Q4 2023 Ryvyl Inc Earnings Call
Participants
Ben Errez; Chairman & Co-Founder; Ryvyl Inc
George Oliva; Chief Financial Officer; Ryvyl Inc
Min Wei; Chief Operating Officer; Ryvyl Inc
Fredi Nisan; Chief Executive Officer (Principal Executive Officer), Director; Ryvyl Inc
Michael Donovan; Analyst; H. C. Wainwright & Co., LLC
Howard Halpern; Analyst; Taglich Brothers
Presentation
Operator
Good afternoon, everyone, and welcome to Ryvyl Inc's fourth quarter and full year 2023 conference call. (Operator Instructions) 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 rivals 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 management's concerning future events. These forward-looking statements are based on the company's current beliefs, assumptions and expectations regarding future events, which in turn are based on information currently available to the company and contain projections of future results of operations or financial condition or state other forward-looking information.
By their nature. Forward-looking statements address matters that are subject to risks and uncertainties. A variety of factors could cause actual events and results to differ materially from those expressed in or contemplated by the forward-looking statements. Other risks factors affecting the company are discussed in detail in the Company's filings with the SEC. Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable laws.
I will now hand the call over to Ben Errez Chairman of Ryvyl. Please go ahead.
Ben Errez
Thank you, operator. Good afternoon, everyone, and thank you for joining us today. I'm proud to bring you our fourth quarter in fiscal year 2023 financial results. 2023 was a momentous year for rival our best year yet with strong growth in our business volume, leading to a record company revenues. For the full year 2023, we delivered revenue of approximately $66 million, a remarkable 100% increase over 2022.
Our fourth quarter 2023 revenue increased 100% year over year to $22.3 million, exceeding our guidance range of $19 million to $21 million while setting a company record for the fifth consecutive quarter. This also reflects a 27% sequential increase from $17.5 million in the third quarter 2023.
This tremendous revenue growth was derived from processing volume, which totaled approximately $3.1 billion, a company record and an 82% increase from 2022. We continue to bear fruit from our 2022 acquisition of transact Europe. The company is now rebranded as rival you 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 midway 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 streamline and secure digital transformation are three is the leading provider of enterprise distributed ledger technology, software and services for the financial services sector.
The new platform rival 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. Viva block streamlines blockchain integration and we'll offer business customers effortless access to the essential tools and building blocks required to develop a secure distributed ledger infrastructure, rival block further features reach business APIs and rapid implementation by merging rivals expertise. With our three leading distributed ledger technology, we're setting a new standard for accessible, secure and transformative blockchain services.
Turning to rival you where we are seeing strong growth momentum. We will now see Paul enabled and targeting more than 2000 payment service providers across 36 countries in the Eurozone with incoming and outgoing instant transfers.
We progress towards completing integration with Visa Direct, which is now in testing service, allows rival you 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 in 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 settlement service authorizes transactions, 24 hours per day on business days and enables payouts by way of approved methods such as real-time payment for direct deposits.
In addition, This service allows for the ability to readily trade 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 Pointe as a wholly owned subsidiary and not spin off into a new publicly traded entity.
This allows us to optimize the coining technology platform to complement and expand payment processing and banking as a service solution by maintaining a consolidated product roadmap. We expect to leverage coin 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 arrival 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 31st, 2023.
It also evidences the noteholders, 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 Oliver 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, rival continues to be a growing force in shaping the future of financial transactions. In 2023, we delivered meaningful operational execution and revenue growth was 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 rival block to provide a scalable platform for businesses seeking agile and secure blockchain solutions by retaining coin as a wholly owned rival subsidiary and improved efficiencies, we believe we can accelerate business volume growth. We are well on our way towards being a revolutionary force in the digital payments landscape and expect another year of strong revenue growth leading to profitability in 2024.
And now to discuss the details of our financial results, I'd like to turn the call over to our Chief Financial Officer, George Oliva. George, the floor is yours.
George Oliva
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 and 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 ICL and partnership network and growth in our acquired businesses and rival you North America fourth quarter.
Revenue increased 85% to $16.6 million for Q4 2023 compared to the fourth quarter of 2022. International Fourth quarter revenue increased 165% to $5.6 million in the fourth quarter of 2023 compared to fourth quarter 2022 cost of revenue was $14.5 million for the fourth quarter 2023 compared to $5.4 million in Q4 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 of 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 de-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 31st, 2023, cash and restricted cash was $73.3 million was $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
Thank you, George. I'd like to first walk through our processing volumes for the verticals we serve and discuss our fourth quarter results and outlook for the first quarter of 2024.
