Q1 2021 EVO Payments Inc Earnings Call
Excuse me the the operator todays conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
[music].
Good day, and thank you for standing by welcome to the Evo payments first quarter 2021 conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need a press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Ed O'hare Senior Vice President of Investor Relations. Thank you. Please go ahead.
Good morning, and welcome to Evo payments first quarter earnings Conference call.
This call is being webcast today and a replay will be available a few of the Investor Relations section of <unk> website. Shortly after the completion of this call.
Please note that some of the information you will hear during our discussion today.
The 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 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. Please.
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 is available on our website.
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 our first quarter results and provide an update on the impact the pandemic is having on our business.
Joining me on the call is Jim Kelly Chief Executive Officer.
Tom Panther, Chief Financial Officer day.
Erin Wilson President of the International segment, and Brendan cancel the president of the Americas segment.
I'll now turn the call over to Jim.
Thank you Ed good morning, everyone and thank you for joining us today.
It's hard to believe that it's been over a year since the COVID-19 pandemic first swept across the globe. While today many of our international markets remain under a lockdown. We continue to be encouraged by recent volume trends across the company as vaccination programs gained momentum and.
And markets reopen.
For the first quarter volumes were down 2% compared to 2020, which reflects the lapping of the initial impact of the pandemic beginning in March.
This slight decline in year over year of volume demonstrates an improvement from the fourth quarter, when our volumes were down 4% year over year.
As you can see from the slides compared to 2020 March volumes were up 17% and April volumes were up 48%.
Compared to 2019 March and April volumes were up mid to high single digits. These positive growth trends not only capture the lapping of the initial COVID-19 impact, but also demonstrate growth relative to pre pandemic levels. Despite the ongoing restrictions.
These results give us confidence that both consumers and merchants are embracing card payments a trend we believe will continue well beyond the pandemic.
Later on the call Darren and Brendan will discuss the reopening of trajectory of each of our markets to provide a better understanding of our current operating environment and more importantly, the developments, we anticipate as the vaccine Rollouts continue.
Turning to our financial performance compared to the first quarter of 2020 on a constant currency basis revenue declined 6%, while adjusted EBITDA increased 6% and margin expanded 360 basis points to 32%.
These results reflect the ongoing impact of the COVID-19 related restrictions offset by our continued expense management.
Tom will cover our first quarter financial performance in more detail later on the call as.
As more restrictions are lifted and global economic activity resumes, we continue to anticipate a strong recovery in the second half of this year and believe pent up consumer demand and increases in personal savings will fuel a significant consumer spending across our markets. For example, in the UK, which is our first year.
A pan country to have transitioned into a phase III opening plan, we have seen an immediate spike in volumes across all categories based on these recent results coupled with our experienced last summer, which you can see in our volume slides, we believe that similar trends will be replicated in our other markets when.
They reopened resulting in strong organic growth and margin expansion.
Looking out to the remainder of 2021, we remain keenly focused on M&A and continue to evaluate a range of potential opportunities to expand our distribution and product capabilities.
As our international markets recover we anticipate an increase in activity with many financial institutions evaluating their payment capabilities and capital needs in light of the pandemic given the significant actions, we have taken to improve our liquidity and reduce our leverage we are well positioned to execute on our M&A strategy.
<unk> of expanding distribution through international bank partnerships and enhancing our tech enabled capabilities I will now turn the call over to Darren to discuss our European business in more detail Darren.
Thanks, Tim for the quarter European constant currency revenue declined 17% year over year, which demonstrates the continued impact of the hard lockdowns across many of a market.
These results also reflect the strong financial performance, we delivered in January and February of the prior year before COVID-19 began to significantly impact our operations.
On the quarterly decline in revenue I'm encouraged by the growth opportunity about European segment once markets reopen and consumer spending returns.
I'm confident in a revenue will return to the growth rates the exceeded pre pandemic levels as the benefit from pent up demand and higher card utilization.
During the first quarter volumes of approximately 6% lower compared to 2020.
