect to Adjusted pro form a EBITDA. Please refer to the reconciliation of this non GAAP metric in our earnings release issued before the call. Our Q3 figure is a positive $50,000 This is lower than our targeted $1,000,000 for the quarter, Administrative expenses to regain compliance.

Speaker 3

Some of these reference investments and expenses will continue in Q4, We are estimating our Q4 adjusted EBITDA to be a positive $500,000 to $1,000,000 and our total year 2023 adjusted EBITDA to come in And negative $2,000,000 to $3,000,000 This concludes my remarks for the Q3 and the total year. I'd like to now turn the call over to Ben Arris, our Chairman to begin our Q and A.

Speaker 1

Thank you, Min. Thank you all for your interest and commitment to Rival. We are grateful for your ongoing support. With that, I'll begin our Q and A session. Now we have received a few questions by And I'll start with those and then we'll take questions from the floor.

Speaker 1

So first, does the company continue to expect to see higher growth in Europe? And if so, How should we think about the margins for Rival EU versus North America? The EU revenues of 5,000,000 On $500,000,000 in processing seems much less than the North America revenues. Min will take that question.

Speaker 3

This is a good question. So first of all, definitely, we expect to see continuing growth Of revenue in Europe, when it comes to margin for EU versus North America, I think it's a good observation that your revenue of $5,000,000 versus $500,000,000 processing volume seems to be lower than the same ratio compared to the North America's ratio. That's simply because in the case of the European market, our revenues Primary comes from acquiring business and banking as a service offering, as we mentioned earlier. The acquiring revenue for UP Markets is Comparable in terms of ratio to volume when compared to North America acquiring business. However, we do have currently lower Revenue to volume ratio for the banking as a service offering, part of which is due to the fact that we are still in the early phase of rolling out the services in the EU market We are still testing the pricing points for the new service offering.

Speaker 3

We expect to adjust This kind of ratios as we continue to move along to ensure we achieve a good balance between reasonable pricing to Ravneer, profitability for the business.

Speaker 1

Thanks, Vin. Question 2, What is the progress of the Koini spin off? And what remains to be completed to finalize the transaction? So I did cover that in my remarks. I'll just reiterate and say that we are Fully committed to the process and intend to complete it as quickly as FINRA will allow us to do so.

Speaker 1

The next question, what was the Recent NASDAQ standard deficiency issue creates as a potential Blocker for the Koine spin off. So the 2 are unrelated. The NASDAQ Standard deficiencies are a known issue and will be Dealt with within the NASDAQ Organization and the hearing panel during January, the upcoming January. Koine is not currently a NASDAQ entity. It is an OTC spin off And therefore under FINRA rules.

Speaker 1

Next question is what is the status Of Rival completing its transition to the network firm.

Speaker 3

I'll answer the question. So first of all, technically, we have completed our system Efforts to migrate from Network Front to Trust Explorer, which is a technology Formally owned by the gas station service provider. However, from a In a service implementation point of view, as we continue the rollout of Korny service offering, we'll introduce that feature

Speaker 1

Thank you, Min. The next question is with regards to Koine revenues. Can you comment on whether Rival is generating revenue year to date from Koine Since it went operational and what those are, if material?

Speaker 3

Thank you for the question. So first of all, we do have some immaterial revenues from the service fees From the Corning ecosystem, as since it went live and became operational, as I covered during my earnings Remarks, in the U. S, as also we communicated prior, given that the fallout of FTX And also the banking industry's risk appetite for digital asset banking, We took a pause for Korny in the U. S. Market.

Speaker 3

But as I mentioned earlier, now that we have approved by our banking partner, we are now about To move out to make sure that we can process for our business customers in the U. S. In the approved verticals. So we expect to ramp up revenue in the U. S.

Speaker 3

And also, as I mentioned earlier during the earnings remarks, We now have gained the set up the entity in European market. We finished the registration of capital. We actually are getting our license this week. So we're also about to roll out the services Ensure that we earn revenue for Korny in the EU market as well.

