Q2 2021 EVO Payments Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Evo payments second quarter 2021conference call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need the press star 1 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.

Sir you may begin.

Good morning, and welcome to Evo payments second quarter earnings Conference call on a press release and slides detailing the Companys recent volume trends are available on the Investor relations portion of our website.

Before we begin I want to remind all listeners of Evo payments desirous of take advantage of the safe Harbor provisions of the private Securities Litigation Reform Act.

Certain statements in this conference call such as projections regarding future performance may be considered forward looking statements within the meaning of the act.

Such forward looking statements are subject to risks uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by such forward looking statements for.

Additional information on these factors please refer to a press release and filings with the SEC.

Please refer to a press release for an explanation of the non-GAAP financial measures discussed on today's call on a reconciliation of those measures for the nearest applicable GAAP measure.

Today, we will discuss our second quarter results and our overall business performance.

Joining me on the call is Jim Kelley, our Chief Executive Officer, Tom Panther of our Chief Financial Officer.

Erin Wilson President of the International segment, and Brendan tangible the president of the Americas segment.

I will now turn the call over to Jim.

Thank you Ed and good morning, everyone and thank you for joining us today.

I'm pleased with our second quarter financial results and business performance, despite lingering COVID-19 restrictions in our markets.

We are seeing positive trends across our business, including new merchant wins from a bank and tech enabled referral networks today.

The build out of a proprietary capabilities and a per.

Product and services suite and the.

Continued adoption of digital payments, which began accelerating in 2020, given all of our positioning I'm confident in our ability to capitalize on additional growth opportunities during the second half of the year and into 2022.

I'd like to begin by reviewing some of a recent announcements.

As many of you are aware since our last call we launched our operations in Chile with a bank partner of D. C. I acquired a leading e-commerce gateway in the market the compliments, our JV and most recently completed the acquisition of a UK based omnichannel payment gateway, which expands our integrated payments offering in Europe.

We look forward to leveraging these investments to continue expanding our global distribution, Darren and Brendan will provide more detail later on the call.

Now I'd like to provide a brief overview of a recent volume trends.

As you can see from the slide the company demonstrated strong growth of 33% year over year, and a 11% compared to 2019, we delivered these results due to our strong sales efforts and superior customer service, coupled with the continued card adoption trends across Europe and the Americas.

As our markets, especially Europe fully reopen and economic activity returns to pre pandemic levels, we expect a volumes to continue to increase.

Turning to our financial performance compared to the second quarter of 2020 on a constant currency basis revenue grew 23%.

Adjusted EBITDA increased 34% and margin expanded 300 basis points to 35% the.

The strong results, we demonstrated reflects the easing of COVID-19 related restrictions across our markets.

And our efforts to realign the company's cost structure over the last 18 months.

Tom will cover a second quarter financial performance in more detail later on the call.

We look forward to building on a recent accomplishments as we continue to execute on a long term strategy of solid organic growth coupled with M&A.

Our acquisition strategy remains unchanged partnering with leading financial institutions of new and existing markets and acquiring a tech enabled assets that enhance our merchant offering and augment our distribution channels.

Across the markets. We have recently seen an increase in M&A activity as evidenced by a previously mentioned announcements and we are well positioned to capitalize on emerging opportunities as we move forward.

Finally, as we announced yesterday I am pleased to welcome Stacey Penny or 2 of our board of directors. Stacey has extensive global experience from her time at the Coca Cola Company and our current position a graphic packaging international her expertise will be a great addition to evo as we continue to expand.

Our international footprint on the.

Now I'll turn the call over to Darren to discuss our European business Darrin.

Thanks, Jim.

Again, I'd like to discuss 2 recent updates.

Physician of Anderson, Thanks, and I'll call. It on the ship with Premier luxurious island price of which complement a European tech enabled strategy.

Thanks for the UK based Omnichannel payment Gateway, which provides us with additional I S fee unmatched relationships across the U K, Ireland, and Continental Europe, and will enable us to drive payment acceptance of merchants across a wide range of a market verticals, including hospitality pharmacy.

Event venues and ticketing.

This acquisition is consistent with a proven international ISP strategy of acquiring in market gateways, such as Clearone in Spain.