As you can see from the slides a volumes were down from January and February 2020.
However, the beginning in March volumes improved to a well above 2020 levels. When we lapped the initial impacts of the pandemic on despite the Lockdowns a recent volumes have approximated 2019 levels.
These results demonstrate the growth of a merchant portfolio on increase in cash to card conversion rates on a merch and adaptability and resiliency throughout the crisis.
Our volumes of largely with the the negative impact of the ongoing COVID-19 related lockdowns as a portfolio includes many large merchants such as grocery chain pharmacies on supermarkets, which a widely considered as essential businesses.
While these large retailers impact on net revenue spreads the strong results of contributed to a volume improvement, particularly in recent months.
Looking forward to the second half of the year, we expect an acceleration of business activity from a small and medium sized merchants.
Which along with some resumption in cross border activity will drive revenue growth on the spread increase as markets reopen.
I will now provide brief market overview of recent operating trends beginning with Poland, where we've continued to see solid volume. Despite the reinstated lockdowns in March and April.
Recently, the Polish government of gaining confidence in the vaccine distribution process.
On the related decline in infection rates, which may lead to additional lifting of restrictions beginning after the May day holiday.
In the Czech Republic restrictions begin to ease of a certain nonessential businesses are starting to open.
Well this is a small market for Evo, we see positive volume trends, which are indicative of the health of this business.
Turning to Germany, the country of struggled to remain open and is now rolling out self testing kits to assist with reopening its economy.
Although the increase of Lockdowns and clear the a curfew the overall impact of a business is less of it on in the prior year of Lockdowns.
In Spain, most lockdowns remain in place or the tourism from Europe, a steadily picking up.
While travel restrictions within the country remain in place Europeans and now allowed to travel into Spain.
As we look to the sum of vacation season, many of a hospitality merchants largely hotels, that's showing strong bookings in the back half of the year as many Europeans are eager to resume travel by the end of the summer.
While island remains in the lockdown with pubs, having been closed for every year, there's been some reopening activity, which allows for increased movement within individual jurisdictions now that a small portion of the country has been vaccinated.
Most recently on April the 26, the government announced the golf courses.
<unk> facilities are permitted to open, albeit a limited capacities.
Lastly, as Jim mentioned in the U K due to the recent acceleration in the country's vaccine rollout a nice restrictions have been lifted on a positive volume trends reflect the strong rebound in consumer spending driven by pent up demand.
For example, recently, we've seen volume double in categories, such as consumer services on restaurants, if infection rates continue to tick line the government expects a lift or restrictions by mid June.
Despite the challenging operating environment I'm encouraged by a sales efforts across both of our bank referral on tech enabled channels, which continue to drive growth of I imagine a portfolio.
Second a build revenue today accounts for 20% of a European revenue on.
We expect that mix to increase through the expansion of our tech enabled partner referral network and continued match and the adoption of software solutions, which accelerated during the pandemic.
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 constant currency revenue was flat, which reflects the solid performance of our Mexican business, coupled with modest declines in our U S direct and traditional divisions.
Volumes for the quarter demonstrated improvement as restrictions continued to be lifted and economic activity increased.
In the U S volumes for the quarter were approximately 1% above the prior year on.
April volumes were 48% above the prior year and 12% above 2019.
We are seeing a steady recovery in this market with Smes, which comprise a significant portion of our U S portfolio continuing to reopen.
The <unk> continued to grow in the mid teens a trend this business maintained throughout the pandemic due to the adoption of business automation tools and increased card acceptance.
<unk> now represents approximately 20% of our U S revenue, which we expect to increase as we capitalize on additional sales opportunities.
We are confident this business will realize long term benefits from the pandemic impact on the accounts receivables as companies continue to automate back office processes.
Our ISP business, which is largely concentrated in hospitality grew mid single digits in the quarter, despite the challenging operating environment.
We are gaining sales momentum coming out of the pandemic by signing new partners and rolling out new products and capabilities.
