Ryvyl - Q4 2023

Executive Summary

• Q4 2023 was RVYL’s fifth straight quarterly revenue record: revenue rose 100% YoY to $22.3M and 27% QoQ, exceeding the company’s Q4 guide of $19–$21M; adjusted EBITDA turned modestly positive at $0.126M, though non‑cash debt conversion charges drove sizable “Other expense” in the quarter.
• Mix and scale improved: North America revenue grew 85% YoY to $16.6M; International (RYVYL EU + BaaS) grew 165% YoY to $5.6M; total processing volume reached ~$1.0B (+98% YoY) with international BaaS momentum and EU acquiring strength.
• 2024 outlook calls for a near‑term volume/revenue dip from a North America terminal‑to‑app migration and banking partner change (Q1 revenue guide $15–$16M; volume $900–$950M), but full‑year revenue of $90–$100M and positive 2024 adjusted EBITDA of $1–$5M; FY volume expected >$5B.
• Potential stock catalysts: revenue/guide beat vs internal targets, EU acceleration (ACI orchestration, Visa Direct testing), and path to positive EPS as balance sheet de‑risks; near‑term risk stems from NA migration headwinds and liquidity needs in NA segment highlighted in the 10‑K subsequent events section.

What Went Well and What Went Wrong

What Went Well

• Record revenue and volume: Q4 revenue $22.3M (+100% YoY; +27% QoQ) on ~$1.0B processing volume; “company record for the fifth consecutive quarter”.
• International momentum: RYVYL EU revenue nearly tripled in 2023 to ~$17M; integration of Visa Direct in testing; Banking‑as‑a‑Service ramped to >$200M/month; management: “We remain quite optimistic about the opportunity in Europe and beyond”.
• Balance sheet actions: Convertible note principal reduced by $66.3M in 2H23, lowering total indebtedness to $19.2M at 12/31/23; sale of Chicago office yielded ~$2.6M gross proceeds; company regained Nasdaq compliance.

Management quotes

• “Our fourth quarter 2023 revenue increased 100% year‑over‑year to $22.3 million…reflects a 27% sequential increase from $17.5 million in the third quarter of 2023.”
• “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.”
• “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.”

What Went Wrong

• North America near‑term disruption: Transition from terminal‑based to app‑based processing and a banking partner change is expected to reduce Q1 volume to $900–$950M and revenue to $15–$16M (−28% to −33% QoQ).
• Margin/expense pressure: Q4 cost of revenue rose with scale (to $14.5M), while higher‑than‑planned processing, technology, legal and admin costs held adjusted EBITDA to $0.126M vs a $0.5–$1.0M target.
• Liquidity flagged in 10‑K: Management disclosed that NA segment cash was insufficient for 12‑month needs absent actions (cost controls, repatriation from EU, and capital raise) due to the product transition’s adverse revenue impact.

Transcript

Operator (participant)

Good afternoon, everyone, and welcome to Ryvyl Inc.'s Fourth Quarter and Full Year 2023 conference call. At this time, all participants are in a 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 management concerning future events.

These forward-looking statements are based on the company's current beliefs, assumptions, and expectations regarding future events, which in turn are based on information currently available to the company and contain projections of future results of operations or financial condition, or state other forward-looking information. By their nature, forward-looking statements address matters that are subject to risks and uncertainties. A variety of factors could cause actual events and results to differ materially from those expressed and are 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.

Ben Errez (Chairman)

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-$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 of 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 continued to bear fruit from our 2022 acquisition of Transact Europe. The company is now rebranded as RYVYL 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 a 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 environments. 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 SEPA enabled and targeting more than 2,000 payment service providers across 36 countries in the Eurozone with incoming and outgoing instant transfers. 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 streams. 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 accomplish 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 settlements. 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 RYVYL 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 transactions. 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 solutions.

By retaining Coyni as a wholly owned RYVYL 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.

George Oliva (CFO)

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 in 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 non-cash share recognition 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 top 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.

Min Wei (COO)

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-$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 earlier. 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 $350 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 above $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-$950 million. This is lower than the recorded 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-$16 million, a decrease of approximately 28%-33% sequentially, but over 35% better year-over-year.

For total year 2024, our revenue indication is at $90 million-$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-$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-$3 million, and our total year 2024 adjusted EBITDA to come in at a positive $1 million-$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.

Ben Errez (Chairman)

Okay, 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 Officer Min Wei. Min Wei, 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?

Min Wei (COO)

Well, thank you, Ben. This is a great question. We have an ambitious business plan for 2024, achieving $90-$100 million in revenue, compared to the reported $65.9 million in 2023, a 35%-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 omnicommerce payments, present and process bill payments, and manage fraud and risk. RYVYL EU will board 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 existing 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.

