Ryvyl Inc (RVYL) 2021 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the GreenBox POS third-quarter 2021 earnings conference call. (Operator Instructions) The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report, which includes the company's results of operations for the quarter ended September 30, 2021 -- and will be filed with the SEC.

On our call today is GreenBox POS's Chairman, Ben Errez; and Chief Financial Officer, Ben Chung. I'd like to remind everyone that statements made on today's call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's regulatory filings for a list of associated risks.

The replay of this call and webcast will be available for the next 90 days on the company's website under the Events section. At this time, I'd like to turn the call over to Ben Errez, the company's Chairman. Ben, the floor is yours.

Thank you, operator, and thank you all for joining us today. I'd like to welcome you to the GreenBox POS third quarter of 2021 financial results conference call.

The third quarter of 2021 was instrumental in laying the foundation for the next phase of our company's growth. We continue to make great strides in expanding our processing volume, which again, set a company record. We're incredibly proud to have crossed the $1 billion mark in processing volume for the first time and reached over $1.4 billion year-to-date, only eight months after deploying our Generation 3 Rapid Scale Technology.

The financial payment industry is racing towards digital currency adoption; and GreenBox is building both the infrastructure and scale to play a key role as the backbone of payments and banking solutions globally. Armed with a strong balance sheet including our recent capital raise, we are well-positioned to continue to successfully execute on our acquisition strategy while also expanding into the lucrative stablecoin market with the spin-off of Coyni.

I'm grateful to GreenBox and Coyni teams for their dedication and our shareholders for their ongoing support.

Now I'd like to walk through some of our key operational highlights. First, we continue to gain traction with our processing business and achieved another company record during the third quarter processing of over $540 million in transaction volume. This is nearly 14 times our transaction volume in the same quarter last year prior to the launch of Generation 3, as we have processed over $1.4 billion and are on track to exceed our prior guidance of $1.85 billion for 2021.

We expect this robust growth to continue both organically and through acquisitions of processing portfolios. In upcoming announcements, we will discuss particulars of any additional acquired portfolios. It's worth noting that some of these portfolios are in excess of $1 billion per year; and we expect them to close soon and fully contribute to our 2022 volume.

One of our core achievements recently was raising the capital needed to fund our strategic expansion plans. In closing on a $100 million convertible notes financing, we fortified our balance sheet to pursue accretive acquisitions and obtain key licensing assets, which will greatly enable GreenBox's ability to offer payment and banking solutions to businesses.

A portion of the proceeds will also go to the revolver capital and custody for Coyni to continue and scale adoption. Finally, we continue to drive our payment solutions technology forward by investing in developers and infrastructure that will continue to enhance our customers' experience and offer new solutions leading to new business opportunities.

Quick update on the Transact Europe acquisition. While the regulatory review to close this acquisition is ongoing, we were able to get approval for revenue sharing on the Transact Europe portfolios that are processed on the GreenBox blockchain. As part of the agreement, we also obtained approval to leverage Transact Europe licensing in Europe.

This allows GreenBox to expand its offering including merchant accounts, payment accounts, foreign exchange services, and host of other service offerings to prospective European clients. It will also provide GreenBox the opportunity to offer our domestic lines a way to expand into Europe, greatly enhancing value for existing and prospective US-based clients.

As previously discussed, Transact Europe management that is being retained, will have earn-out compensation based on monthly processing volume hurdles of at least $100 million per month. We expect Transact Europe to play a significant role in our growth and international expansion during 2022.

We were pleased to strengthen our leadership team by adding Robert Houghton as Chief Technology Officer. Robert brings an impressive background to GreenBox with over 25 years of experience in leading the design, implementation, and operation of mission-critical information technology strategies and systems for global enterprises. His skills will drive improvements for Generation 3 and future generations of GreenBox payment processing technology. He will also ensure that technology from acquisitions is seamlessly integrated and accompanies product suite.

A quick update on the Territorial Bank of American Samoa. As a reminder, GreenBox is essentially becoming the processing infrastructure for the entire island. This is a very exciting case study, and we believe will unlock additional opportunities of similar nature.

We will provide the Territorial Bank of American Samoa consumer and business banking customers with state-of-the-art technology including merchant and money transmission services, credit and debit card processing, ATM processing and EBT processing. Much has been made since our initial announcement and we expect to begin seeing processing results from this in early 2022.

