Q2 2020 EVO Payments Inc Earnings Call
[music].
At this time all participants are in listen only mode. After the speakers presentations there will be a question answer session to ask a question during the session you when each press star one on your telephone if you require any further assistance. Please press star Zero I would now like became the conference over to your speaker today at O'hare. Thank you.
Go ahead, good morning, and welcome to eat all payments second quarter earnings Conference call.
This call is being webcast today and a replay will be available through the Investor Relations section of Eagles website. Shortly after the completion of this call.
Please note that some of the information you will hear during our discussion today will consist of forward looking statements.
These forward looking statements are based on currently available information and actual results may differ materially from the views expressed in these statements, particularly due to the impact of covered 19 on our business.
For additional information on factors that may cause our actual results to differ from the views expressed in any forward looking statements made today.
As you for today's press release, and the risk factors discussed in our periodic reports filed with the FCC, including our most recent 10-K available on our website.
An effort to provide additional information to investors.
Today's discussion also includes certain non-GAAP financial measures.
An explanation <unk> reconciliation of these non-GAAP financial measures to the nearest GAAP financial measures for the second quarter can be found in our earnings release available on our Investor Relations website.
We have also posted slides on our website detailing recent volume trends for the company to further assist with today's discussion.
Today, we will discuss our second quarter performance and provide an update on each.
19 is having on our business.
Joining me on the call today as Jim Kelly, Chief Executive Officer, Tom Panther, Chief Financial Officer, Darren Wilson, President of the International segment, and Brendan cancel president of the Americas segment.
I'll now turn the call over to Jim.
Thank you Ed and good morning, everyone.
As we discussed in May our second quarter results were adversely impacted by covert 19, when a significant number of European and North American merchants are forced to shut down at a widespread government restrictions on movement and commerce.
Despite these challenges we were able to generate 30 million in adjusted EBITDA, which is down only slightly compared to the first quarter.
Paired to the second quarter last year constant currency revenue declined 19% driven by a 21% volume decline.
Constant currency adjusted EBITDA declined 17% in the quarter.
As we implemented the expense reductions announced in March.
These actions enabled us to expand our margins by 82 basis points to 32%.
In addition, our focus to cash management strategy allowed us to end the quarter, where they leverage ratio of 3.1 times unchanged since our last call.
Our ability to withstand the severe impact of co but in the second quarter would not have been possible without the hard work and contributions of our employees.
They have all sacrificed by adapting to working from home and reallocating workloads, while also focusing on their health and families.
I'm extremely proud of our employees for their continued dedication to the company our customers and our shareholders as we continue to navigate this pandemic.
Now I would like to provide a brief overview of the volume trends. We're currently experiencing across the company.
As we mentioned on our last call. The overall company volume decline peaked in April and began improving in may a trend, which continued through the quarter.
In July overall volume was slightly above 2019, which reflects the benefit of the accelerated cash to card shift we are seeing an older markets as consumers and merchants pursue digital payment solutions.
I'm pleased to see our volumes returning to 2019 levels. Despite the continued decline in global economic activity, which is reflected in certain of our markets and industry verticals. However, the pent up demand in these areas of our business and should provide additional growth opportunity as business activity returns.
Well, we are encouraged by the recent trends there remains significant uncertainty regarding involving government restrictions you extend to which the stimulus is impacting customer spending any potential second wave or the pandemic. We are actively managing the performance of our business by regularly monitoring our volumes expire.
It says and cash flows which enables us to respond to this unpredictable environment.
On a positive note. It appears the endemic serving as a long term catalyst for greater utilization of digital payments across both Europe and the Americas.
For example across all our markets. We saw a contact list transactions increased significantly and continued to sign new merchants, many of which did not accept cards previously.
Together these trends demonstrate an accelerated adoption of digital payments that can provide a lasting benefit to our business. Even after we emerged from this environment.
Well, we took decisive measures to prudently reduce expenses during the quarter. We have continued to invest in our business through new product development and the expansion of our partner relationships to benefit from the accelerating payment adoption trends we are seeing.
We're well positioned to capitalize on growth opportunities through our existing sales channels.
Central acquisitions as business activity resumes and our financial performance continues to improve I will now I'll turn the call over to Darrin to discuss our European business Darren.
Thanks, Jim for the quarter, a European segment recognized a 25% decline in revenue on a currency neutral basis, which reflects the significant impact of the pandemic I'm related government actions, including widespread lot fans across all of 'em. Okay.
However, that's you can see from the volume slides a European payment volumes steadily improved in May and June.
Now up approximately 90 per cent compared to 29 team.
This improvement was initially driven by strong results in a Polish German and check markets, which for some of the earliest markets to react.
Despite some ongoing restrictions island in the UK showed strong growth in the lots of portion of the quarter.
Well volumes in Spain remain down 40% compared to last year.
Given the limited trouble taking place in Europe.
We've seen a marked improvement from the trough if I have a 70%.
The country began to reopen.
Excluding Spain European volumes are up 21% year over year.