We are investing in capabilities and partnerships, both within the hospitality vertical and across additional verticals to continue to meet consumer demand and further diversify our business.
Turning to Mexico infection rates remain elevated in the vaccine rollout lags that of our other markets with less than 10% of the population having received the vaccine the.
Despite these headwinds our volumes increased 5% this quarter compared to last year as our large multinational merchants continue to weather the pandemic in April volumes increased 58% compared to 2020 and 23% compared to 2019.
I am encouraged by these results, which demonstrate our ability to leverage our diverse referral network, including bank partners and an expanding ISP channel to grow our merchant portfolio.
Similar to the U S. We are beginning to see our SME has returned to pre pandemic levels, which will drive additional revenue growth.
Before I turn the call over to Tom I would like to provide a brief update on Chile.
We continue to work with the CMS to demonstrate the readiness of our operating platform. This process, although going very well has taken a longer than anticipated as a result of the regulators extensive review of our processes in the midst of a global pandemic.
This was somewhat expected given evo is the first independent of acquired to enter the Chilean market with systems located outside of the country.
You may recall that we are leveraging of our Mexican platform for the business in Chile and elsewhere in Latin America, as we look to expand further into that attractive region.
That being said we have fully enabled our operations included data processing for a small group of merchants hiring sales and operational personnel and securing terminals for deployment.
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.
On a currency neutral basis revenue for the quarter declined 6%. However, adjusted EBITDA increased 6% and margin of 32% expanded 360 basis points compared to the prior year.
These solid results demonstrate our effective cost management and ability to grow EBITDA and margin despite quarterly volumes being down 2% compared to last year and the continued shift in merchant mix.
We remain confident that as the pandemic abates and economic activity increases volumes will strongly rebound and spread will returned to historical levels, resulting in an acceleration in revenue growth and margin expansion.
With respect to segment performance in Europe, our year over year constant currency revenue declined 17% and adjusted segment profit declined 37%.
In the Americas year over year constant currency revenue was flat and adjusted segment profit increased 22%.
As reflected in our volumes the Americas revenue benefited from improving activity in both the U S and Mexico.
In addition, the majority of our cost reductions last April affected areas supporting our slower growing portfolios, resulting in lower fixed costs and solid EBITDA growth.
Adjusted corporate expenses for the quarter were $5 $5 million, which declined approximately 26% from the prior year, primarily due to a continued expense management.
Adjusted net income of $13 million for the quarter increased to 45% compared to last year adjusted.
Adjusted net income per share was <unk> 13.
Which increased <unk>, <unk> or 18% compared to the first quarter.
Exclusive of the preferred shares we issued last April EPS increased 36%.
At the end of the quarter dilutive shares totaled $94 million, an increase of $11 million weighted average shares compared to the prior year.
During the quarter, our capital expenditures related to a point of sale terminals in our international segment increased 33% the $6 million to meet the strong merchant demand, which included terminal rollouts to several large customers, including a national grocery chain and the Berlin Police Department.
In addition, we paid $4 million related to a software license for our European platform that will be amortized over five years.
We ended the quarter with leverage at two eight times, which is down from two nine times at the end of 2020.
Our strong liquidity and low leverage coupled with a $170 million of available cash and $200 million of unused capacity in our credit facilities provides us the financial resources to capitalize on M&A opportunities that are likely to become available as the economic activity resumes.
Turning to our outlook our first quarter results were ahead of our expectations and economists continue to forecast a strong recovery in the second half of the year across our markets.
Therefore, we remain comfortable with our previously issued guidance with 2021 revenue growing 10% to 12% adjusted EBITDA growing 16% to 20% and margins expanding 200 to 250 basis points compared to 2020.
With that I will turn the call back over to Jim.
Thank you Tom as we continue to manage our business through this crisis I would like to again, thank our employees partners customers and shareholders for their continued support of <unk>.
A significant margin expansion and strong liquidity will further aid us through the remainder of the pandemic and position us to capitalize on the business opportunities. We expect in the second half of the year and beyond.