The systems in Mexico, and weights paying the island to price and hence a proprietary capabilities on augment integrated payments distribution.

In addition, we have already begun cross selling on a requiring services to Amazon Zix gateway on new partners and customers to enhance these relationships with better products and services.

An island I am very pleased about a partnership with premier lots of as island, whereby Evo will supply a proprietary gateway on acquiring services. It's a process e-commerce payments for the Iris national loss free online platforms. We are excited about this competitive takeaway.

Will help us grow our e-commerce business of online payments continued to accelerate in island and across Europe.

In our other European markets, we continued to capitalize on the accelerated cash to call a tailwind by signing new merchants partners in both of our tech enabled on bank referral channels.

As the economic activity improves on a sales performance of passes pre pandemic levels.

We anticipate we will continue to grow on a referral relationships to meet the increasing consumer demand for digital payments.

The other news in Poland. We recently partnered with visa to provide a hospitality and restaurant merchants with access codes, which enable live broadcasts of the take care of Olympic games in an effort to help attract additional customers.

Those businesses most significantly impacted by the pandemic.

Turning to a financial performance for the quarter European constant currency revenue improved 28% year over year for.

For the second quarter were approximately 31% higher compared to 2020 and grew 11% versus 2019.

In July European volumes increased 14% compared to 2020.

On 23% versus 2019.

Since our last call a market is a steadily reopened.

Explanation rates increase across the segment.

Recently, the E a roll down of a digital COVID-19 difficult program, which the accepted in all EU member States and validates on individuals vaccination of Covid immunity for a QR codes and a unique digital signature.

This initiative is helping to facilitate free movement within the EU, enabling the easing of travel restrictions and the opportunity for a business activity to return.

I'm pleased with our recent performance and excited about the momentum we have heading into the second half of the year a strong.

Revenue on volume growth this quarter reflects the impact of the reopening driven recovery coupled with increased color the adoption across all markets as a business.

Activity continues to accelerate we will expect cross border activity, including DCC to improve which will have a positive impact on a revenue as well as on margins I'm confident in the continued recovery of a European business and there are a.

Ability to deliver financial results the exceed pre pandemic levels once markets a fully open.

I will now turn the call over to Brendan who will provide an update on our Americas segment Brendan.

Thanks Darrin.

Jim previously mentioned in June we announced that our JV with <unk> received regulatory approval to commence operations in Chile, and our processing is now live in the market. The Chilean market is well positioned for acquiring growth with approximately 20 million people and only 40% card penetration in.

In addition, the market is approximately 1 million merchants that process over $800 billion in.

In the annual sales.

A <unk> 60000 current bank customers, we have established on the initial list of over 15000 merchants to target for acquiring services and have committed to purchase approximately 10000 terminals to ensure a smooth customer on boarding and given the significant demand for differentiated capabilities.

We have rolled out local sales marketing and product support in Chile and are leveraging our Latin American platform based in Mexico to provide superior products and services for our customers as processing in Chile is dominated by the National Bank owned Trans Bank platform.

In June we completed the acquisition of Pago for <unk>, a leading in market E. Commerce gateway equipped with the acquiring capabilities. This acquisition immediately adds over 3000 merchants to the JV, including key customers, such as Patagonia, and Pandora jewelry and expands our products and services offering with it.

The proprietary integrations to shopify and <unk> commerce among others for.

Further pago for sales customer list spans a variety of high growth market verticals, such as healthcare hospitality ticketing and travel.

As part of the sale has now been integrated into a snap platform.

Of the Gateway will provide additional support for our E Commerce business in Mexico, a new markets, we seek to enter in the region.

Turning to our financial performance for the quarter, the Americas constant currency revenue improved 20% year over year, which reflects the growth from our Mexican market and our U S <unk> and <unk> businesses as.

As you can see from the slides volumes for the second quarter continued to improve beginning with the U S volumes for the quarter were approximately 26% above the prior year.

Our <unk> business demonstrated high teens revenue growth consistent with its historical growth trends, both before and during the pandemic. This quarter, we launched Evo ACTH to enable our merchants to send and receive payments directly to and from customers via our pay fabric gateway as we focus on <unk>.