Our fourth quarter processing volume across all channels is approximately $1 billion versus our published indication of $900 million to $1 billion for the quarter. We are pleased to hit $1 billion quarterly volume against the first time since third quarter 2020 to 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 volumes.
Our North American merchant services business, including rival block charge, savvy 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 charge.
Savi, for our FX and international payments portfolio, including the acquired transactor business, now rival EU. and our new banking as a service offering, we processed $590 million in the fourth quarter compared to $517 million in business volume in the third quarter, an increase of over 14%. This represents an 87% increase from $315 million in the fourth quarter of 2022.
We are very pleased with the growth we achieved in the international markets in 2023 for an update on American Samoa. We continue to serve over 60% of the target merchant market on the Highlands. 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 quantity in the U.S., we started the mobile base 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 coining 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 2020 for first quarter processing volume is expected to be in the range of $900 million to $950 million. This is lower than the reported fourth quarter 2023 volume due to us transitioning one of our North American products from terminal base to our base processing. This transition coincided with a change in our banking partner that was prompted by recent changes in the compliance requirement and banking regulations.
While we were able to accomplish this quickly, it has adversely impacted our first quarter processing volume and revenues. Our total year 2024 volume expectation is over $5 billion for our first quarter revenue outlook, we expect to be in the range of $15 million to $16 million, a decrease of approximately 28% to 33% sequentially, but over 35% better year over year for total year 2020 for our revenue indication, is that $90 million to $100 million with regard to adjusted pro forma EBITDA.
Please refer to the reconciliation of this non-GAAP metric in our earnings release issued before this call, our fourth quarter figure is a positive $126,000. This is lower than our targeted $500,000 to $1 million for the quarter, which is due to higher than planned expenses associated with payment processing, technology development investments, external legal spending and administrative expenses to regain trading compliance.
Some of these reference investments and expenses will continue, coupled with the first quarter volume correction, and we are estimating our first quarter adjusted EBITDA to be a negative $1.5 million to $3 million and our total year 2024 adjusted EBITDA to come in at a positive one to $5 million.
This concludes my remarks, I'd like to now turn the call back to Ben Errez, our Chairman, to begin our Q&A.
Question and Answer Session
Ben Errez
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 Min. Min, can you talk about the partnerships with ACINR. three? And how you see this development over time and how you should think about the economics of those near-term and long term?
Min Wei
Well, thank you, Ben. It's is a great question, and we have ambitious business plan for 2024 achieving $90 million to $100 million in revenue compared to the reported $55.9 million in 2023, a 35% to 50% growth. Asia Huawei's, a global leader in mission critical real-time payments software. They're secure and scalable software solutions enable leading corporations, fintech and financial disruptors to process and manage digital payments from power omni commerce payments because then and process bill payment and manage fraud and waste.
Robert, you were for e-commerce, merchant PSP. customers onto the award-winning ACI payments posture of orchestration platform enabling them to orchestrate payments using one solution, one platform and one API integration for optimal conversion rate and minimal operational cost.
Still migration will allow merchants and TSPs to provide customers with a more seamless and secure customer journey. We are currently in the process of integrating the ACA solution into our offering, and having this in place will enable us to increase capacity for the 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 Weibo and our three aims to provide a scalable platform, Weibo block that can adapt to diverse business needs, providing flexibility for seamless expansion and growth. And this project will leverage Weibo's expertise in digital solutions. And R3 is cutting edge and blockchain technology to ensure a smooth integration into existing business frameworks.
This goal is to simplify and expedite the adoption process for blockchain for businesses, all sizes, delivering a user friendly experience rival enough. We are committed to delivering a cost effective blockchain as a service solution, eliminating significant upfront investments and reducing complexity typically associated with blockchain adoption. And this is part of our 2024 plan pilot, improve the business monetization for the Weibo block solution in the long term, this can become a new single significant business pillar for survival and a new sort of revenue and profit unprofitable.
Ben Errez
Thank you, Min. The next question also to Min and Freddie. On the quality strategy, can you detail how you can leverage it into existing and new verticals and how it creates more operating efficiencies and profitability?
