Ryvyl Inc. (RVYL) Q2 2024 Earnings Call Transcript

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Overview

The earnings call summary reveals a mixed picture with declining total revenue, decreased gross margin, increased operating expenses, and negative adjusted EBITDA, indicating financial challenges. The Q&A section highlights strategic efforts but also exposes concerns about licensing exclusivity and reliance on high-risk verticals. Despite international growth, North American struggles and operational risks weigh heavily. The debt and preferred stock retirement is a positive note, but the overall sentiment leans negative due to financial underperformance and uncertainties, particularly in the US market.

Key Financial Performance

Total Revenue $11.9 million (decreased from $14.8 million in Q2 2023, a decrease of 19.6%) due to subdued merchant activity in North America.

International Revenue $8.9 million (increased by 134% compared to Q2 2023) driven by strong growth in European operations.

Processing Volumes $1.055 billion (increased by 55% compared to Q2 2023) driven by growth in the EU and Banking-as-a-Service offerings.

Cost of Revenue $7.2 million (decreased from $8.7 million in Q2 2023, a decrease of 17.2%) due to decreased processing volumes in North America.

Gross Margin 39.9% (decreased from 41.2% in Q2 2023) reflecting a shift in product mix.

Operating Expenses $15.6 million (increased from $9.6 million in Q2 2023) primarily due to $8.3 million in non-cash charges for goodwill impairment and restructuring costs.

Other Expense $800,000 (decreased from $8.5 million in Q2 2023) primarily related to debt discount accretion.

Adjusted EBITDA Negative $1.6 million (compared to positive $900,000 in Q2 2023) reflecting ongoing operational adjustments.

Cash and Restricted Cash Balance $75.2 million as of June 30, 2024.

Unrestricted Cash $6.4 million as of June 30, 2024.

Net Working Capital Slightly negative as of June 30, 2024.

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Operating Highlights

New Product Launches: RYVYL introduced NanoKard and RYVYL Fabric in August, enhancing their product offerings.

Software Development: RYVYL Generation four software is now integrated into all solutions, providing advanced fintech payment solutions.

International Market Expansion: International revenue increased 134% to $8.9 million in Q2 2024, with strong growth in European operations.

Banking-as-a-Service Growth: International transaction volume grew from $665 million in Q1 2024 to $781 million in Q2 2024.

Operational Efficiencies: Revamped banking system software in Europe to improve efficiencies and create more revenue streams.

Cost Management: Cost of revenue decreased by $1.6 million to $7.2 million in Q2 2024 due to lower processing volumes.

Strategic Partnerships: Expanded partnership with Visa and ACI Worldwide to enhance transaction processing and security features.

Market Positioning: Strengthened corporate structure and expanded into new verticals, including high-risk processing.

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Risk or Challenges

Regulatory Issues: Changes in US banking regulations impacted a niche industry customer base, affecting North American revenue. The company is implementing a multilayered strategy to address this situation.

Supply Chain Challenges: The company is leveraging US resources to ensure rapid onboarding of EU customers, indicating potential supply chain challenges in meeting demand.

Competitive Pressures: The company is expanding its partnerships and product offerings to maintain competitiveness in the rapidly evolving fintech landscape.

Economic Factors: The company anticipates prolonged revenue recovery in North America due to various factors, indicating sensitivity to economic conditions.

Operational Risks: The shift towards private and white label licensing may reduce processing volumes but is expected to improve gross margins and reduce operational risk.

Market Diversification: The company is pursuing new verticals and expanding its international operations to mitigate risks associated with reliance on specific markets.

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Guidance & Outlook

International Revenue Growth: Total revenue was in line with expectations, bolstered by 134% revenue growth in International compared to Q2 2023.

RYVYL EU Expansion: RYVYL EU is expected to be the largest revenue generator in 2024, with strong growth momentum.

Banking-as-a-Service Offering: The International Banking-as-a-Service offering led to increased customer acquisition and transaction volume growth.

Visa Direct Integration: Completed Visa Direct integration in five countries, with plans for additional integrations.

Private and White Label Licensing: Pursuing private and white label licensing opportunities to expand customer access and improve operating leverage.

New Product Launches: Introduced NanoKard and RYVYL Fabric in August, enhancing product offerings.

2024 Revenue Guidance: Expect total revenue in the range of $65 million to $70 million for 2024.

Q3 Revenue Projection: Projected Q3 revenue to be in the range of $14 million to $15 million.

Q4 Revenue Outlook: Expect Q4 to be strong with accelerating momentum into early 2025.

Processing Volume Growth: Anticipate processing volumes to exceed $4 billion in 2024.

Adjusted EBITDA Profitability: Expect to achieve adjusted EBITDA profitability in Q4 2024.

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Shareholder Return Plan

Debt and Preferred Stock Retirement: During the second quarter of 2024, $200,000 of debt and $875,000 of preferred stock was retired as our investor converted these securities into approximately 736,000 shares of common stock.

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Key Q&A

Q:What are the areas in which you are focused to reach profitability?

A:We focused on reducing costs in the US primarily with a reduction in payroll headcount, approximately 25%. We also have been controlling discretionary costs in the US, and we are maximizing cash flow in Europe and repatriating cash to cover the deficit in the US.

Q:Can you provide some color on trends in verticals?

A:The financial market is seeing huge demand in three areas: real-time payments, international settlement, and crypto. We also see a demand for compliance and regulatory services.

Q:Why is Europe doing so well? Can you elaborate on your strategy and operations there?

A:We have implemented a lot of partnerships and infrastructure in Europe, focusing on high-risk verticals like gaming, adult, and crypto businesses, which are seeing huge growth.

Q:What are the data science points that you track and monitor to manage the health of the business?

A:We look at transaction volume, residual rates of different segments, and gross margins to forecast results.

Q:Help me understand what's happening in the U.S. exactly and how you feel you're getting your arms around it?

A:We decided to license the technology to an entity with the infrastructure to run the business more compliantly, which may yield less revenue but provides stability.

Q:Do you think that licensing agreement is exclusive?

A:This license is exclusive to our partner in the retail environment, but we will consider other options if the regulatory environment changes.

Q:It seems that the European business just reflects a lower residual rate. Is it fair to assume that will be consistent going forward?

A:The blended residual rate has come down to about 1%, and it will depend on the mix between banking and acquiring.

Q:Can you talk to the visibility that you have with Visa?

A:We are one of the few companies with access to Visa's new product, and we are working closely with them to deploy infrastructure.

Q:What have you learned about the closed loop system?

A:Coyni started as a stable coin for high-risk customers, and we are now using it in Europe as a licensed crypto exchange.

Q:What are your opportunities in South America and what are the regulations like?

A:Visa is working with us to deploy in 80 countries, handling compliance and regulatory issues.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer when asked about the exclusivity of the licensing agreement, as they mentioned it is exclusive for now but left open the possibility for future changes depending on regulatory environments.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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RVYL Report

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