Our <unk> business, we are making additional investments in our proprietary gateway and pursuing M&A opportunities, including additional ERP integrations.

Our ISP business grew 27% in the quarter as this business benefited for the merchant shift to software at the point of sale in a significant rebound in volume in certain market verticals, including restaurants and hospitality.

We continue to gain sales momentum coming out of the pandemic by signing new partners and rolling out new products and capabilities earlier. This year, we successfully launched the Evo simple type of payment integration, our proprietary pay a table solution, which we will soon expand to include QR based payment functionality for our ISP partner.

Yes.

We will continue to invest in these types of capabilities as well as additional partnerships as we seek to meet changing consumer demands that of remained in effect coming out of the pandemic.

The <unk> and ISP businesses together represent approximately 40% of our U S revenue, which we expect to increase as we expand our product offering and capitalize on additional sales and M&A opportunities.

Turning to Mexico, our volumes increased 47% this quarter compared to last year and 19% compared to 2019 in.

In July volumes increased 31% compared to the prior year and 15% compared to 2019, we saw a strong growth both from our bank referral and tech enabled channels, specifically our e-commerce business throughout the quarter as we leverage Pago for <unk> integration into our snap platform we expect.

To deliver strong merchant wins and increased capabilities that will drive revenue and earnings growth from our Latin American E Commerce business.

I am pleased with our recent financial performance and our expanding.

Distribution in Latin America, the results demonstrate our ability to leverage our diverse referral network, including bank partners and an expanding tech enabled channel and enter new markets to grow our merchant portfolio 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 on a currency neutral basis revenue increased 23% adjusted EBITDA increased 34% and margin of 35% expanded 300 basis points compared to the prior year.

Further our second quarter revenue was in line with 2019 results and EBITDA increased 9% as our margin expanded 300 basis points.

We generated record volumes in the second quarter, which increased 33% compared to 2020, and a 11% compared to 2019.

However, revenue spreads remains below pre pandemic levels due to changes in merchant and transaction mix and lower DCC and cross border activity.

This quarter of solid results demonstrate our ability to capitalize on the favorable consumer trends and the economic recovery thats occurring in our markets as we exit the pandemic.

With respect to segment performance in Europe, our year over year constant currency revenue increased 28% and adjusted segment profit increased 63% and.

In the Americas year over year constant currency revenue increased 20% and adjusted segment profit increased 31% the.

These solid results reflect the favorable macroeconomic trends as well as the adjustments we made to our cost structure, both of which we expect to have lasting favorable impacts on our results.

Our businesses are well positioned to capitalize on the acceleration in card penetration as we make investments that enhance our products and services.

Adjusted corporate expenses for the quarter were $9.7 million, which increased 63% from the prior year, primarily due to the impact of salary reductions along with furloughs in the prior period.

Adjusted net income for the quarter increased a 105% to $20 million compared to last year and adjusted net income per share for the quarter was 21.

Which increased 10 or 91% compared to a year ago.

At the end of the quarter dilutive shares totaled $95 million, an increase of 5 million weighted average shares compared to the prior year. As a reminder, on may 25th we announced that the class B common shares were canceled consistent with the original terms of our up sea structure at the time of the IPO.

However, this change has no impact to our total dilutive shares of $95 million.

In the second quarter capital expenditures were $9.1 million versus $3.5 million in Q2.2020.

Of this amount 68% was for terminals as our markets are reopening and add a new merchants.

Also note that comparisons to the prior year or against the lows of the global Lockdown for.

Free cash flow for the second quarter was $28 million, an increase of 44% over the prior year.

This is a result of our EBITDA growth and lower interest expense offset by the increase in capital expenditures. We ended the quarter with leverage at 2.6 times, which is down from 2.8 times at the end of the first quarter, we used the free cash flow generated from the business to purchase Pago for sale.

And reduce our leverage.

Our strong liquidity and low leverage coupled with a $176 million of available cash and $200 million of unused capacity in our credit facilities provide us the financial resources to capitalize on M&A opportunities.

Turning to our outlook our second quarter results were modestly ahead of our expectations as the vaccine rollout and the resulting economic recovery began sooner than expected.

