Q4 2020 EVO Payments Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Evo payments fourth quarter 'twenty 'twenty conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Tabasco a question during the session you will need to price.
Star one on your telephone if you require any further assistance please press star zero.
Now I'd like to hand, the conference over to your speaker today.
Ohare Senior Vice President of Investor Relations. Please go ahead Sir.
Good morning, and welcome to Evo payments fourth quarter and year end earnings conference call.
This call is being webcast today and a replay will be available through the Investor Relations section of a <unk> 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 COVID-19 on a 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. Please refer to today's press release and the risk factors discussed on a periodic reports filed with the SEC.
Including our 2020, 10-K, which will be available on a website after the market's close today.
In an effort to provide additional information to investors.
Today's discussion also includes certain non-GAAP financial measures.
An explanation and reconciliation of these non-GAAP financial measures to the nearest GAAP financial measures can be found on 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 fourth quarter results and provide an update on the impact a pandemic is having on our business.
Joining me on the call is Jim Kelly, Chief Executive Officer, Tom Panther, Chief Financial Officer Darin.
Darren Wilson President of the International segment.
And Brendan <unk> President of the Americas segment.
I will now turn the call over to Jim.
Thank you Ed good morning, everyone and thank you for joining US today, we kicked off 2020 with strong financial performance that was abruptly affected by the spread of the COVID-19 pandemic beginning in March and continuing through the remainder of the year. Despite.
Despite the adverse impact of the pandemic, we had a successful year and took significant steps to improve our business by expanding a referral relationships investing in key products and capabilities enhancing our technology and taking decisive actions to reduce our expenses and leverage.
These key accomplishments were made possible a largely due to the dedication of our 2000 employees across the globe, we're forced to react to the numerous ways in which the pandemic impacted our industry.
They remained resilient through the many challenges we faced in 2020 and continue to deliver quality service to our customers and partners I am very grateful for our employees' determination to make this a successful year.
Now I would like to provide an overview of our recent volume trends.
Volumes rebounded in a third quarter. They began declining in mid October as restrictions were reinstituted across most of Europe and in certain areas of the United States and Mexico to curb increasing infection rates.
This resulted in fourth quarter volumes, decreasing 1% sequentially and 5% compared to prior year.
For January volumes were down 11% from the prior year as the strict lockdowns in Europe continued to negatively affect consumer spending.
However in February volumes have improved slightly to a 9% decline over February last year as distribution of the vaccine rollout is now underway and some governments have begun easing restrictions.
We are encouraged by the diversity of our business and the resiliency of our merchants across all markets, but until a government restrictions ease it is likely that our volumes will remain under pressure.
Turning to our financial performance as compared to the third quarter revenue was flat, while adjusted EBITDA increased 11% and margin expanded 380 basis points.
Compared to Q4 2019 on a normalized constant currency basis.
Revenue declined 5%, while adjusted EBITDA increased 9% and margin expanded 500 basis points to 38%.
These results reflect a negative impact of the COVID-19 related restrictions offset by our expense management, Tom will cover our 2020 financial performance and our outlook for 2021 in more detail later on the call.
As we entered 2021, we are monitoring the vaccine distribution across all our markets as well as other key indicators that have a direct impact on economic activity, including government stimulus programs and cross border activity.
We are anticipating a strong global recovery in the back half of this year driven by pent up consumer demand and expect the accelerated adoption of digital payments to endure we will continue to manage our business through this crisis and are now a more efficient company with ample capacity to execute our long term strategy.
A solid organic growth coupled with targeted M&A, including bank alliances and tech enabled investments I will now turn the call over to Darren to discuss our European business Darrin.
Thanks, Jim for.
For the quarter European normalized constant currency revenue declined 7% year over year, which reflects the impact of the reinstated restrictions across the segment, including sharp decreases in cross border activity.
As you can see from the volume slides on volumes demonstrated notable declines beginning in November.
Lockdowns went into effect across our markets and then a lots of parts of October.
However, it's worth pointing out that these declines are a much less severe.
On the April Charles that's a merchants and consumers a adapted their behaviors to manage through the lockdowns.
This is evident in a contactless and card not present volume as well as a strong name from growth across most of our markets.
During the fourth quarter volume sort of approximately 6% lower compared to 2019.
This trend intensified through January with volumes down 19% year over year, that's a nice.
Countries remain completely locked down.
However in February volumes have rebounded down to a 11% as markets such as Poland, a relaxed most restrictions.
We're seeing a other markets are starting to announce that plans to ease restrictions over the forthcoming weeks, coinciding with a vaccine rollout plans across the EU.
Although the recent Lockdowns have had an immediate effect on a European volumes and revenue, we continue to see positive business wins across our markets.
Beginning with Poland, we saw a steady new business activity in the fourth quarter as we continued to gain market share and expand a tech enabled distribution network.
And a direct division, we continued to sign a grocery chains to further increase our penetration in this vertical which now represents approximately 30% of a Polish business.
And our ISP business, we enabled PK in Orland, the largest energy company in central and Eastern Europe to rollout in a ball payment application for their electrical vehicle charging station network.
We are now working with pka and Olin to deploy the application inserts a neighboring countries in the first half of this year.
Finally, as I mentioned in our last call. We ran a successful E Commerce campaign with Mastercard and gained three exclusive long term referral partners to support a snap e-commerce gateway going forward.
Turning to Germany in December we enable one of our customers to participate in the government sponsored cashless, Italy program, which was initiated to accelerate digital payments adoption.
We're excited to have been chosen as the only foreign much from acquired to participate in this program and look forward to supporting the continued adoption of digital payments in Italy.
You know island in the U K a teams continued to demonstrate success in signing new ISP partners in the fourth quarter, including a restaurant software provider in the U K and a.