Volumes are above the prior year for nearly all of a industry verticals, except trouble lodging and restaurants, which represented approximately 17% of a precursor if its segment volume.
However, these industries will provide additional growth opportunities that's business activity continues to receive.
Our European businesses ability to withstand the impacts of cave it.
Well I, both the accelerated cashed college shift as well as a diversified merchant pool finally guy.
Spends a wide variety of verticals I think lose money launch on multinational customers.
Providing further indication of the health of that business I mentioned activation rate, so now flat compared to pre KBS levels inclusive of new merchant adds during this period.
However, it is important to note, but not all of our active merchants have returned to the pre curvy fit persisting levels.
Despite the adverse impact of Coke bid on that volumes in second quarter, we are seeing positive consumer trends across our European business, including an increase in contactless transactions.
The adoption of virtual terminals driven by the continued cash to call it acceleration.
We've also seen strong E commerce product sales and growing referral activity since the Pandemics first I'm Okay in March.
Sales teams have quickly adapted to meet the changing needs of merchants during this time.
As Jim previously mentioned a strategic initiatives on sales teams efforts enabled us to deliver these results and also expanded product offerings maintained strong customer service and deliver surprisingly robust sales activity throughout the quarter.
Turning to M&A, we remain active on the M&A front as we look for expanded distribution capabilities.
Regarding our entry into Portugal conversations with your big have restarted that's the proposed merger with a bank has ended.
The timing of finalizing a transaction it's dependent on a number of factors, but we remain focused on expanding our presence in this market where the buying Paula.
Lastly, Eve I was recently recognized for its outstanding 2019 customer service through a number of awards across Europe, including the achievement in customer Excellence in Ireland, and the quality International Award in Poland, I'm very proud of these teams as well as a as the European employees.
No I only these awards, but for that continued hard work dedication during this challenging time.
Now I'll turn the call over to Brendan he'll provide updates on our Americas segment Brendan.
Thanks, Darren for the quarter, the Americas segment revenue declined 15% on a currency neutral basis, which reflects the decrease in processing volume. This quarter. However, our volume was somewhat offset by the performance of our b to b in ecommerce businesses, which have withstood the recent crisis relatively well compared to our other business channels, our payments volumes in the Americas <unk>.
Can you to improve since May and are now down approximately 8% from last year. However in recent weeks, we've seen some de acceleration as the recent surgeon Koby cases has caused both the U.S. and Mexico governments to reimpose certain restrictions.
Similar to our European business, our year over year decline and volume has been primarily driven by the travel lodging and restaurant industries, which represents 16% of our pre cobot volume in the Americas.
Although lagging or European segment due to the timing of Cobot I'm also encouraged by the steady improvement in our active merchant count, which continues to approach pickup at levels as well as the accelerated demand for digital payments.
In the U.S., we are seeing positive customer sales trends within both our direct and tech enabled divisions.
Our direct and high speed divisions, our business leaders I've been working with our partners to quickly enable our merchants to accept card not present transactions, which include payments over the phone and online via our virtual terminal.
Additionally, as a result of our coordinated efforts across both our sales channels and through our relationships with third parties, we signed a large ecommerce referral partner in June which will benefit our business going forward as we returned to a normalized environment.
Our PDP business continues to withstand the pressures of the current environment relatively well with second quarter volume down 8% compared to 2019.
Although the decline was expected we experienced an increase in b to b product sales, among new and existing customers as many businesses transition to working from home, which required additional capabilities to enable more integrated and automated workflows.
Further. The addition of several new software referral partners, an ERP resellers to our platform expands our distribution and enables us to capitalize on this emerging business opportunity. We expect our beauty business growth to continue a small and large businesses deploy our dedicated b to b gateway pay fabric for accounts receivables and move away from paper.
Based transactions.
Turning to Mexico as you May recall this was the last about markets to feel the effects of co but in the corresponding government restrictions well volumes. In this market are currently down approximately 13% we have a diverse merchant portfolio that includes many large merchants that are helping to stabilize the decline.
Related to our JV in Chile, we have completed the system requirements are processed transactions in the market. We're working through the regulatory compliance phase of this deal and expect to receive approval to begin operations and processed transactions by the fourth quarter.
Finally, I'm also proud of the work efforts of our employees at this time, which has enabled us to continue to navigate this unprecedented environment with that I will turn the call over to Tom who will now cover the financials in more detail Tom.
Thank you Brendan and good morning, everyone.
For the quarter, Eva was constant currency revenue declined 19% compared to the prior year.
FX negatively impacted revenue by 420 basis points as the U.S. dollar strengthened against the peso euro and Polish zloty compared to the prior year.
On a currency neutral basis, adjusted EBITDA declined 17% on margin expanded 82 basis points.
Paired to the first quarter EBITDA declined slightly and margin expanded 360 basis points as we actively managed our business do the crisis.
Our adjusted EBITDA reflects the negative impact at the widespread government lockdowns offset by the positive effect of our expense reductions.
As we stated on our last call. These expense reductions were driven by a combination of staff and non staff related costs.