We anticipate a modest acceleration in revenue in the second half of the year, Although we are monitoring the impact of the emerging COVID-19 variance.

Assuming no additional government restrictions on stated we now expect 2021 revenue to increase of 11% to 13% adjusted EBITDA to grow 18% to 21% and margins to expand 200 to 250 basis points compared to 2020.

This guidance reflects the estimated financial impact of our recent acquisitions and launch into Chile.

With that I will now turn the call back over to Jim.

Jim.

Thanks, Tom.

So what a difference a year of mix as I stated previously I am pleased of what the company's performance in the second quarter and a momentum as we continue to execute on our existing sales strategies and capitalize on emerging M&A opportunities I will now turn the call over to the operator to begin the question and answer session operator.

As a reminder, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad.

And the stars and the number 1.

Your first question is from Andrew Jeffrey with Securities.

Hi, Good morning, everybody I appreciate you taking the question.

I'd like to dig in a little bit on the.

On the gateway strategy, both <unk> to be it seems like a.

Like Evo has.

<unk> taken the approach of of acquiring regional gateways that are accelerating omni and E com a.

Just wondering if you could elaborate a little bit on whether or not that's something you would seek to expand and cross all of your markets and whether there is an opportunity for a more unified gateway.

Just broadly across geographies or if theyre going to be Standalone and I've got a quick follow up on the <unk>.

Okay, well good morning, Andrew.

If you go back many years, even before we went public.

<unk>, who we hired a acquired a gateway here in the U S. Gulf of IP Commerce, which we now have been referring to a snap.

And.

The excuse.

Excuse me the original plan was to I think do exactly what you just described which is to have 1 gateway solve the issues of the world for them a payment standpoint for Evo.

The practical side is given.

The geographies and nuances.

The nuances, even though it's a visa mastercard globally, there's a.

A lot's of nuances to do business in.

In all of the different market, so consistent with the way we have 3 platforms 1 for the U S. The processing platform 1 for Europe and.

And 1 for Latin America, what we discovered what I discovered is speed to market was better if we had local talent local infrastructure instead of trying to repurpose a U S gateway to do everything.

Needed in all of the different markets I think the other component of this are.

Each 1 of the ones. We've acquired so there was 1 was in Ireland called way to pay clear 1 in Spain as a best.

And Mexico IPG in Europe on each 1 of those companies have been around anywhere from 5 to 15 years. So we get the benefit of the experience of the team.

The end market, which are going to have a much better.

On a line of sight than somebody who is sitting in Denver, where snap is based its just not realistic debt debt.

They would have the same experience levels.

Now, we're going to have with the Andersons Act.

<unk> in the in the U K market and that has been a very successful.

A.

Market for us in particular on on a ISC in the last several years.

And the Anderson's acts and the team there.

It's going to help accelerate at the half I.

I think something like 23, <unk> already integrated with a thousand plus merchants that are not our merchants currently but have the opportunity to become our merchants. So I think it's a playbook that works use.

You should anticipate that Youll see more of these they are relatively easy.

The inexpensive and ischemia of things.

A merchant portfolio from a bank.

The organic growth that comes out of it and the shift of the company to be more oriented to integrated and each of the markets that we're in we think this is a winning strategy.

Okay.

Helpful. Thank you and on <unk> can you update us on your efforts to convert.

The volume over to your gateway.

Assuming the accentuating or improving yield on that business in the U.

Yes.

Yeah.

Sure I think I'll, let Brendan take that.

Yeah, Hey, good morning.

The strategy on converting the back book I wouldn't say, that's first and foremost why we bought these businesses. We bought these businesses for the integrations that they.

They provide the company to various ERP solutions and the ability to board net new accounts with both a software and acquiring solution.

But in the case of delay ago, Yes, we have been converting accounts.

It's not a huge portfolio of of merchants that we've made some headway I wouldn't say, it's material to the financial performance of the <unk> business.

In the case of the notice business that we bought that was integrated to the Microsoft and now Oracle, we have done a broader conversion. There there are still customers that just by the integration solution that we continue to talk to about the acquiring piece, but the opportunity set for US. There is to is to bring those integrations of our acquiring capabilities to a net new customer.