A large ticketing software company in Ireland.
We also continued a rollout of Eva collect a pay by link solution, which we have now implemented with 50 customers since its launch last fall.
In Spain, a bank referral partner, a libre buying recently announced it will merge with a unique Uh huh.
On the fifth largest bank in the country. Once the transaction is finalized later this year.
I leave a buying portfolio continues to perform well and we're in the process of migrating these merchants to on a proprietary processing platform. We expect this conversion to be complete in the first half of a year, which will provide a libra bank merchants access to all of Evo is leading products and services.
On a related note rightsize on buying one of a bank partners in the Czech Republic, and that's a February that it would acquire a core bank by the end of the second quarter to expand its distribution in the market.
May recall, we formed an exclusive strategic alliance with Raiffeisen Bank in 2015 on has seen strong growth from this market.
In 2021, we will look to capitalize on the accelerated adoption of digital payments that emerged in 2020.
Remain focused on expanding a bank partner network on tech enabled capabilities, both through proprietary investments in M&A as we look to capitalize on the opportunities presented by the recent shifts in consumer trends.
It's a related restrictions are gradually lifted.
I will now turn the call over to Brendan who will provide an update on our Americas segment Brendan.
Thanks Darren.
For the quarter, the Americas normalized constant currency revenue declined 4%, which reflects the steady improvement in our Mexican business, coupled with modest declines in our U S business due to the pandemic.
Beginning with the U S volumes for the quarter were approximately 8% below last year and remained at around that level through February.
Our merchants are demonstrating the ability to adapt to changing consumer behaviors, which is demonstrated by the continued increase in a contactless card not present volumes that we've experienced since the onset of the pandemic hit.
And our <unk> business, we continued to demonstrate strong double digit revenue growth as we signed new merchants and converted existing gateway only customers to our acquiring platform.
We also integrated our <unk> fabric gateway to Sap's digital add on solution to continue the build out of our <unk> acquisition, which we lapped at the end of September.
In our domestic e-commerce business, we continued to grow and diversify our referral partner network and developed a key relationships within the retail and healthcare verticals.
Turning to Mexico, we have continued to see steady improvement in this market since the April trough.
In the fourth quarter volumes expanded 2% and we have seen similar trends so far this year.
These solid trends were helped by our diversified merchant portfolio, which includes a large corporate customers that spanned across multiple verticals.
In 2020, despite the negative impact of the pandemic our merchant portfolio for this business grew mid single digits, which further demonstrates the strength of our business.
In addition, our performance in Mexico was supported by strong E Commerce revenue growth of 17% in the quarter before I turn the call over to Tom I would like to provide a brief update on Chile, Although we previously anticipated securing regulatory approval by the end of 2020, we continue to wait authorization to launch.
Business the.
A regulatory approval process has been extremely thorough due to evo being the first international merchant acquirer in the market and is also a bit slowed by the pandemic and the summer vacation season in Chile operationally, we have completed all of the necessary actions to launch the business since our last call we have finalized connectivity to the networks lever.
<unk>, our Mexican platform continued building on our leadership team secured our business facilities worked with the bank to develop a sales pipeline of existing Dci customers and developed a sales and marketing campaign for the broader Chilean market. Our partner <unk> remains extremely excited to launch the business and we look forward to explore.
<unk> into this high growth region with that I will turn the call over to Tom who will cover the financials in more detail Tom.
Thanks, Brendan and good morning, everyone for the quarter Evo as constant currency revenue declined 5% compared to the prior year when normalizing for certain payments network incentives and non volume related fees in the prior year from both Europe and the Americas.
On a constant currency neutral basis.
Normalized adjusted EBITDA increased 9% and margin expanded 500 basis points to 38%.
Including these incentives and fees constant currency revenue declined 10%.
Adjusted EBITDA declined 6% and.
And margin expanded 158 basis points.
Sequentially fourth quarter volumes and revenue were flat, while adjusted EBITDA and margin improved 11% and 380 basis points respectively.
These solid results are despite the continued compression in revenue spreads, which have been impacted by the shifts in merchant and transaction mix, coupled with declines in cross border activity.
We remain confident that as the pandemic abates and economic activity rebounds, our spreads will return to historical levels and revenue growth will accelerate.
With respect to our segment performance in Europe year over year constant currency revenue declined 15% and adjusted segment profit declined 20%. However on a normalized basis revenue declined 7% and adjusted segment profit increased 4%.
In the Americas year over year in constant currency revenue declined 7% and adjusted segment profit declined 1%.
On a normalized basis revenue declined 4% and adjusted segment profit increased 6%.
The mid single digit normalized EBITDA growth and 400 basis point margin expansion in both of our segments reflects the targeted cost that we have eliminated.
From the business, while gradually growing our merchant portfolio.
Adjusted corporate expenses for the quarter were $5 million, which declined approximately 15% from the prior year.
Adjusted net income of $21 million for the quarter increased 3% compared to last year.
Adjusted net income per share was <unk>, 23, which declined <unk> <unk> compared to a fourth quarter of last year due to the preferred share issuance in April.
On a normalized basis, adjusted EPS increased <unk>, <unk> or 21% inclusive of these additional shares.
At the end of the quarter dilutive shares totaled $94 million, an increase of 11 million weighted average shares compared to the prior year.
Okay.
During the quarter, we continued to manage our cash flows by limiting our capex spend to $8 million, a decrease of 36% versus the prior year.
Approximately 75% of our Capex spend related to a point of sale terminals in our international markets to meet the strong merchant demand, which continued through the fourth quarter.
We ended the year with leverage at two nine times, a significant improvement from four two times at the end of 2019.