After normalizing for certain nonrecurring expenses total SGN, a declined approximately 25% compared to about the prior quarter and the second quarter of 29 team delivering on our commitment to align our expenses with the anticipated decline in revenue.
With respect to our segment performance in Europe constant currency revenue declined to 25% and adjusted segment profit declined 42%.
European adjusted EBITDA reflects the timing of the government imposed lockdowns.
A delay in implementing certain personnel actions due to government regulations and a sharp decline in cross border activity.
In addition, yes junaid cuts were partially neutralized our continued investment in our high growth European business, leading up to the pandemic.
Of note in June year over year, EBITDA grew as consumer spending and cross border activity began rebounding and our cost initiatives, we're fully in place.
Turning to the Americas constant currency revenue declined 15% and adjusted segment profit increased 1%.
Our adjusted EBITDA remained stable as we're able to implement our expense initiatives at the beginning of the quarter and had a greater opportunity to reduce payroll and non staff expenses in the U.S.
In addition, as Brendan mentioned, our Tech enabled division performed relatively well during the quarter.
Across both of our segments. Our performance reflects the active management of our business as well as the accelerated adoption of digital payments I'm encouraged that we're seeing continued momentum in our financial performance as we enter the second half of the year.
Adjusted corporate expenses for the quarter were $6 million, which declined approximately $1 million, excluding certain loss contingency reserves recognized during the quarter.
Adjusted net income was $10 million, an adjusted net income per share was 11 cents, which declined 28% and 31% respectively compared to last year, but more importantly, adjusted net income increased 12% compared to the first quarter and net income per share with.
Stable, despite the increase and dilutive shares.
At the ended the quarter dilutive shares totaled 90.3 million, an increase of seven and a half million weighted average shares compared to a year ago due to the convertible preferred stock that we issued in April.
During the second quarter, we actively managed our cash flows by limiting or capex spend to three and a half million dollars a decrease of approximately 50% versus the prior year.
Half of our Capex spend was related to point of sale terminals in our international markets to meet the surprisingly strong merchant demand.
A trend we now expect to continue into the second half of the year due to the accelerated card usage at the point of sale.
We also generated $20 million in free cash flow this quarter, including a 4 million dollar decline in interest expense.
Further our free cash flow conversion rate was 65% an improvement of 16% from the prior year.
The combination of these efforts enabled us to end the quarter with a leverage ratio a 3.1 times demonstrating our strong liquidity active cash management and financial discipline throughout this crisis.
Lastly, I would like to provide an update on our outlook.
Given the ongoing global economic uncertainty, we will not be providing revenue or EBITDA forecast for Q3 or four year 2020 at this time.
However, we have provided recent volume trends to help you model revenue.
With respect to expenses to date on an annualized basis, approximately $15 million of the expenses that we removed from the business in the second quarter will be permanent.
We are confident that a portion of the remaining cost saves will remain in place.
We continue to actively manage our expenses and cash flows.
Business activity continues to resume we will prudently evaluate our cost base and selectively restore expenses in order to meet business demand, while gradually expanding current margins.
Until we're confident that the economic activity in our markets has stabilized.
Continue to provide quarterly update of specific operating metrics to help you understand the trends we're seeing in our business.
With that.
During the call back over to Jim.
Thanks, Tom to summarize I'm very pleased with our financial performance this quarter given the recent operating environment and I remain encouraged by our volumes and active merchant accounts across our markets. We're now entering the second half of the year with strong momentum and on a solid financial footing.
Well there was names uncertainty surrounding the duration and ultimate economic impact of the pandemic, we're well positioned to return to growth and we'll look forward to opportunities to expand our distribution.
I'll now turn the call over to the operator to begin the question answer session operator.
Thank you as a reminder to ask your question.
Our one on your telephone to withdraw your question press the pound or Keith Please standby will become pilot Q and a roster.
And our first question today comes from the line of Bob Napoli from William Blair. Your line is open.
Thank you and good morning, more interesting times, we need them.
That's going on here. Thank you for the.
Volume trends.
Volume trends.
Good day correlate.
These are FX neutral volume trends I mean, I know the dollars, we can do a lot and.
They FX neutral, yes, they are about.
And then yes, typically I guess the sectors that have held up more might have lower take rates should we think that the the revenue is directly in line with those volumes or we should how much of the hair cut would we give to a revenue relative to the volumes.
I think for now we are using it as a is the best proxy that we can communicate publicly obviously next comes into play as well as.
What countries, we're dealing with so like in Mexico, where there's still a well into the.
The crisis themselves their volumes have held up relatively well because they have a lot of large digs <unk> big box type of.
Merchants relative to say they are our our base in the United States. The same for Europe, Poland would also have a large merchants. So those are gonna be lower margin, just because they're they're bigger volume merchants. So as we said when we first put out.
The volume trends you know, they're the best that's proxy that we can give but.
I think Oh I think for now that's that's as good as we can show you Hey, Bob It's Tom I think you may have missed on some of the comment but volumes for the quarter were down 21% while revenue was down.