Ben Errez (Chairman)

Thank you, Min. Next question, also to Min and Fredi. On the coin strategy, can you detail how you can leverage it into existing and new verticals, and how it creates more operating efficiencies and profitability?

Min Wei (COO)

I'll take that one. In our prior calls and communications, we share 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 physical 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 service verticals.

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

Fredi Nisan (CEO)

Thank you, Min. 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 are gonna be needed to move money by utilizing Coyni automation, from onboarding, to risk monitoring, to customer support, everything that's related to the operation side, Coyni was, 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.

Ben Errez (Chairman)

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

Min Wei (COO)

That's a good... That's another good question. So, well, first of all, you know, 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. You know, we have a full suite of acquiring, issuing, and banking licenses for the EU market... With the licenses and our local team and capacity, you know, we tripled our processing volume in 2023, and we launched our banking-as-a-service offering. You know, we've turned the business around, and 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 a 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 the 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.

Ben Errez (Chairman)

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?

Fredi Nisan (CEO)

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, you know, strategic goals and, and benefits of getting into that region. So our expansion is into to 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.

Ben Errez (Chairman)

Thank you, Fredi. The next question will go to a combination of Min and Chief Financial Officer, George. When will Ryvyl look to be earnings per share positive? George, why don't you start?

George Oliva (CFO)

Well, that's, that's difficult to say. I think, in terms of, earnings per share is dependent upon, you know, non-cash charges that are hard to predict, such as when we converted the debt to, to equity. But in terms of profitability, I think we're, we're looking at $120 million revenue level, we believe will be profitable. And, that'll be large enough to... That we could control expenses and, and be positive.

Ben Errez (Chairman)

Min, you?

Min Wei (COO)

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

In 2024, we expect the total year, you know, to deliver a positive $1 million-$5 million of adjusted EBITDA, while we do anticipate that the first half to be negative, as I mentioned earlier, you know, due to the product transition we're experiencing, and as a result of that, you know, reduced business volume in the near term. The steps with getting us, you know, from a positive adjusted EBITDA to a positive EPS, you know, as George mentioned, right, it's contingent upon us, you know, successfully, you know, either do away or reduce non-cash expenses. You know, example of that is, you know, fully retire the convertible debt, you know, we have. As Ben mentioned earlier during the call, we successfully converted 78% of it in 2023.

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

Ben Errez (Chairman)

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 (participant)

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Kevin Dede with H.C. Wainwright. Please proceed with your question.

Michael Donovan (Equity Research Associate)

Thank you, operator. This is Michael Donovan. I'm actually calling in for Kevin Dede. Congrats on the quarter, Ben, Min, and George. For our 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?

Ben Errez (Chairman)

Okay, thanks, Michael, for the question. Min will take that. Yeah.

Min Wei (COO)

Hey, Michael, thank you for the question, right? There are two parts. They are not necessarily directly related, so I'm gonna go one by one. You know, first of all, on the R3 partnership, you know, as we indicated in the press release, you know, R3 is a very reputable company operating in the enterprise financial institution space as well as enterprise customer space. We partnered together with them, you know, to define 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, you know, RYVYL ourselves, we are the first customer leveraging that, right?

Because we're leveraging the blockchain ledger for security, for completeness of data integrity, you know, as well as, you know, leveraging smart contracting. As Fredi mentioned earlier, the beauty of our technology platform is allow us to be able to fast track our day-to-day business workflows, with a faster speed, with less dependency on human beings and, with lower operating costs. So we have done that successfully using our own, you know, using one of our own portfolio to benefit from that. And working closely with the R3 team, you know, sales and marketing, we believe, you know, that can be a great potential for the enterprise, you know, customer base with both service or targeted service. So for that reason, you know, what we are doing this year is we are hashing 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, you know, the business in this space. Now, Michael, to answer also your question is in case you have the question, you know, 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, you know, gateway service company, and they, they also have a lot of strength in fraud monitoring and risk management.

You know, we see a lot of synergy and benefit for us to partner together because we are in the payment, you know, space on a day-to-day basis. You know, as we continue to build the momentum in the European market, as I mentioned earlier, for 2024, we're targeting to, you know, grow the acquiring business volume by more than 200%, in the European market. It made logical sense. It's part of our commitment to provide better and more, you know, secure services for our customer base in the EU market. You know, being able to partner with ACI, we, we're gonna be able to get there, right? You know, we have great muscle prep already today, but partnering with ACI is gonna further elevate our service offering. You know, certainly you mentioned about Visa Direct.

Visa Direct is a strong partnership, you know, we have. You know, as a matter of fact, you know, RYVYL was invited to participate in the Visa Client Council, which is a select, you know, community that, you know, come together to, you know, 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 similar 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. We're in the process of testing the integrated, you know, system, right? Between us and Visa.