Our strong liquidity and low leverage coupled with $400 million of available cash and unused capacity in our credit facilities provide us the financial resources to capitalize on M&A opportunities that are likely to become available as economic activity resumes.
Turning to our outlook as you can see from the slides volumes have remained under pressure during 2021 due to the previously discussed government restrictions across all of our markets as.
As a result, we expect first quarter revenue to decline modestly compared to last year.
Despite these near term headwinds our experience last year demonstrated that volumes will strongly rebound once government restrictions are eased.
Our outlook for the year assumes a strong recovery and a second half of the year as we lap the initial impact of the pandemic and COVID-19 related restrictions are lifted across our markets.
For 2021, we expect revenue to be 10% to 12% above 2020.
Adjusted EBITDA to grow <unk> 16 to.
It's a 20% <unk>.
Margins to expand between 202 hundred 50 basis points compared to 2020.
With that I will turn the call back over to Jim.
Thank you Tom and.
In 2020, we strengthened our balance sheet and improved our margins our business remains well positioned to capitalize on a global economic recovery and the accelerated adoption of digital payments, we look forward to continuing to expand our distribution through our existing sales channels and acquisition related opportunities in 2021.
And beyond.
I will now turn the call over to the operator to begin the question and answer session operator.
At this time if you have a question. Please press Star then a number one on your telephone keypad.
And your first question comes from George <unk> with Cowen.
Great. Good morning, guys and thank you for taking my questions.
I'm wondering to start off just Jeff.
Yes.
Good morning, everyone.
Looking at Europe, and some of the bank consolidation that we've seen there how are you guys thinking about that as it was a net positive or negative I know it sounds like from your commentary you're more encouraged by this time around than maybe what we saw on the past, but just I'm just kind of wanted to get your updated thoughts there.
Good morning.
I would say that we are very encouraged as you could see we mentioned or Darren mentioned in his prepared comments.
On one of the banks.
Debt were aligned with in Spain has already announced a merger so I think the same.
Experience will see likely in other markets. If you look at our history in Europe when.
When we first entered the market.
In say 12, 13 time frame.
Thanks, we're looking to raise capital and then as time progressed.
Thanks, we're really looking for a digital solutions and so it was less to do with.
I need to raise money if it was more to do I need to raise our capabilities to meet the needs of our customers. So I think coming out of the pandemic, which is our expectation as we said on our comments in the back half of this year and we're already starting to see the shoots of.
In.
It gives me in.
Inbound inquiries from a.
Thanks.
In the European market and other markets that are either looking for one or both a what I just described.
Expectations are we will see an uptick of that and given our positioning in a market.
<unk> really do business in essentially all markets across Europe, and a strong footings and a number of those markets with leading financial institutions I think it positions us very well.
Two to have a.
A successful year on the M&A side in 'twenty one.
Great.
I appreciate that that color very thorough and just a.
Tom Q2 quick questions as we look at the financials I caught that you would expect revenue to be down slightly in the first quarter.
But if we just look at the volume trends say January through February kind of down 10% in aggregate.
Curious what does that sort of triangulate to from a revenue perspective, meaning what sort of that revenue impact.
Given the volumes being down there and then just a quick follow up.
How should we be thinking about FX.
For 2021, I'm, assuming that's a bit of a benefit thank you.
Yeah, Hey, George good morning.
We said before that there a strong correlation between our volume trends on our revenue trends.
I think as we said in my prepared remarks, we will see volume a revenue.
Also decline relative to two last year's quarter.
Yes.
Its something Thats hard to peg in terms of exactly where the spread is going to be.
But I think that 10% year to date decline is.
It's up into anchor off of March as you know was when the pandemic started to hit particularly in Europe. So the comparable related to a march maybe a little bit easier.
So.
I think that that modest decline would be in that range of where you see the volumes.
With respect to FX.
You look at where.
The banks are projecting the dollar and we do expect it to be a tailwind in 2021.
It's been a little bit of a tailwind, particularly with respect to the.
Euro and USD.
Peso not as much the peso has been a little bit more volatile.
That's to be expected with.
Mexico's sensitivity to oil, but overall I think we would expect FX to be a.
Tailwind.
Given where kind of.
The European Bank is versus where the fed is.
I think the trends that we see or we will continue and thats what the general consensus is out in the marketplace.
Great. Thank you guys appreciate it.
Thanks.
Your next question comes from Ramsey El <unk> with Barclays.
Alright, Thanks for taking my question this morning.
I wanted to ask about how the pandemic may or may not have impacted the sort of bank partnership pipeline is the appetite on the side of banks right now.
Merchant processing volumes are likely.
So dude right now or are they looking more aggressively trying to pick up that business or has there been sort of that a.
Delay in decision, making about about wanting to partner with someone like yourselves to accelerate growth there.
If you remember I guess back to our last call I had made a comment around that debt.
These bank partnerships at least the ones. We're in most of the industry to do or the duration of a 10 years, we have one that goes out 20 years.
So I think on both sides of the equation, both us and financial institution <unk>.
<unk> to travel the inability to interact with.
The leadership team for them to us and vice versa.
I think that definitely has chilled some of.
Of the enthusiasm for banks to us going into.
20.
We had I think a pretty strong.
A pipeline of banks that we're talking about this and then everybody hit the brakes when COVID-19 reared its head so I think coming out of it we'll start to see financial institutions as I said on a prior question that we're already starting to see inbounds were bankers are getting engaged.
And you know I think bankers, we'd like to see this start up again thats, how they make a living but I think for financial institutions. Just because we went through Covid I don't think stopped their interest to solve the digital issue.
What is the driving force in the last say five years.
But youre going to see some instances where banks are going to need to raise capital and this has historically been a business that they've been willing to part with their full ownership and either do it.