19%. So it's a it's a pretty good core Larry how that holds going forward based on how merchants come back online and what their processing looks like I think he knows it's something that we'll just have to be mindful of but but at least for now it's been a pretty good proxy for for revenue. The other part I'd mentioned, Bob as well it.
No not heavily exposed to travel, Spain is large and hospitality the summer season in particular, we see a lot of would have historically seen a lot of travel into the market DCC DCC is a profitable component of our business same from Poland and well Poland is DCC is held up and their international has.
The fairly well as well all things considered in the later months so call it more June.
And the other European markets Cross border is still quite low.
Okay.
And then just a I guess I mean, you guys you're in markets that have a lot of cash so Mexico, obviously struggling with the intent, making it very heavy cash Poland heavy cash so I guess that strategy could be paying off here with the I mean, obviously.
They know the shift to digital accelerating how do you think or.
About the potential growth rate accelerating through the business coming out.
The pandemic certainly seems like a lot of opportunities you are uniquely positioned for.
Well, we are cautiously optimistic I would say.
Right now I think theres still not enough data to draw a final conclusion, but clearly there is a trend away and we can see it in the data Europe in particular.
Which is essentially all contact less.
I'd like to U.S., where it we still have a mix here.
At.
The usage of contact Lisas up well over 20% I think this is stuff that I heard from Tom earlier.
So we would expect that that's going to continue that cash is going to be the loser here and to the extent that that's the case than I think we will be very well positioned a internationally, where we have lower card penetration.
Hi, Thanks, just last question on the BTB business, you talked about additional integrations in ERP additions.
Any any comment what what exactly is going on there and what is the outlook for that business.
Yeah, Thanks, Bob burned intangible here.
So as you know we bought the notice business a bit over a year and a half ago that business focused on Microsoft we've done a integrated the on Prem Oracle solution and then subsequent to that we recently launched the cloud based Oracle solution.
And then in September of last year, we acquired the Lego, which focuses on Sep so that would be sort of the big bellwether ERP systems that we support but in addition to the big guys. We also have put additional bucket of mid tier and smaller Oh ERP solutions that we're constantly on integrating two and in fact this.
Past quarter, we had a couple of wins, you know setting up new referral relationships with resellers or vars focused on ERP solutions. So as I've said on prior calls the idea here is to replicate the strategy that we used in the eyes to be division, where we.
Have a big business based out of Tampa that focuses on both direct diocese that sell direct to merchants and then indirect I as fees that go to market by way of a network of resellers and dealers were trying to replicate that exact same distribution model in the b to b side. So the one I'm a big ERP that we are currently locking would be net.
Sweep and that's what is obviously owned by Oracle, but it's a different technology stack, but other than that we feel like we've got a really robust technology Oh solution here and again, there's a lot of ERP solutions that aren't sort of the big for brand name solutions and we're very focused on integrating as many of those as possible to our pay fabric gateway.
Great. Thank you Ben appreciate it thanks everybody.
Thanks, Bob.
Our next question comes from the line of signs in the Hong.
From JP Morgan Your line is open.
Hey, Thanks, good morning really a.
Really impressed by how quickly guys to the cost out I heard the 50 million is permanent.
I know you're going to give us volume updates going forward, but any help here and.
Anyway to guide maybe up but we should think about with incremental or decremental margin. Both in the short and the midterm I understand you as volume gets backed you're going to start to.
To reinvest again so.
Any guidance around the incremental or decremental margin, we should consider.
Hey, tangent, it's Tom so yeah, as we said that the economic outlooks too uncertain to provide any kind of affirm guidance.
I think we continue to actively manage the business, we're getting information literally on a weekly basis when it comes to volumes and even kind of head count movement within the organization, which is obviously our largest cost but we're also actively managing the non staff as well yeah, I think there's still opportunity.
For some of the cost saves to remain permanent but we're going to be very careful in terms of how we manage the business. We want to make sure. We're continuing to invest in the business for the long term, we want to take advantage of that cash to car conversion that that were seen and make sure that that you were a vote appropriately investing and price.
Correct.
As well as in customer service with that I think the guide that I'd give is just that we're going to continue to be mindful of our margin I'm you saw a nice increase in margin from Q1 to Q2, almost 400 basis points, a little bit up almost 100 basis points up quarter over quarter.
We're back up to kind of the level of 29 team and I think we can see some gradual margin expansion from here, but again. The wildcard is just what happens going forward with second wave additional government restrictions of course, we're hoping that that doesn't materialize, but we feel good about the momentum we have and the options.
In front of us they provide us a lot of flexibility to deliver on that that gradual improvement that we anticipate.
All right terrific now that's useful to know that's useful to no and I guess it wouldn't be an earnings call. Jim If I didn't ask you a little bit about the deal pipeline activity, there's been some activity going on.
Around us so just curious what you're seeing what your appetite is I I know that obviously uncertainty is high but maybe there's some.
Opportunistic chances here and the midstream.
Anything share either organically or inorganically. Thanks.