For us and offer a 1 stop shop that provides the entire value chain of the solution.

Thank you I appreciate that.

Your next question is from Kartik Mehta with Northcoast research.

Hey, Good morning, Jim just a question on your M&A comments, you made it seems like the.

You have some opportunities.

Are those opportunities on the.

<unk> side or more on the traditional acquiring side.

Yeah.

I would say in in all of categories.

If you go back to some comments I made last year around this time relative to M&A the.

On the bank side, the bank channel was much more.

We thought closed down just given what was going on with the pandemic, we're starting to see that improve and by evidence of the acquisition.

The acquisition in Chile, and then the 1 that wasn't a darrin the announced and.

On the U K those of the 2 flavors of what we're looking for things to be able to enter a new market leverage their brand and their back book of customers plus the front book of referrals, and then a supportive or technology that will accelerate organic growth and also.

So shift away from being Holistically focused on the bank in a market I think on Ireland is a good example of aware Brian and his team started.

100% of our new business in Ireland wounds that began back in I think it was 13 or 14.

Now, it's probably less than half or a significantly less than half because of the ex.

Acceleration of integrated and e-commerce.

The market I think on the <unk> side is.

I think we've mentioned on.

Sure Brent.

As mentioned in the past the focus there is to build out more capabilities on the receivable side, while we look at payables as a possibility a building.

The building more integrations and building is really buying so were bought into the Lego for SAP a notice for Microsoft Oracle was a quasi acquisition, but theres plenty of other <unk>.

Targets that we'd be interested into build out the capabilities of the platform that we referred to as the fabric.

And then just a Tom just on the guidance. It looks like you obviously had a very good second quarter. The July trends, which you showed on the implied a pretty good.

Just curious as to maybe if you're being conservative on the guidance or if there's other reasons or a trend that youre seeing that maybe.

You didn't increase the guidance a little bit for.

Hey, good morning.

Good morning.

Yes, I think we're being frankly, I think a smart about the guidance.

A.

On our cautious about the second half of the year with the.

The uncertainty around variance and government responses to the Covid variance that are out there.

We see the <unk>.

Second half of the year been a as we said on our remarks were.

We are accelerating.

You saw a revenue point of $1.22 for the quarter and it would grow from there to get to a net full year guidance number that's going to be driven we think from volume and transactions are not in.

Necessarily spread appreciation in the second half of the year, but I would characterize as kind of a R.

Of our kind of a.

Best guess around what we think is appropriate for for the second half of year based on the momentum that we have.

We'll continue to be diligent around expenses.

As we work to achieve the EBITDA number, but I think we've got a really good momentum and it's just continuing that momentum into the second half of the year and hoping that disruption from from Covid doesn't create a speed bump like it did.

Last year.

Alright, well thank you Tom appreciate it.

Your next question is from teams.

J P Morgan.

Thanks, So much good morning, everyone. Just a build on Capex question just the the change in the guidance here I just want to make sure I captured it all of the primarily the acquisitions as well as Youre layering in.

Some of the Chile was there any underlying change in the base business.

Before I think it's both Tien tsin, we did layer Jillian both of the intro from PCI and as well as part of a sale that's more of a 'twenty 2 story on both levels of the Pago of a sale with an existing business and so there is some revenue and EBITDA on day, 1 associated with that business, we see a growing.

At a very strong levels of <unk> were kind of starting from a base, but thats factored in there, but we also.

We are encouraged by what we're seeing from a.

A recovery perspective, and all of our markets.

Particularly internationally.

<unk>.

And we expect the volumes to the holdup and maybe even exceed what we were originally anticipating that's what happened to a modest degree in the second quarter and can keep that momentum continue to see the tailwind that we've talked about the cash to card and and all of those things that we've talked about the greater adoption of tech enabled on.

The C. All of those things are trending in our favor.

So I think that's that's all factored into that.

Acknowledge a modest bump in the guidance, but theres also some uncertainties out there that are hard to predict.

Yes, very clear on reasonable just on the spread to your comment Tom I think a.

You're still running a little negative you're not assuming any improvement.

And the spread between revenue and volume growth in the back half of the year.

On.

Not.