As a JV or some form of on the lines.
Okay. Thank.
Thank you.
And a fall.
A follow up from me is on margins and a margin outlook in 2021 came in a little bit below our model we were expecting margins.
Around 37% sort of like what day it looked like in the second half of 2020 and first of all Super appreciative by the way that you provided guidance, which many of your peers haven't so keeping that in mind.
Any particular drivers to call out any more of the COVID-19 related to cost savings for example that might be pulling back in in 'twenty, one relative to expectations.
Hey, Ramsey, it's Tom So just to kind a square up on the numbers I think margin for Q4 was around 38%.
So I don't need to catch up after words on just where youre seeing margin for the quarter.
With respect to Q4, it was a relatively clean quarter.
<unk> restored salaries in the back half of the quarter on the.
First to the second quarter on the third quarter were a bit noisy as we were going through some various transitory expense reductions and then reinstating some furloughed individuals and things like that so I think those quarters.
We're trying to.
Normalized for some of that activity, but I think the.
On the 38% for the fourth quarter was a pretty clean number now I don't think you can just take that and roll it forward because theres a natural seasonality in our business and then there's also the impact clearly of the pandemic, particularly what we saw a late December and extending on into into January So I think youll.
See some ebb and flow of that margin on a quarterly basis.
But on a on a full year basis as we said in our outlook that we would expect margin accretion. Despite some of the first quarter headwinds of 200 to 250 basis points.
So I think.
I think that puts us in around a $35, 36% for the year as I said, despite a little bit a challenges in the first quarter, while we patiently wait for governments to reopen there their markets.
Alright got it on it and I apologize if I misspoke I intended to say, 37% in a second half rather than in the fourth quarter, but.
But duly noted and I appreciate I appreciate your commentary there. Thank you very.
A very good.
Your next question comes from James Dean Hall, with JP Morgan.
Yeah.
Thank you good morning, I, just wanted to ask on the confidence and a.
The spreads returning is that for your Youre, a structurally not seeing any change in pricing and yields a this is just a.
Just a mix issue I know that your SMB versus enterprise mix in some of the European countries very so just trying to get a better sense of that expectation.
Yes, Tien Tsin I. This is one of the areas.
A.
Im optimistic that it's one of the hidden tailwind that we will benefit from that.
When things do reopen we'll see not only a volume.
Improvement that will drive revenue, but also a spread a rate improvement that will drive revenue growth. If you look at our quarterly trends over 2020, you saw a pretty significant rotation down as.
Two things changed three things I'll say.
One just cross border activity that became obviously virtually non.
Non existent, we saw a little bit of a rebound in the third.
Third quarter, but it was short lived before the markets locked back up so I think cross border is up to and debt is probably going to be wanted a later one.
On a the things Thats later to return at least based on what you read from a government, they're going to reopen internally before they reopen borders, but I think that'll be suddenly that will help us but the merchant mix is something that we clearly saw a big box large retail grocers things like that.
High volumes, but lower spreads just because of their pricing power and then the other thing is transaction mix. We saw in Inc. We've seen an increase in debit card volume, where we make a little less spread.
Both U S and international I think that has a lot to do with a stimulus money, that's sloshing around and people using debit as a means of payment.
But the confidence comes from a belief that the rotation away from cash to card is permanent from a consumer behavior perspective. So I think you're just going to see more of the economy run on the rails.
And I think.
We also continue to believe that those Smes.
Smes are going to come back and that you're going to have the benefit of just a stronger broader merchant portfolio.
Tien Tsin, we also saw that as Tom mentioned earlier, we saw that in over the summer months.
We're a strong rebound as the initial lockdowns opened up so it's not as much just a that's what we think it's something that we've actually seen so.
As Europe starts to saw from the pandemic.
We're going to see a very good rebound to the company and one just other comment there on but you specifically called out pricing.
No we are not seeing pricing pressure, we continue to see a pretty good retention rates with respect to our merchant portfolio and so from a core pricing perspective that seems to be holding in line right.
So basically it will.
At the World reopening it will swing back and Youll see a normalization in.
In the yields and I would imagine it comes at a very high incremental margin. So no. Thanks for walking through that just I guess my quick follow up Tom you gave some these normalized figures think I wrote them down puts a pass through fees.
Is that anything to consider as we walk through the.
Whereas in 2021 from some of these are some of the passenger fees just want to make sure we've modeled a bit late.
No I mean, you even heard and its been a few weeks now since visa and Mastercard released but you've heard them referenced the fact that their incentive costs were down while theres a theres the other side to that trade ware.
Some of the incentives that we earned from the brands in the fourth quarter.
We're down and so I would love to be able to say that a year.
Year from now when we're talking about the fourth quarter, a 2021, we've seen that return we've seen.
Our ability to expand the brands into various.
Of our markets and on to the merchants platforms.
It remains to be seen in terms of how that how that activity returns.
So for now in our outlook, we're not really counting on that for 2021, we'd rather that be.
Debt provides us an added boost if it returns, but we're not counting on it to come back in 'twenty one.
Perfect.
Thank you so much.
Your next question comes from Ashwin <unk> with Citi.
Okay.
Yes.
Can you hear me Hello Ashwin.
We got you.
Okay.
Hey, so I wanted to find out a tech enabled as a percentage of pilgrim makes perhaps by segment of a country.
And.
Two the pandemic in general I think you've seen step up.
In this is debt harbor freight has performed better.
How do you think the mix evolves through the course of 'twenty one.
Well, Tom can take the specific breakdown.
But yes, the tech enabled business, our <unk> business performed.
I would say compared to the rest of the market exceptionally well and continues to do well our ICEE business domestically is oriented a lot to hospitality. So obviously for the portion that relates to hospitality, that's been adversely affected but the rest of the Isps on ISP business did quite well.