George Oliva
I'll take that one on in our prior calls and communication we share is that due to the regulatory environment changes and banking industry dynamics for digital asset banking, we adjusted our Kony 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 infrastructure for payments and banking as a service, it's more suitable for us to leverage our existing infrastructure and resources available at Weibo to roll out the services VERSUS, spinning it off incur additional costs for building new business operations around them that aligns with the interest of our shareholders.
We respect to quality in the US. We started a mobile base processing in the first quarter and expect to ramp up the volumes in the coming months in our target verticals. We also expect to introduce our quality functionality through new releases, such as what we previously announced at the end passed to our customers in retail or delivery businesses in the EU markets, we receive our license and merchant processing approval for quantity, and we have a clear view what are the business opportunities to start with.
Fredi Nisan
Thank you, Min. And to add to the question about currently growing infrastructure on fully automated and part of the infrastructure, of course, is to reduce the amount of employee that's going to be needed to move money by utilizing our new automatization from onboarding to risk monitoring, customer support, everything that's related to the operation side, of course, knew it was the time to take care of about 7% of the operation. So we hope through this process not just to reduce the cost of the operation, but readout as well. The onboarding of this is excellent, of course.
Ben Errez
Thank you, Freddie. Next question again to Chief Operating then you've alluded in the past that European market and with the focus for growth, do you still see that as the case and you expect to see growth in North America pickup as well?
Min Wei
That look into another good question. So well, first of all in Olam, thank you to all right. The question for recognizing viable business growth potential in the new market. That is a key reason why we acquired Central Europe now renamed to rival. You know, we have a full suite of acquiring issuing and banking licenses for the EU market with the licensees and our local team and capacity. We tripled our processing volume in 2023, and we launched our banking as a service offering.
We've turned the business around and we are now generating greater revenue and profit that we expect 2024 to be a more successful year for arrival. You the North America market remains one of the key markets we serve, and we focus on in the annual report we described near term business volume correction due to one of our products are transitioning from terminal based processing to mobile app-based processing. This coincided with some changes in the compliance environment. Having more Mobile Bay processing experience is a key trends might address native 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 quarter.
Ben Errez
Thank you, Min. Next question to Chief Executive Freddie, what other regions of the world might we see you? I will look to expand into in the near future?
Fredi Nisan
Thank you Ben, on that question of fiber is a global company and we are looking into very two regions, actually one in the Asia region and the second in South America on we already communicate with the market in regards to American Samoa and the location and the strategic fit, our strategic goals and a benefit of getting into that region, our extension into those two regions. We are very excited about it. We're still working on that. So we don't have too much data at the moment, but we will share as soon as they become available. Thank you.
Ben Errez
Thank you, Fredi. And the next question will go to a combination of Min and the Chief Financial Officer, George, when arrival look to be earnings per share of positive, George, why don't you start?
George Oliva
Well, that's difficult to say. I think in terms of earnings per share is dependent upon non-cash charges that are hard to predict, such as when we converted the debt to as to equity. But in terms of profitability, I think we're looking at $120 million revenue level we believe will be profitable and that will be large enough to that we can control expenses and and be positive when you say Jill.
Min Wei
Thank you. George, this is again something that we always on our mind by achieving a positive bottom line. And as a result, a positive EPS is one of our key objective. It's our commitment to our shareholders as a team. And 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. It is heartening to have achieved a positive adjusted EBITDA for the second half of 2023.
In 2024 we expect the total year to deliver a positive $1 million to $5 million of adjusted EBITDA. While we do anticipate that the first half could be negative, as I mentioned earlier, due to the product transition. We experienced a and as a result of that reduced business volume in the near term and the steps with getting us from a positive adjusted EBITDA to a positive EPS, as George mentioned, life contingent upon us successfully either do away with the non-cash expenses, for example, that we cannot fully retire the convertible convertible debt we have at Mann Mann.
As Pam mentioned earlier, during the call, we successfully converted 78% of it in 2023. With that momentum, we are optimistic that we can get through that late it does achieve. And if possible and consistent with what George just said, once we get to the $120 million revenue level, we anticipate to hit a positive earnings per share in the time line for that indicatively, it's 2025.
Ben Errez
Thank you, Min. Operator, at this time, we would like to switch to analyst questions and then we'll take questions from the floor following.
Operator
Thank you, ladies and gentlemen, at this time, and we'll be conducting a question and answer session.(Operator Instructions)
Kevin Dede, H.C. Wainwright.