Thanks for the question to engine.
Yes, I would say a if you go back to when we raised a 150 from NDP and then the first quarter earnings call.
One of the.
Objectives here was the money was the U.S then defensive way our expectation based on the early days. The late March early April it was pretty dramatic you can still seeing the charts, but it was pretty dramatic here to see how significant.
The drop was in volume.
It was very evident because governments. We're closing people were staying home are working from home I'm.
So the money was too.
To be a defense, but also hopefully a offensive and unfortunately, the declines that we had originally anticipated and size. The organization didn't materialize. It was not nearly as bad for us or for the market more generally.
And as Tom said in his comments, we came out of the quarter really where we went into the quarter at 3.1 times on the leverage basis. So the 150 is available to us along with a additional capacity on our existing facility. So we are no less interested in expanding and the.
We have historically expanded which is new markets a former relationship with a leading financial institution together with technology investments like friend. It was mentioned on the beside the one we may two two we made last year in Spain or in Mexico. So you should anticipate that are.
Interest is not waned at all I think.
The challenge is unless it was something that we are already in conversations with it is more complicated to obviously do it today because everything is virtual it's hard to get on a plane and fly to.
The other markets.
But we're continuing to push and we do have deals in the in process, We said theres still always.
Huh.
A way to go until they're actually.
Something that we can announced but yes that strategy has not changed and we're we're well positioned to take advantage of them as.
Sellers are already.
Good stuff. Thank you for the update thanks engine.
And our next question comes from the line of Ashwin shrink.
From Citi. Your line is open.
Okay. Thanks.
I Hope you can hope you guys can hear me sorry kind of Yep, we hear he ashwin.
Thanks.
Driving it on because they don't have power internet, but so.
Sam in season.
In.
Indeed in the U.S. and kind of assuming is that due to.
Sort of higher degree of card not present, and then a broader question on.
Hi, This is my perception listening to you guys.
The E commerce tense.
Little bit different for you guys in Europe first is the amazed says is that most need inflection.
Okay. That's it got client base defenses.
It's something out of school not going on with regards to product.
Hopefully I Didnt misdeed what happened.
Hey, Ashwin topic, I'll start and then certainly a gym and Brendan and Darren can also pick up on on make points as well first I hope you're okay heck of a storm that went through there in the northeast corridor yesterday I'm glad you are at least able to get online. So your first question related to revenue per transaction.
And performance specifically within the U.S. Your first mix of business I think you already hit on that in TNF. Your question.
Tech enabled is about 40% of the U.S. business really about 40% Americas business, maybe even higher the U.S. business and that has held up well during the downturn of the of the pandemic.
And pricing has remained stable and you know keep in mind also in the U.S. It's.
Generally market practice within the U.S. that certain of the fees are fixed in nature. There are certain statements fees and things like that that just aren't impacted by volume to the same degree as in a in the international markets. So there that provides a little bit of a buffer neutralizer to the downturn in volume.
I think it's those two reasons that then I'd point to to why revenue trend that revenue per transaction held up pretty well in the U.S.
Your other question if I heard it correctly works given out a little bit had to do with just kind of E com and the level of E com within the Americas versus within.
Our international markets.
And I think there you know what we just continue to see is just adoption of E. Com was just further ahead within the U.S., but I think it is continuing and this pandemic is going to only be an accelerant to that it's going to continue to be something that I think our international adoption rate will own.
Only continue and then our ability to.
Export those capabilities into those markets I think will will serve us well.
You know I think we're pretty pleased that that our E. Com business itself, you know held up pretty well, we actually saw some pretty good volume and revenue numbers within that E Com channel.
You know one that as we acknowledged in the past that struggled a little bit it was actually something that held up quite well.
So just to add to that I would say in Europe, Ireland in particular as an example, no as you couldn't dine in there was a lot of dine out so a lot of what Darrin saw and Brian clear who runs Ireland was sales.
Sales were amazingly robust I was quite surprised during the quarter, but most of what we were selling were virtual terminals to merchants that historically were dine in versus dine out.
I think that will shift overtime as well as the people can start dining in I don't think most restaurants, who aren't otherwise geared for E. Commerce takeouts their preference would be to have have people come in so some of it was just related to the pandemic as.
As stuff normalizes, I think we will see more of a normalization of the trend of of how people.
Conduct business and I, just amplify what Tom said in the U.S.
Brendan Lauren and the team have done a very good job repositioning our E commerce domestically.
And it was obviously aided by the fact that so many people or are buying things remotely. So that it had a very good quarter.
Got it thank you.
And now you're not fighting outlook, we just compete the understandable, but should July trends.
Good.
How would Americas in Europe looks like you and the reason I ask because obviously, we don't necessarily have tying your monthly trends you don't know what's happened with say for example.
Back to school last year and things like that specifically for you. So any any particular color you may be able to put wide.
As I've said accordingly.
Yeah, I think the trends that we're showing on the slides between the two segments are probably as good as we can do I think a lot of it has to do and obviously in United States. We have a an election coming up so there's lots of puts and takes as to how schools will open our people going to come back to their offices, you know and I know.