Turning to Europe for example, or.
U K business, which is predominantly ISC oriented probably was one of the best performers that we that we had our Canadian business as well had actually.
A breakout year.
Probably the best year, a tad in terms of its tech enabled business. So we definitely had very strong pockets across the markets, Mexico as well as a big push into that channel. If you recall, we bought a company.
I think almost two years ago, <unk> systems, and the team came across and.
That is anchored us too.
Two to pursue that market, so I would say without question.
That performed.
A lot irrespective of the impact of the pandemic the big box business as Tom was outlining in our major markets Likewise did very well as.
As the markets came come back soon.
Seeing what we saw over the summer.
I think it all comes back somewhat equally.
The businesses that have largely been shuttered or have minimal business. Those will open up I think there'll be a initial strong very strong rebound and then it should settle in.
Two a rhythm that we would have historically seen I think.
The one benefit.
The industry is going to see is that muscle memory now to use card over cash whether there is a concern of.
The spread versus.
Just it's easier to use card I think our industry will clearly benefit and we saw that numbers again over the summer where our volumes, even with a 15% of our merchants closed.
Because of the pandemic, our volumes were at or above where they had been in the prior year. So the only difference there is people who are spending more on cards than they did the prior year. So we will expect.
To see the benefit of all of that as these explanations.
Impact a government decisions on on how theyre going to treat their citizens, but Tom could give you a breakout sure ashwin on the numbers.
The company Tech enabled represented about 35% of revenue for the year, that's up 300 basis points three full percentage points from last year. So we continue to see some some good growth there and that's across all of our markets U S is the lion's share of that 35%, obviously, a more mature tech enabled business.
Particularly with the BTB presence, which isn't.
Which is nascent and in Europe.
But that growth in tech enabled.
For the company was at the sacrifice of some decline in our traditional business, which one would expect as Thats just a naturally.
A trading.
Portfolio at a very gradual rate so as Jim said, we're excited about the growth momentum and hope to see that continue to accelerate.
Got it got it.
And then is it tied to kind a bit it up.
The model you guys a talked obviously a lot about.
Transaction growth on how that yeah.
<unk> can you talk about sort of merchant accounts, perhaps as.
Another part of that mix.
As an indicator of.
Share gains.
Sure Yes.
In the merchant count, we saw relatively stable merchant count across the portfolio, but the undercurrent behind that is we saw a really good attrition a retention levels.
The level of closures was well down relative to <unk>.
Prior years that May surprise, you in the middle of a pandemic I think that demonstrates the resiliency of our merchants and also their desire to focus on other things and then on the.
Who they are who their processor a merchant acquirers on a flip side that did put a little bit a pressure on the AD side, where the level of <unk>.
<unk> growth was.
Less than what we would've anticipated in a normal normal market. We still saw good net year over year, a growth in both Mexico and in Europe.
U S has had as I mentioned with the traditional portfolio you always have that driving headwind, but overall, we felt pretty good with with a merchant portfolio given the operating environment remaining pretty pretty stable and we think as things reopen as storefronts have on.
Opportunity to maybe.
Get back to normal debt that there will be an opportunity for.
Some some good new business activity on a on a go forward basis, but right now merchants or have higher priority is to focus on.
Understood I appreciate the insights guidance.
Thank you.
Your next question comes from Robert Napoli with William Blair.
Thank you and a.
Good morning.
I have a question.
On the.
I guess.
As you look out over the next three to five years, which.
Portions of your business not a how you wont break it out by country, I mean, Poland and Mexico, obviously.
Each 20% of the business day.
We're coming in a pilot pandemic, a little more than that maybe.
And then youre.
E Commerce <unk> business, what is going to begin a dry what is the right growth rate as we come out of the pandemic organically.
And which market as you sit here today do you think are going to be the largest organic drivers.
Okay.
Yes, I think the two that you mentioned, Poland will continue as Mexico, probably.
Mexico is a.
Somewhat underpenetrated compared to Poland in cards on a relative basis.
I think another driver will be our push into Latin America as Brendan mentioned in his comments.
We are on a call in the third quarter expectations were that we would.
Have a chilly up and live by this point a combination of.
On the pandemic and.
Is there a summer season, so holidays theyre equivalent of July and August just kind of got it in a way, but we.
We see Chile, while it's a relatively small market it will be a very fast grower, we're aligned with a very large financial institution in the market. So I would say those two from a <unk>.
Acceleration should have.
A very strong organic growth our <unk> business now.
Is a.
And we will continue to be our fastest grower in the U S.
In the aggregate and will at some point eclipse.
<unk> debt and the impact as Tom was talking about traditional we see the power IC.
The <unk> business in our ISP business is kind of a two leaders.
For our U S business over the next three to five years as you mentioned.
And then across Europe, I think our investments now in tech enabled enabling our Isd isc's across the European markets will also.
Help.
Accelerate the growth in already fast growing markets really on each one of our markets and less reliant on the banks and the reason we focus on the banks, it's a great way to get into a new market from a company. That's not currently in the market and then our strategy is to accelerate that growth through our E Commerce and <unk>.
Tech enabled capabilities.
Thank you and can you give a little more color on your BD strategy, Jim I mean, how do you fit into the market.
I mean, I think you're mostly on a side.
With the acquisitions, you've made and is that something Youre looking day.
So can you give a little color and then how you plan to grow that organically or inorganically.
Sure I'm going to do I'm sitting right next to Brendan who has that direct responsibility. So I'll, let brendan great tackling.
Hey, Bob.
Hey, Ben So on day debate.
Today, we are exclusively on the ADR side. So your supposition is correct.