We are in the, you know, kind of a process to roll out to the phase one countries. You know, we support, we already have customers identified, for the phase one 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, you know, are proven, you know, very successful, then we potentially can achieve more than what we indicated, right? So that's it.

Michael Donovan (Equity Research Associate)

That's very helpful, Min. Very helpful. Appreciate 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?

Min Wei (COO)

Okay, Michael. Very good question there. You know, I'm impressed with the 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, you know, cost drivers are all 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 acquiring service vertical, meaning acquiring business. In the banking and service business, we also have gained some good understanding as we continue to build the volume and scaling. I would say that, you know, if we look at the overall gross margin ratio for the company, we are probably hovering around 38%-40% as a company, right?

So Michael, you know, just to kind of put myself in your shoes... You, I think you're really asking us potentially how that will evolve over time. I would say in the near term, it's probably gonna be pretty reliable in that range. You know, for the longer term, because as Fredi said, we have built a good solution for Coyni, and we're gonna continue to scale our business leveraging the Coyni capabilities. I think for the longer term, we expect to see, you know, better cost, you know, cost ratio, you know, than the past.

Michael Donovan (Equity Research Associate)

Okay, good. Good,

Ben Errez (Chairman)

Thanks. Maybe one more, Michael.

Michael Donovan (Equity Research Associate)

Oh, yeah, go ahead.

Ben Errez (Chairman)

And this is Ben. Profitability goes in both directions, especially margins. Efficiency obviously causes the margins to get better, but scale cause them to go in the other direction in the more common scenarios. 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.

Michael Donovan (Equity Research Associate)

Very good. Thank you. Now focusing a bit more on North America, and this is slightly related to margins, I suppose. But 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 gonna decrease your acquisition costs in the short term? Or how are you thinking about this shift right here?

Ben Errez (Chairman)

Min will take that.

Min Wei (COO)

Thank you, Ben. Mike, this is another great question. As we have probably seen this, this transition or transformation in different business verticals or sectors, you know, I would say, you know, there are some intricate, you know, dynamics in this on this journey, right? Because, you know, when you move from the payment experience from a terminal-based experience to a mobile app experience, there are a few factors of it, a few facets of it. First of all, you know, you allow us as a service provider, as a technology enabler, to have more customer touchpoints, because customer touchpoints 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, you know, that's important because I'm sorry for taking a long, a little bit of time to get to the answer, you know, because you did mention about customer retention and whatnot, right? It gave us more direct interaction and feedback from the consumers, which, you know, gave us the feedback loop as needed to motivate us to continue to innovate, you know, based on user feedback, right? You know, that way, we're not just depending on second-hand or direct, you know, feedback from the merchants. Now, we actually have that feedback directly from consumers. And the second point is it gave us better visibility. It gave us better visibility in terms of flow management and risk management and monitoring. You know, in the past, we are doing a great job on behalf of our merchants and business customers.

You know, now that we have direct, you know, interaction, be directly involved in KYC, onboarding of the consumers onto the mobile app, a lot of this information is commonly validated, you know, through our advanced risk monitoring management system. So that will also allow us to reduce risk for our, you know, business customers, right? So all of this will lead to us, in the long term, better business retention, customer retention, you know, 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, you know, 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.

You know, many of our merchants are still committed, you know, and are still, you know, in live contact with us. You know, but we are-- we're taking the time to ensure we work closely with our merchants, our partners, our ISOs, to educate them, to also prepare them to educate the consumers to better use the, you know, system we have now on the app basis, and that can benefit, you know, from the user experience. So hopefully that answers your question, Michael.

Michael Donovan (Equity Research Associate)

Oh, definitely, definitely. Now, you mentioned risk, and I, 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, and is Ryvyl pursuing a high-risk license in North America?

Min Wei (COO)

I'll try to answer the question because this really depends, Michael. You know, first of all, you know, we do understand that, you know, PayPal, Venmo, and others, you know, very reputable, renowned, players in terms of P2P, you know, B2C, C2B, you know, payment experience in the overall general market, right? You know, Ryvyl and our product offerings are focused on very specific, you know, service verticals and niche markets. You know, it is not part of our strategic vision to, you know, go head-to-head with those big players in the general market. You know, our sweet spot and strength and focus is continue to, you know, 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, you know, we have been working with our banking channels, you know, both in the U.S. and in E.U. You know, we have the requisite licenses, you know, to perform business in a compliant way, and that's something we are absolutely committed to, right? So again, to answer your question about that, is we do not see PayPal, 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.

Michael Donovan (Equity Research Associate)

It's a fantastic answer there and very diplomatic. Now my final question before returning the floor is in regard to American Samoa and market penetration. I believe 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 American Samoa? Thank you.