We continued to work diligently towards the eventual spin-off and IPO of Coyni, our smart contract stablecoin business. We recently announced its corporate headquarters would be in Miami. Let me explain why this is chosen. Miami is an attractive hub for fintech companies as a multicultural region that is supportive of digital currency trends with branches to South America and the Caribbean.

Additionally, their Mayor, Francis Suarez, is a strong proponent of bitcoin and digital currency. For example, the city hosted this year the bitcoin conference and is moving towards the acceptance of tax payments in bitcoin, enabling city workers to be eligible to receive part of their pay in bitcoin.

We are very pleased to announce Paul Levine as the Chief Executive Officer and Co-Founder of Coyni. For those of you who aren't familiar with Paul, he is a successful and versatile entrepreneur and technology innovator with 30-years' experience in the payment business, with both the Fortune 100 and start-up company.

As President of payments at Planet Payment for the last decade, he led the development and management of its direct acquiring cross-border and e-commerce portfolio, resulting in over $1 billion in processing volume. We are very confident that Paul is the ideal fit to lead our Coyni business from upstart to IPO and beyond; and we couldn't be more excited to have him on board.

We also plan to increase the revolver capital backing the Coyni infrastructure at Signature Bank, with a total of $25 million. Coyni has been available for several hundred early adopters who have been using it for a few months now, and we will continue to add users in short order as we ramp up the capital backing it.

Finally, we expect the registration statement for Coyni to be filed shortly; and we'll look to announce the first dividend record date as previously discussed. On the capital markets front, we continue with our share repurchase program through the quarter, and we'll continue to do so from time to time.

I'd like now to turn the call over to our Chief Financial Officer, Ben Chung, to walk through some key financial highlights from the third quarter of 2021.

Thank you, Ben. GreenBox continues to be in a financially healthy position at the end of the third quarter. We are very pleased to complete a $100 million financing through our convertible note offering. The additional capital allows us to fund the TEU acquisition; secure additional accretive acquisitions; scale the custodial revolver that backs Coyni, our stablecoin business; and last but not least, have additional capital to continue to develop our core blockchain-based payment technology.

Before I go through our quarterly results, I would like to point out that we are a calendar year end company, therefore, our third quarter of 2021 is for the three months ended September 30, 2021. I'm now going to go through our quarter end results.

We continue to be solid -- see solid growth -- revenue growth due to increased processing volume with our merchants; and we will continue to have growth in our processing volume throughout the year. Our net revenue for the nine months ended September 30, 2021, was $19.1 million compared to $5.5 million in the prior year same period, an increase of $13.6 million due to strong processing volume.

Our quarter -- third quarter of 2021 quarter had net revenue of $8.0 million compared to $3.1 million in the prior year same quarter, which is an increase of $4.9 million or 166%, also, primarily due to strong processing volume.

Our processing volume for nine months ended and for three months ended September 30, 2021 was approximately $1.4 billion and $540 million respectively, an increase of approximately $0.9 billion. We had a quarter-to-quarter increase in processing volume compared to Q2 2021 and Q3 2021, an increase of $74 million from $466 million in Q2 2021 to $540 million in Q2 2020 -- Q3 2021. We expect continued quarter-to-quarter growth in the processing volume throughout the rest of the year.

As you can see from our net revenue results and processing volume, the margin profile for the portfolios we are onboarding continue to be in low category. This is not necessarily a bad thing, and as a reminder, this is absolutely necessary in order to process more high risk, high margin business to diversify our volume portfolio. We do expect margins to shift to higher mix in Q4 2021 as we complete the acquisitions scheduled for the year.

Our gross profit was $5.6 million for the third quarter of 2021 compared to $1.2 million in the same quarter prior year, an increase of $4.4 million. For the nine months ended September 30, 2021, our gross profit was $13.8 million compared to $2.0 million in the same period, an increase of $11.8 million.

Our gross margin was 70% in the third quarter of 2021 compared to 40% gross margin in the same quarter of prior year, primarily due to higher net revenue and improved efficiency in the quarter -- current quarter compared to the same quarter of prior year. As previously mentioned, we expect to hold gross margin of between 60% and 70% throughout the rest of the year. Our margin will be primarily driven by the -- our negotiated commission structure with our ISOs, which are our independent sales organizations and gateway fees.

I would like to now discuss about operating expenses. Once again, I would like to point out that our operating expenses are not directly correlated with our net revenue, primarily because of the scalability of our revenue from a small number of employees due to our technology and the business we are in.