Michael Donovan
Thank you, operator. This is Michael Donovan. I'm actually calling in for for Kevin Dede. Congrats on the quarter, then Min and George, for First question, could you elaborate on the expected outcomes of the partnerships with our three NACI. worldwide, especially regarding the Visa Direct integration and and its impact there?
Ben Errez
Thanks, Michael, for the question, Min will take that.
Min Wei
Michael, thank you for the question, right, that to pause, they are now definitely directly related. So I'm going to go one by one on, first of all, on the R3 partnership in Olam, as we indicated in the press release, the author is a very reputable company operating in the enterprise financial institution space as well as enterprise customer space on Oui Arlo together with them define the size of Block Solution.
So in a nutshell, Lego blocks within really is a way to enable the business to transform the day-to-day business workflows to a blockchain ledger enable workflows. For example of that, Weibo, we ourselves we are the first customer leveraging that, right, because we're leveraging the blockchain ledger for security for completeness of data integrity as well as leveraging smart contracting.
As Fred 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, lower, less dependency on human beings, and that will lower operating cost. So we have done that successfully using all using one of our portfolio to benefit from that working closely with the Osprey team, sales and marketing, we believe that can be a great potential for the enterprise customer base with both service and with targeted service.
So for that reason, you know, what we are doing this year is we are passing now the pilot in a business case with plans. We've rolled 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 that formation, what that the commercial model structures all laid out so that we can go full steam ahead to pursue the business in this space.
Now, Michael, to answer your question is in case you have a question on this initial piloting, the initial rollout is in our 2024 business plan. So we committed to now in terms of ACI Worldwide. And you also mentioned about Visa Direct right. So ACI is a very reputable gateway service company, and they also have a lot of strength in for monitoring and risk management.
We see a lot of synergy and benefit for us to partner together because we are in the payments, it's space on a day-to-day basis. And as we continue to build momentum in the European market, as I mentioned earlier, for 2024, we're targeting to grow the acquiring business volume by more than 200% in the European market. We made logical sense is part of our commitment to provide better and more secure services for our customer base in the EU market being able to partner with, yes, we are going to be able to get there right now. We have great mousetrap already today, but partnering with Asia is going to further elevate our service offerings.
And thirdly, you mentioned about Visa Direct. Visa Direct is a strong partnership. We have as a matter fact, survival was invited to participate in the Visa client Council, which is a select community that come together to shape the future of the space we operate in to make sure that we all understand the evolving customer needs, understand the technology landscape, understand how we can collaborate, working with major players like Visa and others to ensure that we have seamless payments experience.
Now coming back to the integration and monetization for that partnership for Visa Direct for the products that we already finished, the initial integration award winner in the process of testing the integrated system slate between us and Lisa, we are in the, you know, kind of a process to go now to the Phase one countries we support. We already have customers identify for the Phase one countries. So all of that momentum is coming to capture as part of our rollout plan for 2024. But that's not to say, if we are proven very successful, then we potentially can achieve more than what we indicated, right? That's it.
Michael Donovan
That's very helpful. Very helpful. Appreciate it. But now with the cost of revenue slightly higher in Q4. How should we think about margins going forward as a function of volume?
Min Wei
Michael, like Michael, your very good question. I mean, for us with that question because that's something we care on a daily basis here as a team, right? Because as we continue to be volume scale on the cost drivers, 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 existing service vertical, meaning acquiring business in the banking and services.
And as we also had, we had some good understanding as we continue to build volume and scale scaling. And I would say that you know, if we look at the overall gross margin ratio for the Company, we are in probably hovering around 38% to 40% as a company.
Right. So I my goal you know to kind of put myself in your shoes, you I think you're really asking us financially how that will evolve over time. I would say in the near term, it's probably it's probably going to be a pretty reliable in that range for the longer term because that study is that we have built a good solution for quality and we're going to continue to scale our business, leveraging the chronic capabilities. I think for the longer term, we expect to see a better cost in our cost ratio. You know that. And then the vendor.
Michael Donovan
Okay, good.
Ben Errez
Maybe one more. Michael, you go ahead and this is Ben. So profitability goes in both directions and especially margins. So efficiency obviously causes the margins to get better, but scale cause them to go in the other direction in the mall common scenarios. So the play for us is to maintain the margins that we have today and maybe get slightly better as the numbers get bigger. But we're very happy with the performance, the operating performance expressed in the margins as a whole, as was shown today.