Number of our offices, where back we're planning to open a few more within the guidelines that are set by each of the.
By the local governments.
[noise], but.
What do you don't see on the slide we actually contemplated it but it was super busy.
It was to show you really by verticals. So you see on the Rightside. The slides. We described the segments. We were going to give you more color on that but it would have probably extended to it to our call instead of one hour call explaining the puts and takes what I'd say is there's still a lot of vertical markets that are not performing where they were last year, what's holding it up as you.
C are the things that we all need to to live but the more conveniences of our lives restaurants travel et cetera are not there and restaurants travel et cetera are also in some markets very profitable for us. So we are moving a as a company and I think globally in the right direction.
Until you're not seeing masks and people are on planes and stuff is back to normal I don't I'm not expecting the third quarter, he's going to be a normal third quarter I'm very pleased that we are where we are as a company and you know as a market or the markets that were in but I do think.
It's not like this is in the past you just have to watch the news at night and there's still a lot of concern in the world.
Thank you for that appreciate how the kind of.
Yep.
Our next question comes from the line of George Mihalos from Cowen Your line is open.
Hi, This is actually Allison on for George Thank you for taking my questions.
My first question is you spoke a little bit about the deal pipeline earlier I'm curious how that is trending by geography, you know, which geographies are you seeing the most opportunities I know last Tam has been a focus is that still the case.
Yes, Latin America. It remains a focus I really our primary focus in Latin America is to stand up to Chile that business and why don't I, let Brendan we're not together so I have to call him out what are we let Brendan give an update on Chile Brendan.
Yeah sure. So we have a.
Two part regulatory approval process or the first was a regulatory approval to establish the legal entity that approval has been received and so the company the legal entity now exists.
The second threshold is for the legal entity to commence operations.
And we were required to engage a consulting firm to assist us in determining our readiness.
So that consulting firm has now been engaged and we are well into the process. The expectation is that we would receive approval late third quarter early fourth quarter and I don't see any reason why anything would delay a commercial launch immediately following regulatory approval. So we've made a lot of progress on the on the on the.
On the technology front.
We've I think evaluated some vendors that we will be using locally to help support the business terminal supported the field and things like that so anyway, I think we're extremely well position. We've made a couple of hires locally, but we continue to manage costs. So that it doesn't consume cash in any material way prior to generating revenue and signing up new merchant accounts.
So I feel great about where we are and I think the time frames are unchanged relative to what we've communicated in past earnings calls.
But beyond Chile, <unk>. So we wouldn't that to go first and then once in the market just as we were in Europe. We're in the market in Europe with one single relationship or actually was to is it was Deutsche Bank and what was Banco popular at the time and then from there essentially sets up a beachhead to be able to expand into other.
Markets, but we generally don't go into a market.
So we're falling a customer we have examples of that in Europe, but in most into as we enter a market with a financial institution for the reasons that we stated.
Earlier, and then maybe I'll, let Darren just talked about Europe for a second you can cover your back quickly since we've been talking about it for almost two years and ER and then what else we're looking at their Darren.
Thanks, Jim Yeah in Europe with say supports you go Oh, we have been talking to your but for a long time due to some.
Regulates a shareholder shoes, a they've had all fix is they need to put in place which are the actively working on remain actively engaged with them in and still very keen to tend to that markets are.
Fingers Cross Fool positive news from their side shortly but we remain and it just actively dialogue with them as much as possible. So outside of that we continue to look at tech enabled opportunities across your we've already made a couple of acquisitions or in that space.
We continue to.
Look to build out in market in markets are already in a or complementary markets and then equally continue to look at filling the gaps in eastern and Western Europe, a country wise with a market leading front institution.
Feasible.
Okay, great. Thank you offer the color that was very helpful. And then just a quick follow up in response to an earlier question you mentioned DCC I'm curious how should we thinking about how DTC is going to impact the numbers going forward, particularly in Threeq you.
[noise] <unk> I think.
At least right now I think that I don't know that the trend is going to change much. So just to clarify so DCC as one of a foreign card comes into a market and the consumer at the point of sale decides to get paid in their local currency.
Oh, sorry, we just saw call coming in get paid in local currency versus I mean, their home currency versus the local currency. So its international travel doesn't improve then the trends are going to pretty much stay where they are the big move for DCC tends to be in the summer months as people.
Move around so as they stay within their markets for work school et cetera, then I don't think we're going to see much of an improvement on DCC [noise] DCC is an extra fee that we charge. So it is it's more profitable on those type of transactions. So I'm not expecting the trend to get worse I'm not expecting the trend.
Change materially on the other side.
Okay, great. Thank you for taking my questions. Thank you.
Our next question comes from a line of Ramsey El Assal from Barclays. Your line is open.
Hey, guys. This is Dan on for Ramsey I think for taking the question I.