We.
As a byproduct of our acquisition of notice.
Three years ago, we inherited a b a.
A b to B gateway that we branded pay fabric.
And the way that we leveraged pay fabric is to integrate our payments capabilities into ERP is.
So we initiated our ERP strategy by dealing with sort of the big guys. We now have a solution for SAP Oracle and Microsoft net suite.
While it is owned by Oracle, it's a separate technology stack that would be the one large player that we do not have a solution for today directly.
And then there's a long tail a smaller erp's debt, we integrate to either by way of acquisition by buying an integrator or.
By building a proprietary integration again through that pay a fabric gateway. So we embed our payment acceptance technology into these ERP is and then we set up referral relationships both with the ERP companies a themselves. So they sell their software to a large merchant and as part of that sale, they say do except a credit card.
Would you value that payment acceptance to be embedded in your in your ERP. The merchant says, yes, and then they refer that merchant to us and we would close it.
And then there is also a reseller network and the ERP community there are companies that.
Service software considerably areas they offer a variety of solutions to merchants.
And a good.
A good better best type of thing and we have relationships with those guys as well and they would call us and say hey, listen I, just installed X Y Z solution.
And they would either sell or our payment acceptance directly or they would refer it to us and we would close that sale and in all instances. These guys will get a revenue share so that our interests are aligned but what I.
Think of a think of our strategy.
<unk> across all a tech enabled b to B E Comm and ISC.
On the software companies on the resellers. They are the same as branch bank branches. They are an extension of our distribution. So we are trying to build out.
On organization that has distribution that extends beyond the direct sales force.
Debt that we are.
That we employ so.
It allows us to get to the market faster on a more in a broader way and.
On the last piece, Bob Im sure Youre aware of level two level three debt. If you capture a certain data at the point of sale at a point of sale of the transaction day.
The merchant qualifies for a lower interchange rates it's a.
On offering that visa Mastercard, a made in the market to try and drive into that <unk> area. I was looking at a research report recently and I think the.
<unk> spend in North America alone is 25 trillion, one trillion, a which is card. So that gives you a sense for the opportunity.
And then the final leg to the stool would be might my remarks to the to this point a focused exclusively on the AUR side, we do think AP is interesting.
This would be a simplifying the payables cycle and paying vendors in a.
Automated way.
It would allow for better automation, a fewer head count on the payables department all of that kind of good stuff.
And it would allow us to be a one stop shop. So that we would address both the receivable side and the payable side. It would allow for I think a stickier customer relationship lower attrition, perhaps drive a bit a pricing power.
And the business model on that side as you generally speaking you pay vendors across a number of car types, but you issue a virtual card and then a customer of ours would pay its vendor with that virtual card. We would collect interchange so interchange would become a source of revenue for us and in some instances we would.
Actually kicked back a portion of that interchange to our customer that paid the vendors.
To get a discount on your invoice.
For using our platform. So that's something that we've been doodling on we've been kicking around.
But yes today were exclusively on the receivable side.
Okay. Thank you appreciate it.
Your next question comes from Bryan Keane with Deutsche Bank.
Hi, good morning, guys.
Did I also wanted to ask on just on Mexico is the improvement in Mexico.
Something economic there or is it something you guys are doing and is it is it a way maybe we could look at maybe other countries on how they might recover as well as we get through the pandemic.
Good morning, and thanks, and thanks for the question on on Mexico.
The resiliency there I think is as much a reflection of our merchant base as it is anything else.
The banking market there is for a big banks there are a really two that are clearly the market leader BBVA in Panamax, where obviously in partnership with Panamax and Panamax is merchant base is the biggest of the big <unk>.
And therefore, our merchant base is the biggest of the big.
And when when Jim and Tom earlier on the call referred to a mix shift where the big box retailers, where we're winning and that was negatively impacting our spreads because.
Those guys generally have greater pricing power, Mexico is a key.
A clear example of that so our biggest customer in Mexico was Costco as an example, but we also a process for us any apple this in for sorry, Ana and for a bunch of the top 10 merchants in the market.
And so again, yes, it helps with respect to volume and resiliency it creates a bit of a headwind with respect to spread.
On.
As to whether or not that same strategy will be applicable to other markets in the region.
I think it would really come down to what bank do we partner with and how larger the merchants, which I think tends to tends to service in the case of Dci.
In my prepared remarks.
I commented that we have been working hard with a bank to establish a sales pipeline and I can tell you a the early read on that pipeline is the merchant base will skew similarly to what we've experienced a Mexico.
And they have.
They facilitated introductions to merchants of that ilk, and we feel good about our positioning when we get that CMS approval.
I think the other thing though is these markets are incredibly immature.
And you are going to see as Jim said faster organic growth just because of the lack of lack of maturity there and that will create some degree of resiliency as well.
So.
Got it got it that's helpful.
And then Tom just thinking about the cadence of revenue growth throughout the year.
Obviously, when we look at trends.
On the negative impact from the pandemic was biggest in that second quarter, but also just thinking about the rollout of vaccines and probably a stronger second half just any comments on the balance on how to think about the growth.
Yes.
Obviously, theres a lot of uncertainty out there if we if we could predict that.
We would be.
Doing something else probably but.
Given that what we see and what are.
Intuition and judgment tells US is that as we mentioned in our remarks Q1 is going to be impacted adversely by the continued lockdowns and as well as some of the weather related challenges that we've had particularly in the U S. I think that has also impacted that 10% year to date.
So we think that will fall literally.
Over the.
In March we be stronger from a from from what we saw relative to January and February.
And then from there our expectation is that Q2.
As a.
A healthy lift, but when you look at the timing of what governments are signaling and I hope, they're being conservative here, so that its always easier on the population to dial. It back then to tighten the grips further but what you what you see in terms of our European markets, particularly.