Michael Donovan
Very good. Thank you are now focusing a bit more on North America is slightly related to margins, I suppose. But regarding regarding the shift from terminal base to app-based processing, what is the anticipated impact there on customer retention and though what trends do you see for this type of shift? Do you think it's going to decrease your acquisition cost in the short term or how are you thinking about about this shift right here?
Ben Errez
Min will take that.
Min Wei
Mike, this is another great question. As we have probably seen this transition or transformation in different business verticals or sectors, I would say they are some intricate dynamics in this on this journey, right? Because when you move from the payments experience from a terminal based experience to the mobile app experience, the ARPU effect of the typical affect a few facets of it. First of all, we know you allow us as a service provider as a technology enabler you have more customer touch points because cost of customer touch points where you're transitioning from previously, if I remove primarily interfacing with merchants and business customers.
So now we have customer interface interaction with both merchants and the business customers as well as the general consumer, right? So that's important because I'm sorry, if we're taking a lot of a lot of time to get to the answer because you did mention about customer repairs and then a one-off, right? You gave us more direct interaction and the feedback from the consumers, which are that you know, gave us the feedback loop as needed to motivate us to continue to innovate based on user feedback, right that way.
We're not just depending on second hand, our direct feedback from the merchants. And now we actually have that feedback directly from consumers. And the second point is we gave us better visibility. It gave us a better visibility in terms of for 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 now that we have direct interactions directly evolving KYC, onboarding all the consumers onto their mobile app.
A lot of this information is commonly validated through our events, risk monitoring management system. So that will also allow us to reduce this follow-up, you know, Pivotal customers, right? So all of this will lead to us in a long-term data business, retention, customer retention, better engagement with customers, both at Immersion level as well as the consumer level, which is we care a lot about now in the near term because we are talking about a in our 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 or consummate many of our merchants to commit at point of sale, you know, in life contact with us in about where we are taking the time to ensure we work closely with our merchants who our partners are ISOs to educate them. We also prepare them to agitate the consumers to better use the system we have now on the app basis, and that can benefit from the user experience. So hopefully it answers your question, Michael.
Michael Donovan
Definitely. I know you mentioned risk, I believe on it too long ago we discussed North America and the high-risk licenses are PayPal and Stripe. So the only players with this high-risk license and and his rival pursuing a high-risk license in North America?
Min Wei
And I've tried to answer the question because this really depends, Michael. First of all, we do understand that PayPal's Venmo and others, you know, very RET, reputable Xenon players in terms of PIPTPB. to two C. two B. in our payment experience in the overall general market, right? You know, Weibo and our product offerings are focused on very specific in the service verticals and each market, you know, it is not part of our strategic vision to go head to head with those big players in the general market in our sweet spot and strength and focus, it continues to be successful and that's sell in the space we serve.
So whether that's considered medium risk, low risk or high risk. So we do have working. We have what we have been working with our banking channels, both in the U.S. and in EU. We have the requisite licensee. It can 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 best serves, not just our merchants. Our cup business customers, but also our partners, our agents for ICL as well as consumer.
Michael Donovan
It have to fantastic answer there. Very diplomatic. My final question before I'll return the floor of a regard to American Samoa and market penetration, I think you mentioned were up 60% for all payments there. What are some of the hurdles that that you're seeing for increasing market penetration and also whether some of the perhaps pleasant surprises that you've seen in American Samoa?
Min Wei
No problem. So Michael, you have yes, there is a fair reservation there, as we indicated, it would be in supporting and servicing over 60% of the target merchant market for the past few quarters already.
Right. And I believe your questions are twofold. So number one is why is that penetration not going higher if I pay my American. So model is a very contained environment on a market for us. You know, there's a lot of added benefit for that because we gave us that protective territory for us too, by that and prove that we can do a good job to transform the payment experience for the market for the customers and residents there on an island on the reason for that, you know, kind of a same on that 50% is in total we have a good determination of the total merchant market for Ireland.
We have already penetrated or this is a significant one right in most ways. And we work closely with our partner, Toshiba territory of Bank of America small law to ensure that we introduce to e-commerce online business as well, right? So one that gained momentum. We'll have more stuff with the general retail merchant market, I think we probably hit kind of a plateau there because at the end of the day, you're always going to have some mom and pop shops wanted to take cash light because they want to be mindful of cost of the international credit card on the island, for example.