I wanted to follow up earlier on I believe was Bob's question on the volume versus revenue mix and your answer must be kind of clear Oprah <unk> overall business I'm wondering more specifically about Europe for modeling purposes. It seemed like a delta was a bit wider and I believe in the past you kind of explain that that's due to.
The just the shift to more enterprise merchants and I'm wondering just on the if you could provide any color maybe like a month by month trends there kind of that gap as maybe more SMB is kind of return.
Or kind of reactivate are eating covenant and improvements in that gathering volumes.
Yes.
As I think we've alluded to on a number of occasions until we see more of the SMB market come back and they have bigger contributor the volumes that youre seeing on these slides are and when I say these slides I would say from kind of end of March through to where we are today and you can see it to the right side as well what's growing.
These big box types are the ones that we're getting the volume from because people aren't going to restaurants, they're going to grocery stores and as a result, the margins on those businesses are just smaller the volumes look good but the volume and margins are smaller as economies recover and it's more of a.
And equal distribution over based on what historically has occurred then you're going to see the overall revenue improve on each of the transactions.
Yeah, Hey, and Ben It's Tom I think.
We are encouraged by where some of those country level volumes are we've seen them back to.
Pre cobot levels with the exception of Spain.
And you know within some of those verticals as Jim said, the those that are non discretionary excuse me those that are discretionary the ones that continue to lag. So yeah, I think there's pent up demand opportunity really across all of our markets, but but also specific to Europe, even though it does look like it's trending back.
When you break Europe apart it was but tick and you were focusing specifically on kind of the revenue in the 25% decline in revenue relative to kind of volume.
It was it was impacted by the DCC is as well as by Spain, and those two things you had a big impact on that 25% decline as those two things rebound.
I think you can see you know those.
The relationship between revenue and volume to be a little bit tighter.
Okay. Thanks, I was actually a very helpful.
And then if I could ask one more you didn't talk much about the ice be channel on the call and I understand that to some extent.
Current of ours going on your more.
The impact of more due to the vertical then the distribution channel, but can you maybe just provide us with an update there on how that business is doing.
So just I'll do it real quickly just given the time the for the U.S. business you guys businesses very oriented hospitality. So you live in the U.S. hospitality look like.
That said I think for ended could amplify one of our months, whether it was may or June I think we had whenever best months and I know six or nine months. So some of that might have been pent up demand, but Brendan you want to cover that real quick.
Yeah, John was our best month in the trailing 12 month period. So actually we had an incredibly active month and I. Some I think some of that correlated to the fact that we were able to get the Tampa facility back into the office. Some of this some of the productivity is impacted around.
Just having folks work remotely and while I think we've done a good job of adapting to the realities of the pandemic.
Getting folks back in the office, having all our sales guys in close communication one another it absolutely reap benefits and it could have been pad pent up demand budget was a fantastic month.
Yes, just to clarify Tom corrected me here that was new merchant ads. So the business is still very strong what isn't strong as you're not going to restaurants sitting down like you used to and.
And I don't think anybody is and even if you do go inside I mean, we're here in Georgia, and it's been open but even if you go inside it limits the number of people and so the overall IC business performed as you would expect based on something that's oriented very much to hospitality.
But.
My thrust and.
Brendan mentioned is the new sales still or were very strong and continue to be strong. Let me just give dare to chance to talk about Europe for SEC.
Thanks, Jim.
Yeah, we're seeing the same kind of a good signs from the I see channels throughout Europe.
For example, as Jim said, a new signings a holding up in a levels that were seeing pretty cobot. So for example in the UK, maintaining those signings levels, but 60% of I knew much since coming through a nice to be led channel business is stupid as I outlined we made a tech enabled.
Acquisition in Spain clear, one I was partnering with ice fees and that is growing similarly extremely well for me much in count.
Equally then across all of our the markets were seeing strong green shoes of is the led a merchant acquisitions, and Ireland check Ireland, Germany et cetera, So ER.
And expanding into new sectors and verticals such as medical in Ireland that previously was kind of white space for call. It pursuing opportunities. So you a new sectors and new verticals opening up as well through these nice to be partnerships.
Great. Thank you simply taking the questions.
Thank you.
Our next question comes from the line Mike.
From Compass point your line is open.
Good morning, Thanks for taking my question and congrats on a like strong quarter.
Question on your U.S. exposure first of all I appreciate the granularity on the on the slides but.
Perhaps on a on a state level basis could you kind of provide any color on on concentration. There I think Texas is a large exposure, but any other large large states you call out.
[noise] I mean, our merchant base tends to on some level track.
Population centers. So yes, we're exposed to California were exposed to more we're supposed to to Texas were exposed to Florida.
But we have exposure in those states some of those in particular, New York in California been slower moving in terms of opening and we saw that very clearly in the numbers and in fact, when Florida and Texas opened and then close back down we saw that impact the numbers as well, but the good news as we're very diversified across.
End market I know you Jim it come at the highest be business is a concentrated to hospitality, but that is actually not the case and our ecommerce or direct businesses.
So word and we're also equally diversified across across geographic location as well, but yeah. No. So theres no question that we do track the big four.