We categorize our operating expenses into two categories: normal operating expenses and non-cash operating expenses. Normal operating expenses include marketing, research and development, payroll, professional and general expenses, while non-cash operating expenses include stock compensation expenses for employees and for services, including depreciation.

Our normal operating expense was $3.9 million and $1.5 million for the third quarter of 2021 and 2020 respectively, an increase of $2.4 million, primarily due to increase in research and development related to token technology development; payroll related to increase in headcount; and professional fees related to compliance. Our non-cash operating expenses primarily relate to stock compensation expense for employees and services. Our stock compensation expense for services are non-recurring charges, which will not recur going forward.

We ended with a loss from operations of the third quarter of 2021 of $2.8 million compared to $0.2 million in the same quarter prior year. If our non-cash operating expenses, such as stock compensation expense for employees and services, and depreciation are added back, we had net income from operations of $1.7 million for the third quarter of 2021; and a net loss of $0.2 million in the same quarter prior year; and $4.6 million for the nine months ended September 30, 2021; and a loss of $1.6 million in the same period in the prior year.

I would now like to go over -- go to our other expense category. Our other income or expense for the third quarter of 2021 was approximately $42,000 compared to $0.2 million of other expenses in the same quarter prior year. The $0.2 million of other expense in the same quarter prior year was primarily due to derivative expense offset partially by changes in fair value of derivative liability and interest expense related to debt discount.

Our other expense for nine months ended September 30, 2021, was $4.0 million, of which $2.9 million was related to interest expense of debt discount, $0.6 million related to interest expense, and $0.4 million related to merchant liability settlement expense compared to $0.8 million of other income for the nine months ended September 30, 2020.

Our overall net loss was $6 million for the third quarter of 2021 compared to $0.5 million of net income in the same quarter prior year. Our overall net loss was $19.4 million for the nine months ended September 30, 2021, compared to $0.8 million of net loss in the same period prior year. The increase in net loss can be attributable to a higher stock-based compensation for expense -- for employees and services as well as tax provision.

Adjusted net income, a non-GAAP measure, for the third quarter of 2021 was $1.7 million compared to a loss of $2.0 million in Q2 2021. You can find reconciliation in our earnings press release or 10-Q filed with the SEC.

Our cash flows from operating activities was negative 14 point -- $14.0 million for the nine months ended September 30, 2021 compared to negative cash flows of $0.1 million in the same period prior year. The negative operating cash flows was primarily due to timing of settlement of receivables from gateways and payables to merchants. We had cash balance of $29.7 million at the end of the quarter -- current quarter.

Overall, we believe our financial position is extremely strong, and we will remain well positioned for future growth and profitability. I'll now turn the call back to Ben Errez for our outlook.

Thank you, Ben. We are excited by tremendous opportunities that lie ahead and have demonstrated, in a very short period, successful deployment of our technology and execution of our growth strategy. The stage is set, and pieces are coming together quickly. We remain focused on our mission to secure our footprint in the lucrative $200 trillion digital payments market. We expect to continue and grow our processing volumes and exceed our initial 2021 guidance of $1.85 billion.

Due to the timing and risk profile of customers onboarding and acquisition closing, we now expect 2021 revenues of $28 million and adjusted net income of at least $8 million for the year. As we look out to 2022, we expect processing volumes to be at least $4.9 billion for the year, assuming completion of acquisitions.

Thank you for listening to today's call and for your ongoing support and interest in GreenBox. With that, I'll turn over to the operator to begin the Q&A session. Operator?

(Operator Instructions) Chris Sakai, Singular Research.

Hi, Ben. (multiple speakers) couple questions, I guess. Regarding the $500 million processing volume, can you break that out between your different segments, you know ChargeSavvy and Gen 3?

I actually do not have that information in front of me. And Ben, see if you wanted to comment on that?

No, I don't have that information in front of me either.

Okay. Great. And then, as far as the recent financing, how close are you to an acquisition that could enhance your processing volume?

Okay. So I'll have to address that in the context of the material -- public and non-public information. So we have already discussed Transact Europe, and we anticipate Transact Europe acquisition to close in the middle of December.

We have an additional acquisition that we anticipate closing at approximately the same time with a set of licenses that will enhance our operations and inclusive of a processing portfolio in excess of $1 billion annually. And we also have additional opportunities that have not yet been disclosed, that are significantly larger than the two I just mentioned.