We continue to focus on expanding our distribution leveraging the efficiencies we have put into place to deliver strong results as economies recover I will now turn the call over to the operator to begin the question and answer session operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or Husky. Please standby, while we compile the Q&A roster.
Your first question comes the line of Robert Napoli with William Blair.
Alright, Thank you very much in a good morning, everybody.
Good morning, a nice.
Nice trends I like the idea of the April charge and the comparisons from 2019.
Really helpful.
The still of the outlook maintaining the outlook you still have a lot of work to do a.
The two to get to that EBITDA range in the margins there were a especially low in Europe.
Just maybe some commentary on the.
The confidence that you have in the substantial acceleration in earnings growth as we move through the year.
Thanks, Bob.
I think the best way to look at it is if you look at the second quarter coming out of the second quarter last year, how strong a.
These markets of Europe in particular, even Mexico, which is doing well, but still is in the throes of the pandemic does not have the same.
Benefit to a widespread vaccination as we do here on the United States, Even Europe is other than maybe the U K has lagged.
The availability of the vaccine, but if you look at the summer months.
Last year and how quickly all of our markets came back as soon as.
As soon as the Lockdowns were released.
That's really the the evidence that we point to beyond in Tom's comments he was talking about.
Our economic outlook from a variety of of experts as to the second half of the year, but we can see on our business that the business is a bigger business because more of.
More of a greater utilization of card and that's with less merchants than we had last year, either because merchants failed or are there still dormant.
They haven't been able to open up because of the Lockdowns.
Yes, it's still a it's not a lay up to <unk> to arrive at those numbers, but given what I. Just described our expectation is that a lull flow together.
The cost reductions that we put into place.
To manage through the pandemic in 2020, you know those have largely stayed in place we haven't seen an appreciable increase in.
In head count in the company now some of that is driven by there's a lot of dislocation thats going on right now a lot of turnover because if you look at employees for the last 12 months. They really haven't changed jobs. So you've got a pent up demand of people looking for different opportunities in their careers.
We're going to face that that's something that all companies are going to face going into this next year. We a lot of articles that are out on it but.
But.
Assuming the the Lockdowns release, and Darrin is our bellwether to European Lockdowns. So he's already been allowed out of a house finally the bid.
Watching him on the system for the last year of sitting in his garage. He's got a loft upstairs in his garage and I know he's sick and tired of sitting there, but Ireland will be.
Soon to follow a Poland as well so they need the business as much as we do from an economy standpoint, the government can continue to provide stimulus.
Forever without some economic activity so.
Right now our best view is provided those.
Lockdowns a release this is a.
A big recovery opportunity for us in Europe in particular on by the end of the year on margins are significantly bigger than they were they.
They are today.
Given that the first quarter still is facing lots of Lockdowns I'll see if Tom wants to add anything.
The Jim Good thorough response I think the only thing I would add Bob is that we also expect lift from.
Continued improvement in spreads we expect some level of cross border activity to resume maybe not to the same level that we saw a 19 pre pandemic, but we do think that there'll be green shoots of of.
The activity from cross border and then I think the U S Q1 serves as a good bellwether for economically the just general economic conditions that we expect on our other markets.
On the 6% GDP, the strong consumer spending et cetera, I think foreshadow as well what's going to happen in our in our other markets. So we're just going to get some general lift from the economies being strong.
Just to pile on as well I think.
New York is opening isn't that right Brendan.
May 19th I believe yeah. So they haven't been opened yet for a full service.
Great restaurant.
Thank you that would take your EBITDA of about 2019 on that guidance. So that's a.
Good to see just a follow up question.
A lot to ask but I'll just ask one more of the <unk> business, 20% of the a b.
The U S a.
Growing still mid teens, what's your.
What are your plans for that business from your goals from.
On investment perspective are you is your technology, where it needs to be can you accelerate the growth I mean, it's in the obviously a massive tam.