Min Wei (COO)

Yeah, no, no problem. So Michael, you have a, you have a fair reservation there. As we indicated, we've been supporting and servicing over 60% of the target merchants market, you know, for the past few quarters already, right? And I believe your questions are twofold. So number one is, you know, why is that penetration not going higher? But bear in mind, American Samoa is a very contained environment or market for us. You know, 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, you know, kind of a sustain at 60% is, in total, we have a good determination of the total merchant market for the island, and we have already penetrated all the significant ones, right? You know, most recently, we worked closely with our partner, TBAS, Territorial Bank of American Samoa, to ensure that we introduce to e-commerce online business as well, right? So when 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 gonna have some mom-and-pop shops, you know, wanting to, you know, take cash, right? Because they want to be mindful of cost of international credit cards on the island, for example. Now, secondly, you mentioned about future momentum.

So, you know, again, TBAS is amazing partner. Now that we have gained a lot of success there, you know, transacting, you know, a decent percentage of the electronic payments on the island, I think it set the stage for us to continue to collaborate with them, you know, as we, 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. It also, you know, allow them to further transition, hopefully over time, you know, from a, you know, traditional terminal-based experience to more, more than, you know, mobile phone-based experience for the general public.

Michael Donovan (Equity Research Associate)

Very good. Well, thank you so much for the helpful answers, and congrats on the quarter.

Ben Errez (Chairman)

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

Operator (participant)

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

Howard Halpern (Equity Research Analyst)

Congratulations. It's been a while, but, congratulations on all the progress that you've made. I guess my biggest question that you talked about is getting into, you know, new verticals. So in your. Is there gonna be a difference between the verticals you are gonna seek to enter in between Europe and North America and then even South America?

Min Wei (COO)

Howard, great to have you back online with us. It's been a long time. Thanks.

Howard Halpern (Equity Research Analyst)

Yeah.

Min Wei (COO)

So this is Min. Yes, great question. You know, we do look at different markets we serve, you know, you know, tailored to the approach the market differently to ensure that we hit optimal results. In North America, you know, so far our journey has been very much focused on, you know, card present, general retail type business, with, as Fredi mentioned earlier, with us now, you know, really getting Coyni, you know, 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, right? Because, again, we, it depends on the vertical we serve. We are going through the journey to transition from traditional, you know, methods to, you know, e-commerce and alternative payment methods. So I'll name a few examples of that.

So we are getting involved now into, for example, you know, looking at telecommunication, looking at, you know, some of the travel, looking at, you know, pharmaceutics, pharmaceutical and the peripheral business related to that, to name a few for North America. You know, by doing so, you allow us to diversify our business portfolio so we have less, you know, risk, just dependent on, you know, few 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. You know, over there, we have full suite of license, not just, you know, for e-commerce business, but also for, you know, even retail business as well. You know, we even have license for lending to a certain extent, right?

It's really a lot we can offer there. You know, we gain a lot of momentum by being more selective in terms of the space we invest in and we roll out the services to. In 2024, we're gonna, you know, broaden that a little bit more, so we're gonna accelerate the growth there a little bit more, right? So right now, our business focus over there is focused on business registered in EU market, and we have also the U.K. market. And you mentioned about Latin America, South America.

We actually welcome any business, you know, coming from Latin America, you know, as long as they meet our onboarding requirements at RYVYL EU, because 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 onboard their business.

Howard Halpern (Equity Research Analyst)

Okay. Okay, and in terms of... I know the previous, in the previous questioner, you talked about, you know, 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?

Min Wei (COO)

That definitely, right. So, you already recognized what Fredi said, that by, you know, continuing to leverage more streamlined processes and technology through Coyni, you know, we do expect to see improved operating efficiency and the resource utilization ratio for operations. The other bit, maybe, George, you will weigh in, in a minute, is that at a really high level, you know, this year, a lot, in 2023, we incurred some one-time costs associated with legacy, you know, things such as regaining the SEC compliance, you know, such as, you know, resolving some of the legacy cases and completing the restatement. You know, I'm not gonna speak for George, but the hope is that some of those will not repeat and continue. So go ahead, George.

George Oliva (CFO)

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

Howard Halpern (Equity Research Analyst)

Okay.

George Oliva (CFO)

About that.

Howard Halpern (Equity Research Analyst)

That sounds good. Okay, guys, keep up the great work.

Ben Errez (Chairman)

Thanks, Howard. Looking forward to seeing you cover the stock again and the company.

Operator (participant)

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

Ben Errez (Chairman)

Thanks, operator. I 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 MZ, or to me directly, and we'll get those answered and posted on our IR website. With that, thank you all, and we'll see you in the next quarter.

Operator (participant)

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.