To get to see that improve as the net <unk>.

Is it really just we need to see travel on cross border travel cut back of I'm, asking because I'm looking at the charts of why we're talking here the <unk>.

Spread between volume and revenue in Europe, it's actually a pretty tight so a little bit surprised by that but just wanted to make sure I understood that youre right. Yes, we have kept our expectations as the spreads may slightly increase but debt.

It's not a driver to the overall topline and Bottomline.

Cross border is a key DTC still remains low.

In Europe, Poland, Spain in particular, so I think that would be a piece of seeing some of the SME market come back come back for strength. So even on the merchant maybe processing and the still may be working under some level of of restrictions.

And I think that those are things that are going to have to move in our favor before we see the.

The spread increase but.

I think we've seen a a shift in some merchant mix I'm just composition of our business. The larger merchants are making up a greater portion of a.

Of our of our business when you look at our revenue per Tran that debt.

That we published that includes the growth on our agent.

The ATM business.

Thats also a factor.

<unk> factor that goes into the overall valuation so to some degree it depends on kind of a which metrics you're looking at and but I do think we've seen a shift in our merchant base, where a higher volume lower spread but very accretive very profitable business.

Just from a overall spread view it may look a little lighter than what it historically was pre pandemic.

I see no that makes sense in a car.

All of it comes back and whether it be a little.

I'll kick off for next year, just last 1 if you don't mind a third question of 1 for Jim since I've learned so much about payments from Jim over the years, just just thinking about the the buy now pay later.

So on a tender type.

The market seems to think there is a lot of.

And the growth potential in that category.

Of the implications the evo in sort of a broader acquiring industry in your in your mind you become bad I mean, it seems like it is another important genotype, but would love to hear your thoughts.

Yes.

It's not.

The big announcement the other day.

So on.

And it's not the first time, if you remember.

It wasn't the only later the Paypal bought years ago Yep.

I think they changed the name of that too.

On the United Paypal on the name.

I don't know I think.

A segment of.

The world population that otherwise doesn't have access to cards I'm guessing.

If it's a tender type of at the point of sale of his lines. It does it become on acquiring solution in.

To support Andrew any tender type of remember, we're holistically focused on supporting the merchant so that's something that the merchant wants to offer and.

And it is noncompetitive and.

We're fine with it.

Perfect.

Thank you.

1 other thing as it relates to the Europe remember.

While we see what it looks like here in the United States, We still have our Irish market.

So we're not in the office yet.

That sounds strange because a lot of people not in the office, but we're essentially in all of our offices and have been for some time.

So Europe.

The comment about cross border and DCC.

That is a big part of the drag on what would have and their historical spread levels and I think your last comment that that is an opportunity for the back half of the year. We just don't know exactly when that will be for more likely more into 2022.

Okay.

Oh, great well patiently waiting thank you.

Your next question is from Robert Napoli with William Blair.

Thank you and good morning, I guess just on the reopening.

A look at your business today, assuming the world gets back to normal over the next.

1 to 2 years whenever that may be whenever the.

Eventually a washes through how much of what areas.

How much upside is there I guess of where the where do you see obviously the cross border piece I know if you can put some you know.

Some numbers around that on what that means the spread or yield of revenue.

But.

And in certain markets that have been opened yet.

Is there like is it like a.

10% upside the revenue or is there I mean do you look at it you haven't have you dug into it that way and see what Youre still missing I guess.

Yeah, Hey, Bob It's Tom So sure we've seen.

We'd like it on all kinds of way of pre pandemic trough of the pandemic, where do we stand today.

Do we get all the way back to pre pandemic levels as an industry.

So I think theres, just going to be some consumer behavioral change thats, just not going to get it all the way back to that level.

But I do think that we will see cross border pick up and with cross border of picking up you'll you'll see more activity.

Revenue generated on the DTC.

Front.

If you had to pay.

A.

A metric around it.

We think we could see call it $5 million to $10 million revenue lift relative to the GCC, the new normal whatever that new normal is.

I said earlier when I was responding to <unk> question, that's not a 'twenty 1 and you know your guess is as good of him on his mind is whether or not that's a summer of 'twenty do let's all hope so.

If you were just the size of the bread basket I think of.