Okay. Thanks, and then the faults on Chile, I know when you first announced that you put out a press release outlining some of the characteristics of that market, but.
You made you maybe remind us what some of the early targets are as far as revenue EBITDA contribution once that comes online this year.
I think that we haven't provided any I mean, the answer is the market is in such infant, saying that it's hard to know exactly how it plays out the market has been a monopoly since the inception of the cards business. There its controlled by a company called Trans Bank, which is owned by the banks and it is then the only game in town for very very long time.
Santander is split off a little bit and so there are kind of finding their way, but visa Mastercard are now just getting introduced to the market for domestic transactions there pricing tables of only recently been announced in are being implemented so to give guidance about profitability when we don't fully understand spread or.
All those kinds of critical metrics, it's unknown, but the good news is.
Our bank partner is extraordinarily engaged and they have introduced us to many of their largest corporate relationships and many of them I've articulated a keen interest in working with US and then you know will implement all of our own direct sales strategies as well telesales field sales IC relationships.
Proprietary in third party Gateway solutions, So I think between our relationships are our strategies and the banks incumbent banking customer relationships I do think that we're going to see a nice pick up relatively quickly.
I'm just going to amplify a I was on a call one of these webex calls with the CEO and a team I think there was like 15 people from the bank.
When I say excited this bank is super excited which I think it's awesome because a lot of time zone, we buy a bank business. That's been around for 510 15 years, yeah, they're just not as excited about maybe they're excited about the transaction and they hope for it to be better but here. This thanks never had a chance to run or the involved in running the business and as Brendan was.
Mentioning and then they were clipping off all the big names a big merchant names in the country. So and this is a market that grows organically as its published 21%. So yes, they've gone through Covidien. They took they've taken a very aggressive locked down I don't know if there are open yet, but they've been locked down for quite some time lock down meeting.
And from home and not even leaving the house type of thing.
Like Spain, but we're super excited because it has a new region and even more excited because we think they're going to be an awesome partner.
So we lose you.
Great. Thank you okay, great. Thanks I.
I think we have time for one more.
Final question today comes from the line ups Kartik Mehta from Northcoast Research. Your line is open.
Thanks, Tom I know you talked a lot about cost already but I just wanted to make sure I understood or something you said last quarter and I thought you were talking about you know by 6 million a month because the volume decline you are anticipating obviously.
And it hasn't come to fruition, but.
Are you still on that same trend Oh.
The month, which so far.
The movie.
Sure, you're moving in and out, but but I think I got the question in terms of just kind of expense trends in picking back up from the the 6 million reference point I think what what we can say is we absolutely delivered on that in Q2, when you look at our.
Period over period results, regardless, which period you pick you know we delivered on that 25% expense reduction.
We did actually restore some expenses during the quarter and still delivered on that so I'm pleased by that by that outcome never places, where we needed to bring some people often furlough and bring them back in as we saw call volumes increase and different.
Activities resume in our in our markets.
I I think what we would say going forward is that you know we're going to continue to make sure that that we're managing the business.
Prudently and with a long term focus and if that means we need to restore some expenses and give back some of that 6 million, while still improving margin. That's what we'll do because I think our focus is more around profitability.
And making sure that we're delivering the right kind of margin for our shareholders not necessarily you hanging on to you know a particular expense target that was protect that was specific to the early days.
Yes, as I mentioned in my comments I think there's still opportunity. We mentioned that 15 15 million dollar number on an annualized basis that 6 million would be a $70 million give or take on an annualized basis I think theres additional opportunity to have permanent savings both on the staff announced outside.
But what that number is you know going forward I think is gonna be multi variable equation based on delivering the right margin for the for the shareholders.
Yeah, I know you talked about acquisition and when this really happened a little make initially often it seem like maybe acquisition price would come down because volumes go trends were so aggressively.
They are where we stand today have you seen a change in the acquisition pricing at all or a the desire of Bob build them quite well.
[noise] that's a good question Kartik.
Thanks for the deals that were already in the Q.
Just like US are now I think this was.
To some extent this is a onetime events I mean I hope, it's a one time event, but I think people looking to pandemic is it something that's happened it's terrific but.
Life will return to normal and I think a seller unless there's a permanent impairment or their super desperate I think a seller has a similar view that if you like the business at this price in January.
I'm trying to buy it in June or July just and use a trailing 12 mentality I unless they're desperate I would find it very.
Surprising that a seller would take that view, so I don't think huge I'm not anticipating.
Prices changing in a material way I mean, maybe somewhat.
Maybe some of it is going to be around how you structure a deal maybe there's more not a big fan of Earnouts that maybe there is more of that of that type of a component.
But just to simply say Oh, yeah, we're going to pay less because your volumes down 35% I don't think unless they have to I don't think somebody's going to be a seller.
Thank you very much appreciate it.
Alright, Thanks Kartik.
Well I have no further questions. Thank you I'll turn back to the presenters for closing remarks.
Thanks, operator, and thank you all for joining our call. This morning, and your continued interest in Eva.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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