And is that an area, where you're looking specifically to add true long haul through acquisition.
Yes.
On the short answer is absolutely.
For the for the U S business I mean, this is an e-commerce business, it's just business the business ecommerce predominantly.
But I'm going to let Brendan take you through more of the specifics.
Hi, good morning, and thanks for the question.
So on <unk> and I think I actually referenced this a maybe on the last call, but I think the rough numbers are $25 trillion of spend in the U S and I think only one one trillion of it is on card so you're talking 4% penetration today, and obviously with a lot of room to go.
Over the last two acquisitions here in the U S have been specific to be debate.
Notice in California, the Lego in Kitchener, Ontario later this month, we're actually standing up our own proprietary ACTH platform. We've got a couple of merchants in beta now that we're excited about and that allows us to in source of service that our merchants of otherwise clamored for for some time.
Where do we see ourselves of investing prospectively I think there are obviously more ERP solutions that we'd like to get integrated too. So integrators to two ERP today, we focus on SAP Oracle and Microsoft and then the other piece would be we talked about in the last call a little bit of Bob the payables side, So I could.
To think that merchants are going to want one throat to choke today, we focused our efforts on the receivable side.
And I do think that there are opportunities to have a stickier customer relationship by addressing some pretty basic needs on the payable side as well.
So, yes, and then the final piece would be.
The building of distribution network of resellers on ERP is similar to what we have at all of our out of our tip of ISP business. So that we are increasingly less reliant on direct merchant sales and more signing a partner relationships.
Because as Jim will often say to me you know distribution is the name of the game and in the U S partner referral relationships constitute our most vibrant a referral source.
So that's where we're headed and.
And we think it is just an enormous opportunity we spend collectively quite a bit of time trying to make sure that we maximize that opportunity for evo.
Thank you appreciate it.
Thanks, Bob.
Your next question comes the line of Tien Tsin Huang with Jpmorgan.
Okay.
Thank you Hello, everyone hope everyone's well just.
Jim Good morning, I guess I have to go to your opening comments around.
The bank conversations picking up I know some of your peers of have a a secured some some J vs and whatnot. So can you elaborate a little bit more things of thawing out is it pretty broad based what regions.
I know you cant give away all of the secrets here, but would love to learn a little bit more.
I'd be happy to give you all my secrets, but on.
A good intro.
Yeah, I don't think there's been a ton of them that have been out there I mean, we've looked at the ones that have been announced as well, yes, I would say it's beginning to saw I think it is still early in terms of Europe. As we just described is still a very much in a locked down so I think the banks have too.
As a point of distribution for us, but have to assess the impact of COVID-19 on their balance sheet on their business and I think it's one of two things one it's going to be an interest in capital of this wouldn't necessarily be the only business that.
Leawood.
The part of a raise and then the second is capabilities that they just lived through the worst pandemic in 100 years and.
How did a fair in terms of capabilities.
Meeting the needs of their customers from a payment standpoint of merchants and.
Yes, yes. It is beginning to thaw as I said last year.
It's difficult to form these long term agreements and ours tend to be 10 years in nature of without getting a chance to meet in person in Europe is just beginning to open up in terms of of travel now.
We're still very much focused on South America, as well and unfortunately, there are still the heading into the.
The winter season.
Provided.
I think margins accelerate in the second half.
Because by then our expectations that you've got Europe on all cylinders not just on too.
And so I would say that as we look at our guidance and look at it on a quarterly basis, we see margins accelerating versus flatlining.
Over the next three quarters.
Very good thanks for that.
A stage of thanks.
Your next question comes on on George My Hallows with Kevin.
Good morning. This is Alison on Prince George Thank you for taking my question I was hoping you can provide more color on what you are seeing quarter to date in Europe in particular, but geographic geography's are accelerating the most and how to start on the growth rate between the different countries.
Okay, Yeah, Hey, Allison, Tom and Daria, certainly a feel free to weigh in as well their boots on the on the ground.