$5 million to $10 million number of call. It 2 basis points potentially an added spread when we get back to what.

We will look into a crystal ball on say the new normal is.

Okay.

And that would be very high margin revenue.

The scene.

No costs associated and then on top of that you would have a cross border.

Our Spanish business continues to suffer from the standpoint of it's oriented to travel and travel is not resumed to normal levels. So I think there's a ways back I think Tom was just speaking to the DCC component, but there's other components of the business that have not fully reopened the SME market.

Across the world that have been adversely affected where the larger stores did better than the smaller ones. The online obviously did better than the face to face that eventually.

A sorted itself out both on the retail and the restaurant side so on.

It would be hard for anybody to predict the future given what we've just gone through but we.

We feel good about where our customer base is today and the trajectory for the balance of the year.

Thank you and then.

Maybe a follow up on the BTB payments business. When you look at that business. When you look at some of the other players.

The out there whether it's bill.

Build class and saw build dot com acquire invoice to go I mean, how does your net.

For.

How does your <unk> business.

Per to the others in the market how different is it and what I mean.

The growth rate I know some of these Nike on a high radios I think Sean.

On very high growth rates, but they have somewhat different business models.

Sure. Good question, so our <unk> business, our focus is on generating or or developing or acquiring full blown ERP integrations. So we want to be integrated to the to the full ERP.

Hum offering and we are focused today exclusively on the receivable side a lot of the companies that you were mentioning do a lot on the payables side, which is virtual card issuing and interchange becoming revenue as Jim has alluded to and I think I've alluded to on prior calls we've looked a little bit at that business.

There are some businesses that are larger in scale that would have a very very very fulsome payables offering and it's not clear to me or us that that's the right direction for the company today, our revenues are entirely on the receivable side.

And I think there's a place for us to play on the payable side.

But I.

We've addressed the big 3 ERP ecosystems today, there are a bunch of.

Hi, Yes vs. In those ERP ecosystem. So there are Isps that would operate in the Microsoft ecosystem that would be specific to a.

Various industries that Microsoft will be selling at the ERP until and now that we have the Microsoft integration. There are isc's debt. We can further integrate too to really embed ourselves on that in that community.

And the same is drove SAP and Oracle and then there's a long tail of smaller arpus that we are pursuing both as a direct integration that we would build out of our pay fabric gateway or again, we would buy an integrator that we would integrate to pay fabric and therefore have an integration to the ERP or interest.

We are I suppose on the software business through that integration, but our interest is to make money on spread of our interest is to make money.

For the processing payments and if this allows for a stickier customer relationship which will undoubtedly does.

Then I think all of the better for us.

Great. Thank you and then.

1 last question I guess.

Jim you've been in this business a long time of the industry is changing there's a lot of innovation.

Where do you see.

Yeah.

I guess the.

Future payments.

The innovation if you would buy now pay later as the 1 maybe 1 aspect or a.

I mean your E Commerce gateway the open API.

For card issuing a number of different things going on but I guess as you look at the business today is it changing faster than what you've seen in the past.

If so where and you know, whereas evo investing around the innovation.

I don't know just because of it in the industry that the.

I have the the greatest insight to it I mean, obviously I've seen a lot around the around the world over the last 20 odd years.

Yeah.

My position is the visa Mastercard model works extremely well and what you are talking about.

In some instances of charges.

Derivations of the visa Mastercard ways to make money on and around the core concept. It doesn't specifically have to be those 2 obviously discover index union.

The unionpay.

How many trillions of it represents a spend globally I think that's a very solid.

A infrastructure.

Lots of companies not just the evo dependent upon.

Where youre seeing changes and put aside a buy now pay later.

What are you seeing changes and we're participating in that Anderson Zacks.

And how big of a deal would be 2 examples of it.

On the ways that consumers want to do business and I think the phone.

Of the advent of the phone and the ice store and everything that goes around that has caused.

<unk> and consumers being pushing merchants in a direction to make it easier for us to do business.

Whether it's at our home during a pandemic or how we order and buy so I don't think thats going to change and I think companies that are going to succeed are going to have to change with the times.

They're gonna have to change ever faster and faster and faster youre seeing the.