Both of the acquisitions that I call are going to be paid for by this raise that we just completed. And I will remind you that this raise is in terms that are amazingly accretive to the company and to the interest of its shareholders by providing a convert price that is in excess of 80% to market, at $15 a share, and substantiating a stipulated market price for GreenBox or market cap in excess of $700 million.

We're very excited about this capital. Some of it will be used for these acquisitions, some of it will enhance the Coyni adoption as discussed in this call, and the rest will be kept in reserve for the company.

Okay, all right, thanks. And then, as far as the Coyni launch is concerned. I know it's been -- it seems like it's been delayed several months. Do you have any idea, or can you provide us any color about that?

Sure. So, the Coyni deployment remains on track. So we anticipate at IPO in the beginning of 2022 as we have stated before. There is no change in the launch procedure, or the dividend that will accompany that launch, or in the technology associated with it.

In terms of the technology, we anticipate the release of the Coyni application very shortly and with the first phase covering the P2P or peer-to-peer capabilities, and later on, before the end of the year, its ability to participate as an NSP platform and also as a crypto to fiat transaction. The release of this technology will be done in at least two phases. And as I said, with the first one of them, a Venmo like peer-to-peer transactional application released very, very shortly.

Okay. Great. Can you provide any color on, I guess, the city of Miami and Coyni?

Yes.

Is there anything that we could expect from that?

The office of Coyni in Miami has already been established. The Board of Director is essentially the same as the one governing GreenBox. And during this call, I discussed the new CEO and Co-Founder that we hired for Coyni, Paul Levine.

Miami is a great location for stablecoin launch. The city is, I guess, a crypto capital of the of the US; and the specific location, Brickell Avenue, is crypto Main Street USA. Our next-door neighbors are Blockchain.com, for example. We're looking forward to deploying in Miami, right now and post-IPO, when Coyni is its own operating company.

And I see very dramatic expansion for Coyni right off of the get go, both on -- in the capital markets, with all of the shareholders that it will inherit from GreenBox by way of the dividend, and also by way of commercial opportunities via the utilization and adoption that GreenBox laid out for the stablecoin.

Okay, great. Thanks, Ben. I'll pass it along.

Thanks, Chris.

(Operator Instructions) And it looks like Chris has a follow-up question. Chris, your line is open again.

Right. Okay. Ben, any -- can you provide any update on the white label banking, any opportunities there?

Not at this time. The white label banking is expanding dramatically. Its capabilities are incredible. And we are considering several deployment banking partners for the initial launch of the white label banking. We think that -- especially since Coyni is such a material part of the white label banking platform, we think that a very dramatic push towards its adoption in the banking industry will come because of its compliance status.

Coyni is launched in anticipation of much deeper oversight, regulatory oversight. For example, by way of the compliance -- or compliance with its custodial architecture; and it's a transactional property including reversibility of transaction.

Both of these properties are not yet offered by any stable or volatile coin today. So we anticipate very speedy adoption for both keep -- Coyni and GreenBox on the banking front. I'm sure this is something that we can revisit at the end of next quarter, beginning of first quarter of '22.

Okay. Thanks. Any updates on or color on Pfizer?

Yes. So we have passed the final review and the integration with Pfizer. And the final step, which includes deploying specific encoded keys for GreenBox as a dedicated PayFac, right, payment facilitator license on the Pfizer network, is imminent. We see that as coming very shortly. And we would also push for specific disclosure, both to SEC and NASDAQ and by way of PR as to the capabilities of this integration.

Okay. Any timeline there?

I don't have a timeline, but I anticipate this being completed well before the end of the year.

Okay, great. And last one, I guess for me, do you have any -- are you -- how is the share repurchase plan going? Is there -- are you still repurchasing shares?

We do have a -- an allocation of additional several million dollars dedicated for that. And yes, we anticipate continuing on that front.

Okay, great. Well, thanks, Ben.

Thank you.

(Operator Instructions) And as we have no further questions, I'd like to turn it back over to Mr. Ben Errez for closing remarks.

Thank you, operator. I would also like to thank all of you for joining our earnings conference call today. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions on this call, please reach out to our Investor Relations firm, MZ Group, who would be more than happy to assist. Thank you all.

And that does conclude our call for today. Thank you for your participation. You may now disconnect.