You can as we've talk a couple of times now we've seen the lockdowns persist in Europe that obviously has an impact on us.
I would say U K and Ireland are the ones that seem to be especially UK seem to be the ones that have progressed the the fastest.
Poland has been a bit episodic.
Had a strong March I know that's still inside of the Q1, but then did see some retraction in April when they're restrictions were a pretty severe but then started to to come back so.
So I would say, it's good momentum, but certainly not.
Functioning at the same level that we would say the the U S has.
And then space continues to be the probably the slowest of our markets, but we do expect just based on what we can see with travel bookings and.
The signals that the government is giving that we do expect Spain to still be able to salvage a vacation season come the third quarter.
Okay, Great evening, Rebecca that kind of.
The comments I mean.
UK as well vaccinated with all of the headlines in a.
Excuse me.
Getting on for a high 90% of the population of over 50 <unk>.
Having a at least the first show.
I'll take that Jim so it isn't as though we took our.
Our eye off of a M&A I think were pretty.
A disciplined as to what we're interested in that aligns well with the company's overall strategy was as Brendan mentioned on ESI.
They often which is building distribution and we build that through bank distribution end markets, where banks are still very germane to a merchant's decision too.
To select an acquirer and then on other markets.
We're looking for distribution through tech enabled and tech enabled in our vernacular as feed a b and the ISP channels. So you should anticipate as the thaw. The stringent set of the thaw begins in Europe and in other markets that youll see more of an M&A activity out of us.
In those two areas.
Alright, Thank you for taking my question.
Yeah.
Your next question comes from.
Malhotra with Northcoast research.
Hey, good morning.
I wanted to ask you about margins for the company moving forward, you've obviously been able to take a lot of cost out and I'm wondering as we move forward do you think the company's in a different spot would you expect overall margins to maybe.
Down significantly from where it was historically so those things conspire together as Darren at the same markets opening up that we're on anticipating Tom and I are anticipating the at the back half of the year. We're gonna see margins that are sustainable and are are significantly better than what we've delivered.
Pripet NAMIC.
And then just one last question the Darren you talked about Europe, and maybe the impact of Isps or a having is the pandemic changed how you are selling in Europe and do you think.
If it has changes the change become permanent as we come out of the pandemic.
Thanks Celtic.
How's the change and settling into the market to Isps or a generally in the market you meaning to match.
Good morning, just overall.
Overall, yeah yeah.
Not really seen.
The the make shift from a.
Kind of traditional channels clearly banks of been distracted with the other activities, but in terms of the partners. We've got we're still seeing a maintained healthy referral chain from them.
But yes, Isps of getting traction and all market. So bolstering up on the channels to to sign up Isps, a full sustainable distribution that way on a referral muddle basis typically a again is definitely a growth agenda, a tech enabled as usual kind of.
The us in the states and then follows Western Europe going east the all of a market. So are active and the I S V space, but.
But as Tom alluded to you know, we're seeing that much and solid strong that much and growth across Europe, which is being driven by by all the channels.
That said inevitably banks, all pivoting to more of an on line proposition now from the face to face with many brunch players what's happening.
So what we've had a experience on in terms of online marketing with them. It's just really pivoting that activity, but a note with we're seeing a good sustainable volume.
Thank you really appreciate it.
Thanks <unk>.
Your next question comes on Frenzy L. A saw a at Barclays.
Hey, guys I. This has been on for Ramzi I'm the follow up on Bob's questions from earlier and ask about the guidance range on the revenue side I seemed like Q1 came in a head of your expectations of it. It was kind of a lot of optimism talked about her on the call and it seems like the rest of your kind of external factors like Europe is gonna start, allowing some tourists to come in and kind of let it to the year. So I just wanted.
I think the other thing I would add Ben is that.
The fact that we had a beat in the quarter. It was a slight beat in well within the range that we referenced over a full year basis. So it really wasn't.
And that would cause you to say based on one quarter in the bag that we've seen enough to increased guidance and then I'd say when we were offering that guidance.