Speaker 1

And I will add to that that a lot of the Koine activity depends on the spin off And once FINRA gives us the go ahead, we'll publicly discuss what that business looks like and its potential. Next question. Does the company intend to hire senior leadership role to fill vacancies in sales and marketing?

Speaker 3

That's the easiest question. The answer is yes. We intend to as we continue to grow momentum Into existing verticals, as well as new verticals we have for 2024, we plan to fill the vacancies we have.

Speaker 1

Thanks, Vince. And a related question, how does the company feel about Its current staffing level to support the growth of the organization. Our customer support and operations roles adequate To respond to customer inquiries as well as initiative and efficiencies to support growth.

Speaker 3

So we appreciate the comment there. For our business to be able to sustaining success Together with our business partners, with our business customers, we always maintain a satisfactory merchant experience, Customer experience at the forefront of our operations. So yes, we do maintain adequate resources To support the current business as well as anticipated business growth, we are always very conscious to strike a Good balance between the right resource level to cost and to ensure that we also fulfill obligations for our shareholders.

Speaker 1

Thanks, Bill. The final question that was submitted in writing prior to the call It pertains to legal proceedings with regards to the Sky Financial. There's not a lot that we can discuss publicly today about this process. It's ongoing And it's being handled by our professional teams. We will disclose any progress on that front As appropriate and when the time comes.

Speaker 1

With that, operator, we'll move to questions from the floor. Go ahead, please.

Operator

Thank Our first question comes from Kevin Ditt with H. C. Wainwright. Please go ahead.

Speaker 4

Good afternoon, gentlemen. Kevin Deedee.

Speaker 3

Hi, Kevin.

Speaker 4

Hi. Thanks for having me on. I've got a few questions. Cut me off whenever you think it's reasonable.

Speaker 1

I think we'll try.

Speaker 4

First of all, I just wanted to say, Ben, that Appreciate it. Real people and not an AI bot. So thanks for doing that.

Speaker 1

So you're part of the reason that we did it this way. Unfortunately, we all have called, so you suffered the other way. But hopefully, people will appreciate the effort.

Speaker 4

I certainly do and I agree, hopefully they will. First off, can you help me understand The app that you're developing with Queenie and how I guess how we should look at it Say visavis Square.

Speaker 1

Okay. So for that,

Speaker 5

Thank you for the question. Coininn mobile app was designed to replace the traditional Credit card processing through e wallet, they allow us to Koinny to We received payment in a closed loop, very similar like you mentioned, Square, but with instant pay and reducing risk, fraud And allow the merchant to receive payments from customer that went through KYC, meaning Know Your Customers, so we can show the merchant as well who is on the other side, If it's a good customer or bad customer and allow us to monitor the network and everything that Go through that network. So the M Pose is a first step in entering the retail space With our new technology and then open up other cool stuff with that technology.

Speaker 4

Okay. Thanks,

Speaker 1

Freddie.

Speaker 4

The convertible note, I think it was hard to see how debt levels slid a little bit, maybe George can point me in the right direction or maybe that Conversion was post September?

Speaker 1

I'll let George take that. Go ahead, George.

Speaker 2

The Series A is in 2 tranches. The first was in July And the second needed Board approval and we recently got that in the shareholder meeting. And so that I don't think that one is completely reflected yet, but it will be shortly.

Speaker 4

Okay. So we should see year end financials?

Speaker 2

Yes. So the current balance sheet only shows the July transaction. So the total was, I believe $21,000,000 and we only show $6,700,000 as in these financials.

Speaker 4

Okay, thanks. That helps. Maybe Freddie or Minh can help me understand this, Ben. Why is it that the integration into Visa's back end Takes the better part of the year.

Speaker 1

Preeti will take that.

Speaker 5

That's a great question. Actually, the time that it takes to integrate is not on our side. It's actually on the Visa side. As you go through the compliance process and integration process, each country have its own compliance. So if you open up all of those locations that we want to operate in, for example, Colombia or South America or Canada, it doesn't matter.