In the U K and in Ireland.
Is that a full release of restrictions not.
<unk> until pretty late into the into the second quarter. Our prediction is that in the meantime, there'll be some staged bring back on some level of commerce because the infection rates are just dropping precipitously there and we're hopeful that that continues both because a vaccine rollout as well as just maybe some.
A level of just in a herd immunity occurring with this being in the environment for over a year.
So a modest pickup in the second quarter, and then a healthy really healthy rebound in the second half a year I think we can all attest with respect to a kind of on personal experience with this.
People are itching to get out and they're itching to travel again are itching to get the restaurants and enjoy some of the things that.
We are available to us pre pandemic and so our expectation is when you reach that level of stability and government support the second half of a year has the opportunity to be really.
A strong.
Yeah.
Economic growth and just overall market conditions. So I think we'll see a little bit of.
Increasing slope and then ratchet it up in the third and fourth quarter.
Got it helpful comments, thanks for taking the questions.
Thank you.
Your next question comes from Jason Kupferberg.
With bank of America.
Good morning, everyone. This is a calcium from Jason.
You guys provided a 'twenty one 2021 guidance. That's a helpful. But also wanted to see if you guys could share your 2021 expectations by region. For example, which regions are you expecting growth faster and which markets are still lagging.
Thank you for the question I would.
I don't know that we can break it down any finer than what we've outlined thus far I think where you'll see where will we will experience.
The greatest rebound is Europe Europe has had and we showed in the slides the greatest impact relative to Lockdowns and so as those are relaxed and as Tom just mentioned if the.
Governments are overshooting, what they really expect and they're going to loosen it up faster because the vaccinations are having a.
More positive impact on infection rates, then I think we'll see.
There's a possibility as before we get to the second half so in a mid to late second quarter.
We may see a bounce back a little earlier than expected I think in all of our internal slides as we look at infection rates et cetera by country, which everybody else can see its public data.
The slides indicate that in all markets, even markets that seem to be somewhat behind on vaccination.
The the cases are dropping so.
I would I would anticipate Europe, we'd have the most dramatic impact the Europe U S seems to be.
A head in many respects in terms of a number of people vaccinated and.
Just given our access to.
On a variety of different.
Pharmacy, a little solutions.
<unk> solutions.
The U S. As well, we will have a stronger rebound in the second quarter, but right now I think it's out of our ability to to be any finer than what we've estimated thus far.
Okay. That's helpful and just a follow up just could we get an update on the E com or integrated channel like what does it look like exiting 2020.
What are your expectations there for 2021 thanks.
Alright, well I'll, let Darren take Europe, and then Brendan can cover the Americas. So Darren you want a go.
Thanks, Jim Thanks, Cathy Yeah.
The tallman on generally to call. It on a not president channel is inevitably growing a.
A significantly.
In Europe, given the Lockdowns and the consumer is willing to spend on.
More importantly, much in.
Being agile and adaptable to a expensing a.
Alternative channels for a full payments so.
Some of them much in Kent mentioned growth.
And then one on truly sustained by cross selling it selling e-commerce and integrated solutions.
The focus continues.
Message throughout this call on the digital channels.
In Europe and a second.
Tech enabled solutions.
A lot of folks in every market and a malls.
The UK was quoted as kind of being.
I guess more closer to the U S in terms of a significant growth.
Of IFC, we are seeing a incidents across all markets. So there's a doubling down on a best fit through through all of the markets and.
It will be strong.
A double digit percentage growth through the debt.
Tech enabled channels and getting to a.
30%, 40% of a volume coming through.
On the call about president all the integrated channel in Europe, a a directional statement on.
I'll hand over to Brendan.
Yes, thanks, Terence so in the U S.
I will speak about the U S and in Mexico, and the U S. The story is really be debate I mean, I think Jim highlighted it.
But today, it's nearly 40% a revenue.
We didn't have a b to b business prior to 2017 and in 2017, it was immaterial to the aggregate company.
And Thats.
A large part organic so.
It is an incredibly exciting story and for the reasons that I highlighted in the earlier question I see no reason why that growth would accelerate.
And anyway that the opportunity prospectively is equally exciting on the ISP side specific to 'twenty one.
On the business as Jim mentioned earlier is oriented towards hospitality, so as restaurants reopen the business will rebound.
And then on the E com side.
Our E Comm business is obviously benefited the broader industry has benefited on the E comm side as consumer behavior has moved to at home versus.
Walking around in our business is no different.
Our econ business is largely indirect as we've discussed on prior calls we're in the.
And the journey of evolving our business from an indirect to a direct business and we are seeing some activity on the partnership side.
With our pipeline looking increasingly exciting across a number of verticals patent in healthcare in particular.
So I'm optimistic that the improvement in the E com business will sustain itself.
And then specific to Mexico, there is nobody to be business in Mexico today.
The ISP business is very early on that said as Jim said, the SF systems acquisition gives us dedicated technology resources and dedicated sales.
And we have launched successful partnerships like the one that we highlighted on an earlier quarter with touch bistro. So I'm confident that we will be a market leader there.
On the in the ISP segment, but today to be a market leader.
Particularly impactful to our overall financial results.
On the E com situation, that's absolutely not the case our E. Comm business is low teens percentage of the overall business, but has grown anywhere from 20% to 45% depending on the depending on the year.
And that again that should sustain.
And we have.
We are looking to enhance our technology offering on the e-commerce side as well to make us less reliant on third party vendors debt.
Eat into our economics so.
More to come there.
Very helpful guys. Thanks for taking my questions on the on here.
Good day.
Thanks.
Your next question comes from Kartik Mehta with Northcoast research.