The two months ago at the end of February.
We had optimism that we.
We probably had fewer data points because of the U S wasn't as far along we werent sure what the vaccine program was going to be in Europe. So we've seen more traction that validates the view that we had at the end of February and so I think that's why we're confident to reiterate but don't feel like it's something that we.
I would want to adjust at this point.
Okay. That's really helpful color, thanks, and if I could just ask one kind of like housekeeping question. You mentioned <unk> is now 20% of the U S. Do you have a sense of what that would be excluding COVID-19 I remember just a couple of years ago. I think it was just like 5% of it obviously has been growing very nicely, but had the rest of the business and kind of growing normally where would be the b.
The today.
And how does that compare to the other your other tech enabled the channels in the U S.
ASC on the E com. Thank you.
Hey, Ben it's Brendan again.
I don't know the COVID-19 has distorted per se the percent of BV, the BTB represents versus the balance of the business.
The debate.
It hasnt been negatively impacted the way that some of the other businesses have a mean actually in some instances, we've probably seen some uplift.
Commerce as an example, we've seen some shifts there.
But.
I don't think that the numbers that you are seeing today are going to go down in any way a fact that I would expect them to continue to elevate as the business is clearly the fastest growing business within our U S portfolio relative to <unk>, specifically I do think that that business is overall contribution to the U S business has been.
Right.
Materially has been negatively impacted in a material way because of its exposure to hospitality, so our ISP business.
Is heavily exposed to restaurants, and we have just seen restaurant activity slow in many many geographic areas. Jim said earlier, New York's opening on May 19th.
We talked about in the board meeting of the that there tends to be a bit of a smile across America. So if you drew a line.
Circle across the southern half of the U S and then up a little bit on either coast do you see some pockets of activity, but then as you get further north of towards the middle of the country.
And we and our geographic exposure is we're not concentrated anywhere so I think if things reopen you'll see more.
The impact on the ISP side that business will come back faster I think than the balance of the U S business and that will start to contribute more to the overall profitability of the of the region.
Okay, great. Thanks for taking my questions.
Thank you.
Your next question comes on of Bryan Keane with Deutsche Bank.
Hey, guys good morning.
Tom just wanted to make sure I understood. This the first quarter beat above expectations.
Which parts were exactly.
Of came in above where you guys have budgeted.
And again, Brian its a fairly modest beat but the Americas no surprise there I think we saw activity in the U S in particular ramp.
Quickly.
As a function of.
On the chain.
Chain effect of.
Vaccines rolling out businesses reopening and the pent up demand and stimulus checks on all of those types of things.
Percent GDP number in the in the U S. I don't think Thats necessarily something that people were anticipating Mexico has stayed resilient.
So there that continues to be.
A good outcome, because we're always concerned given that <unk> been slower with the vaccine rollout and the infection rates.
A run high although it has been declining recently.
But they have continued to remain resilient and I think that has a lot to do.
With the diversification of our merchant mix and heavy weight towards grocery and consumer goods.
Got it got it and then thinking about spreads as we hopefully turned the corner here into a more positive numbers.
How much faster can revenue grow above volume as as we get through the pandemic here I know you mentioned cross border I'm sure Smbs.
The impact there.
Spreads previously, but the all of those reverse so I'm just trying to think either of the magnitude that revenue could run above volume, maybe you can give us some thoughts there.
I think we do expect some upward lift in spreads over the remainder of the year, particularly second half for the two reasons you just alluded to so.
Both the SME is coming back and being a larger percentage of our volume and some level of cross border activity.
That said.
I think I think last year, we ended with spreads at 33 basis points, maybe 33, five something like that.
We're not expecting spreads in 'twenty, one to get all the way back to those levels I think youre going to continue to see some level of dilution from just the merchant mix.
And a good way some of the large merchants that we now have on the platform that are producing at at high levels and we expect that to continue.
So I think we'll continue to see some uplift, but I don't think it's going to get to the same level that we that we had a pre pandemic in 2019, where we were approaching 34 bps.