Now secondly, you mentioned about future momentum. So you know, again, feedback is amazing partner now that we attain a law that said the, you know, transacting a decent percentage of the retro repayment on the island. I think it set the stage for us to continue to collaborate with them. And as we as we roll out quality, I think that there will be a perfect opportunity. As we previously indicated, we're working with them to explore different angles to vote about you also, you know, allow them to further transition, hopefully overtime, if I may, in a traditional terminal days experience more modern in a mobile phone base, the experience for the general public.
Michael Donovan
Again, I'll thank you so much for the helpful answers and congrats on the quarter.
Ben Errez
Ṭhank you, Michael and say hello to Kevin and the other buddys at H.C. Wainwright. We thank you for your support and continued coverage. And when it's time for you to switch from being an analyst to a real corporate job, you may recall. Let's take the next call.
Operator
Howard Halpern, Taglich Brothers.
Howard Halpern
I'll say congratulations. It's been a while, but congratulations on all the progress that you've made. I guess my biggest question that you've talked about is getting into in our new verticals. So in your is there going to be a difference between verticals you are going to seek to enter in between Europe and North America and then even South America?
Min Wei
I'll let Gregg Great to have you back online with us, it's been a long time. So, this is Min. Yes, great question. We do look at different markets we serve in Olam tailored to the approach to market differently to ensure that we have we had optimal results in North America. You know, so far our journey has been very much focused on copper as a general retail type business with, as Brady mentioned earlier, with us now really getting Pony, you know, kind of the other running and getting into new verticals.
We have been in conversations with our partners and customers our e-commerce business, like because again, we depends on the verticals we serve. We are going through the journey to transition from traditional methods to e-commerce and alternative payment methods I'll name a few examples of that. So we are getting involved now into, for example, looking at telecommunication, looking at, you know, somebody travel, looking at pharmaceuticals, pharmaceutical and purified business related to that to name a few for North America. By doing so, you allow us to diversify our business portfolio.
So we have less Chris just dependent on your verticals like North America for the usual market. As I mentioned earlier, we have given tremendous a tremendous amount of momentum and in payments and in banking the service offering over there, we have also realized that it's not yet in a full e-commerce business, but also for even retail businesses, while we even have a license for lending to a certain extent, right, it's really a lot we can offer there.
We get a lot of momentum by being more selective in terms of the space we invest in and we bought out of services to in 2024, we're going to have broadened out three more. So we're going to accelerate the growth there or was it more right? Why now is the focus of their focus on businesses that just say in market. And we have also the UK market. And you mentioned about Latin America, South America.
We actually welcome any business coming from Latin America as long as they meet our onboarding requirements, as I told you, because they do have we do have the capability to onboard and that process for them for them. Their specific business requirements that we are happy to work with those potential customers so that we can broaden our business.
Howard Halpern
Okay. Okay. And in terms of I know the previous in the previous questioner, you talked about gross margin, but in terms of operating more margin, should we see a nice improvement on operating leverage in the second half of the year because of all the technology and quality being embedded within your systems?
Min Wei
Definitely right. So one you've already recognized will Friday said that by continuing to leverage more streamline processes and technology to quality, we do expect to see improve operating efficiency and resource utilization ratio for operations.
And the other bit maybe George will waiting in a minute, is that a really high level this year with a lot in 2023, we incur some one-time costs associated with legacy offerings, such as regaining the SEC compliance and as such as resolving some of the legacy cases and completed the restatement. You know, I'm not going to speak for George, but the hope is that some of those will not repeat and continue. So go ahead, George.
George Oliva
I think we're targeting a 40% gross margin and operating expenses. I think long term, once we've cleaned up these legacy issues is going to be at 40% or less. That's where we see sort of a breakeven at the bottom net income. I think we have enough enough levers to pull that down the road. We should be able to manage under 40% from going back from that.
Howard Halpern
Sounds good. Okay, guys. Keep up the great work.
Ben Errez
Thanks, Howard. Looking forward to seeing you covered the stock again and the company.
Operator
There is all the questions that are in the queue. I'd like to hand it back to Ben Errez for closing remarks.
Ben Errez
Thanks, operator. Thank you, everyone, for your continued support of the company. And for your time today, should there be any further questions that have not been answered today, feel free to reach out to MZ or to me directly, and we'll get those answered and posted on our IR website. With that, I thank you all, and we'll see you in the next third quarter.
Operator
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.