Speaker 5

Each one require separate compliance process from Visa to be able to operate in the space. What I can tell you that the great news about that relationship, even though we're trying to Finish all of that in a shorter period of time is that it allow us to do as well the high risk through Visa. And that means something that nobody else offer like gaming and send money instantly globally. And we are very excited about it and we'll do our best to overcome the time by trying to accelerate the process, But that depends on Visa, not on us.

Speaker 4

Okay. Thanks for helping me see that better. My understanding was One of the advantages that you bring to the integration is your understanding of the end customer and creditworthiness. And I'm wondering how you've been able to develop a database in countries that you haven't Necessarily operated in before.

Speaker 5

And that's part of the technology and KYC. So As we're onboarding customers and we verifying who they are, we're getting a better understanding of the demographic And the people we serve it. On the other side of it, we require from our partners, different companies that utilizing our service To create their own KYC and understand who the client as well, so we can work together in servicing them. So it required a little bit more work than a traditional business, but we have the technology and the partnership to do so.

Speaker 4

As the integration process goes forward, will you be able to offer maybe more insight On the progress you're making?

Speaker 5

You mean by integration with Visa or in general?

Speaker 4

Well, first with Visa because I mean would we see maybe like the number of countries that you have working on the platform or an Or an increase in international revenue, how do you think we should look at it?

Speaker 5

Absolutely. The moment this vertical will be available, we're going to Share more details specifically on which countries we operate in with Visa, what is the volume In each country, that will be easier for us to educate the market with. But at the moment, because it's just in the integration stage and We cannot share any more detail.

Speaker 4

I'm going to switch quickly just to America Samoa. The idea of that closed loop system at one point, maybe 2, 3 quarters ago, You saw an opportunity to take that technology, show it to other markets And have and hopefully pick up other customers. So I'm wondering how that process is progressing And maybe a little bit on why you think adoption has stalled out at 60%?

Speaker 3

Kevin, I'll answer the question. This is Min. Great question again. There are really probably 2, 3 parts of the question, right? First of all, we continue to work very closely with our partner on the island, the territorial bank of American Samoa To each of that, we'll provide great services to the merchants on the island.

Speaker 3

At the moment, we are going through further planning with them. There are a couple of major developments. One of them is, we introduced the AMPOSS solution. I think this is actually a very ideal solution for the island, for the business and the users on the island because It does provide a very slick way for us to make the conversion from the conventional Power solutions is something that's very easy, less restrictions quite quickly, right? So that's point number 1.

Speaker 3

Point number 2 is, as we previously mentioned, American Samoa Island is a very contained environment to allow us to test We've been working very closely with our partner on the island. As a matter of fact, we presented a proposal For their 2024 plan to vote it out, right? So that obviously will go through the required government approval And we are very optimistic that we'll move ahead in the New Year. That's really going to transform the payments experience on the island. Hopefully, those two parts together will help answer the question, right.

Speaker 3

And the conventional way of Processing is plateauing a little bit because there are better ways to do it and we have a plan to do it together with our partner there.

Speaker 4

Okay. One thank you, Minh. That helps a lot. One little hole for me. I didn't quite understand.

Speaker 4

Dollars 861,000,000 total processing, 517 in the U. S. And 171 in Europe, but there just seems to be a gap Between those two figures and the $861,000,000 what am I missing?

Speaker 3

Yes. So Kevin is actually the reverse It's $500,000,000 plus out of European market and 100 and $71,000,000 for the North America acquiring business, dollars 42,000,000 for ChargeSavvy And about $30,000,000 for American Samoa. And then yes, they are probably a couple other pieces, but Those are the major pieces in the equation as I went over in my session. Okay?

Speaker 4

Got it. Thanks, Minh. I'll leave the floor back to you, Ben. Thank you.

Speaker 5

Thanks,

Speaker 1

Kevin. Sorry, go ahead.

Operator

Showing no further questions, I'd like to turn the conference Back over to Ben Ayres for any closing remarks.

Speaker 1

Okay. Thank you all for Many questions and your interest in Rival. So Sarah, back to you and you can close the session.

Operator

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

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