Hey, Good morning, Jim you talked about banks, starting to open up and maybe potentially that providing an opportunity to do some M&A or partnership.
Think that takes until we're kind of through with COVID-19, or do you think the movement happens.
There is an opportunity before COVID-19 is kind of all done.
My sense is that the process is beginning now.
We were much less so during the height of Covid, just because everybody's uncertainty and I think if I were running a bank I think you'd want to see all the cards are most of the cards before you made decisions on what you wanted to do.
And as I said, I think most banks going into.
Covid.
We're considering how the world was evolving relative to banks branches closing digital becoming much more important whether they were going to invest in merchant directly or they were going to find a partnership. So I think it was already and they didn't have such a relationship I think they were already thinking about it and it was just a question of build or buy.
Say that the beach a V option tenure is nothing like a the potential a tool a of the U S. A the minutes simply with the regulation on can see them a debit credit a point 0.3 0.2, respectively. The scheme incentives for interchange a scheme fees to discount commercial a purchasing court.
Either a level two level three days or whatever it may be it's just not the doesn't I might've Asian to do that say selling that I only on kind of on accounts receivable integration a without some price incentive on interchange is is a very challenging sale for a minute for a business and.
Just to kind of by a beach b product a as it would be seen a and the U S. I.
At that said the schemes nowadays probably one of the biggest white spaces left in Europe for a caught up attunity.
You know Brendan quite did the the numbers for the U S. I think a it is zero on called almost a in your relative to a sizable opportunity as well so I can see it coming in time strategically, but but no. He suddenly a suddenly not yet.
But once a spices a inevitably the schemes finds a mechanisms to a on top of a market.
Okay. Thank you very much.
[laughter]. It's a question comes from Thomas like keep a tree securities.
A a good morning, and a sexually change a gym.
For a photog Andrew.
Good morning, I appreciate you a squeaky to me in here at the end just one day before your gym you know on it.
And I appreciate the slides and a volume transfer helpful.
When I left a your vertical market exposure I mean, if it gets easy to understand in both a neat.
Really I'm looking at Europe.
Okay. We're in your library recovered he is gonna be.
Is there anything you can do want to do should be doing to influence that mix.
That sort of beyond your control a I'm thinking about.
Maybe less show on your a but also in the U S. Just a technology change the pace of change in in hospitality in restaurants in particular, a night wonder about your strategic positioning against that a Broadway.
Broadway.
What would a morning I would say every every market.
It has its own characteristics even many of these we've bought into a says Brendan was describing Mexico. It's got it's very tilted towards a large merchants.
As a as as Poland.
<unk>.
Ireland for example, where we're aligned with a leading bank bank of Ireland.
This was a startup because that business had already traded hands with one of our competitors years before and there were more of an SME working up to the larger merchants because the larger merchants I've already got a processing partner from 20 years ago. So.
So a mix is going to again be a reflection of the characteristics of how we enter the market, who we entered the market with.
And where the opportunities are I would say.
Even given that though.
Use the U S. As an example.
We acquired Sterling Sterling was heavily oriented to hospitality.
The two gm's that run that business have been working to expand not that hospitality is bad completely the opposite of just wasn't so great. During the COVID-19 time period, but expand to other vertical opportunities domestically.
One just a diversified base, but to take advantage of of a space where our capabilities are are.
Can be deployed as successfully as hospitality, but it was just the model of the company, we acquired to be oriented to hospitality and the same for Darren in Europe.
Darren.
His business in particular is very oriented to financial institutions, because that's really how we got into the markets, but if we look at the UK market as I said earlier, it's almost on on 80.
80%.
Isd driven and.
A guy who runs it Andy White has done an excellent job.
And making a business of something that didn't exist for us or.
Five years ago.
It's probably or a leader in terms of new business generated in a market and it's in a variety of different.
A vertical.
Vertical markets. So I think the opportunity to continue to diversify is very rich in in a in Europe and then likewise is.
Brendan mentioned is still very small in Mexico, but we anticipate being a leader in the ISP space, we've already invested pretty heavily in it we've got a number of resources dedicated to it and the technology capabilities and we intend to do the exact same.
As we enter the Chilean market and hopefully other Latin American markets.
I appreciate it all that you'll get a cup of coffee.
Alright.
Thank you.
Your last question comes from my garage sales with Compass point.
Hey, guys. Thanks to squeeze me in a lot of my questions, a an app <unk> answered, but uhm wanted to have a on one.
That came up actually about six months ago, you talked about bringing European E Com gateway assets a U S.
I wanted to see if there's been any up in there or how that how that's from progressing thanks.
Yeah, we did mention that.
We actually brought it to the intention was the us and Mexico, we saw a Mexico as a bigger near term opportunity for I think obvious reasons. We're much later too.
The e-commerce space in the U S. I mean this has been on going strong for a very long period of time.
In Mexico is Brendan mentioned has a much bigger opportunity and the business. We acquired Citibank's business was dependent on third parties and therefore that platform has been enabled in Mexico, and we will continue to build a build out its capabilities in that market as it relates to the us because we shift.
And we shifted reece.
A resource as to Mexico versus a U S. We've also made the decision to use the same vdb platform that we own required when we bought noticed called a fabric that we referred to internally as pay fabric.
It already supports a day.
Day to see it has.
Areas that we need to build out so will likely have.
Pay fabric.
The backbone for direct e-commerce in the U S and the expectation is that we should have something up by the end of this year.
Great. Thank you.
Okay.
Okay.
Other questions I will now hand, a call back to Jim Kelly closing remarks.
Thank you operator, and thank you all for joining a call. This morning, and your continued interest in Evo.
That concludes today's conference. Thank you for your participation you may now disconnect.