Helpful. Thanks, guys.
Thank you.
Yes.
Your final question from the line of Michael del Grosso with Compass point.
Good morning, Thanks for fitting me in here.
Jim I'm interested in your comments on competition, particularly in the U S and certain ISP channel.
'twenty 2020, one has seen a fairly large influx of capital markets activity with a small.
Smaller players coming public we're getting a look at profitability or in some cases lack thereof of some of the smaller guys.
You've been doing this for a while I guess could you comment on on what Youre seeing today.
On the competitive dynamic has things changed at all with some of these new entrants or.
Just kind of love to hear your overall commentary.
Okay well.
Youre speaking specific to the U S market or just more generally all markets.
Particularly in the U S.
We'd be interested at FERC.
The us as well.
Yes, I think the if.
I broke it between.
Our tech enabled direct business on tech enabled a focus more on the <unk> and the.
The ice feed channel as Brendan said, it's a very big market there is still a.
Early days very early days relative to the retail side traditional retail restaurant type of business. So.
I don't think in any of the markets in the U S is a very mature market lots of very strong competitors I don't think anybody has free rein in terms of competition I do think it has a lot to do with the distribution of your build whether that's a old model of the feet on the street or that's more of the model that we tend to pursue so I will.
Say on the <unk> side.
Although there is a lot of talk around it I'm.
Im not sure that we're seeing any dramatic increase in.
And competition and one of the things that we like.
Some of the earlier investments we've made the last several years.
I didn't mention them by name notice, which is a Microsoft integration and the leg of which is an SAP integration. We have some unique case character capabilities that.
Not everybody will necessarily have it's not easy to build and theres not a lot of competitors to go out and buy so I think on the <unk> side with respect to those two plus Oracle we have.
Some advantage first mover advantage because we have made those investments as I said I think on the ISP side. When we bought the Sterling business in 17, it gave us access to a great dealer network that continues to be a very big part of our hospitality play.
I think the the competition, though and ISC has definitely changed.
More of our competitors of opted to buy software companies.
The big guys and smaller guys have have made a bet as well as private equity that they buy a.
A software company.
They get to convert the merchants over in the.
Now they've got.
Got expertise in some specific software, whether it's retail a restaurant, it's not a model that we've pursued it has created some level of a headwind to the extent that we previously had a relationship with that ISC and then it's it's acquired but if you go back and you look at software plays software is only as good as is the investments you are.
It's constantly changing there's new entrants coming into the marketplace and our strategy.
Both here in the U S and our international markets is to support all third party software companies that are in the payments space and.
I think with respect to that we continue to do quite well I'm not sure that I.
A headwind as it relates to that it has more to do with this software companies and typically the ones that are selling of the ones that have hit a wall and so there they're selling because they need to sell they're not selling because of their business is vibrant of selling because of the either haven't made investments or they're a bigger competitors that are taking share from them. So we prefer to.
Stay on our lane and support that market as opposed to two.
To compete against it I would say the last piece would be the direct kind of a face to face business and the.
That is what it is it had a long run for a very long period of time in the U S. It's still a very vibrant outside the U S. We gave a lot of attention to the tech enabled space, but if you're in Latin America, if youre, a mexico or if you're in Poland or Europe direct sales through bank referrals are still a very vibrant part of <unk>.
Our business, it's one of the reasons why we are.
Of the leader in Poland and in Mexico, because we have two very strong financial institutions that continue to refer us thousands of merchants a new merchants a month. So the direct business outside the U S remains very very strong I would say inside the U S. It is a very mature business.
There is more of a cash cow to us and.
Net those proceeds we continue to invest in acquisitions like the Lego notice in Sterling.
We'll do more of that here in the U S and internationally.
Great Super comprehensive bank.
Sure.
Okay.
That concludes the questions I would now like to turn the call over to Jim Kelly.
Thank you operator, and I'd like to thank all of you for joining our call today and your continued interest in Evo.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Sure.
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