The terminal manufacturers have.

Largely gone out of the business the major ones have been consumed by processors because of the shift away from a standalone terminal is going to continue to accelerate.

The <unk>.

Other part of it is the <unk> piece that you've talked about with me of events as well as with Brendan VW is a huge market. It is in the at least in the U S. A really globally, but in the U S has been largely untapped.

What's caused that shift.

<unk> is the sales than we've seen on the consumer side.

Merchants now on to be able to pay a of the card or they want to pay with AC H.

For a gateway solution.

And not have to deal with a kind of with the traditional way of ascending sector around so as long as we're positioned with the right technology I think we're going to continue to win in the market with lots of big and small companies as well as new entrants.

I think the other side of it which is the buy now pay later.

A company the square, but in Australia.

That's that's not really what we do that's on a.

<unk> side, we're not a consumer facing company, we're supporting the merchant side of the equation and a because payments are so important and so a big of an industry I think it's going to attract more and more players into the industry at the same time, we're also seeing a lot of consolidation.

But on on.

On each of those Keith the the.

The focus on building distribution through banks and technology I don't think that's going away anytime in my career, a lifetime and we're continuing to see opportunities Latin America, we set a toward meeting yesterday and we had the team in from our Mexico, and Chile group and the growth opportunities.

In Latin America are.

More than a significant this is a largely untapped relative to some of the other markets, we do business with.

In terms of their needs to bring technology and capabilities into the market. So I don't think it's I think we're still early stages on.

The shift that youre going to see in the technology, and we feel really well positioned to take advantage of it.

Okay. Thank you appreciate it really helpful.

Your next question is from Ramsey El <unk> with Barclays.

Hi, Thanks for taking my question I wanted to ask about the Irish National Lottery.

The relationship is that a vertical where you see.

Optionality in other in other geographies is that something you could replicate elsewhere and I guess more broadly as gaming a place where you could you could move into.

Thanks for everything.

Yeah.

So the luxury we already scored a lotteries and the number of of the market.

It's a bit the cool that's for a gateway, but also on acquiring basis. So the there were 2 elements here in terms of the support too.

That type of vertical so the yes, it's a.

It's a good vertical and that's typically state sponsored lots for US also though with a gateway with IPG gateway a we've.

We have a number of gaming customers already on that portfolio.

So yes, it's a vertical with a very used to on expanding into the the tier 1 players of really where the.

The focus is because obviously the risks and as you go further down the with all of you, saying the and we'll always look in the the markets, where it's legal regulated et cetera to support that the ethical.

But it's a it's a part of the e-commerce vertical a has been discussed throughout this call you know the switch from cash to cause a.

Across multiple limits and the software and a solutions.

Solutions, Inc.

Where we're ensuring that no single concentration risk.

Any 1 vertical but the.

Certainly we're very pleased to.

To be a switching from a comparison to competitors.

Oh, Here's a list of a luxury.

Opportunity.

Got it.

And.

I Wonder if you could also update us on the Mexico progress on E. Commerce in Mexico, I know you guys already have pretty material market share there, but how has the pandemic impacted trends in that market.

You see any other banks that you could partner with there to sort of drive further further adoption.

Yes of course so.

We have stood up our European gateway in Mexico, So that gateways intelligent payment group IPG.

It's been a big success story for Us in Europe, and we've now enabled a for transaction activity.

In the Mexican market I think ultimately Pago for <unk> the acquisition that we covered.

In the script earlier on the call will serve as a regional platform but.

Today E Commerce represents roughly 15% of the Mexico business gross 30%.

Generally in has sort of more or less for the 6 years that we've been in the market.

We have in the past relied on third party gateways those gateways are in 2 buckets.

The 1 would be a multinational gateways that need domestic support so those would be the audience of the world the world pays of the world and in some instances, we will support the multinational companies that require a domestic support on the Mexican market I would say that is not though the majority of our e-commerce portfolio the <unk>.

<unk> of our business on the E. Comm side has been domestic businesses either self sourced by our sales force or referred by Panamax and many of those businesses came to us.

Prior to standing up the IPG gateway in the market and we've referred those to start to.

Third parties and most of the and in most cases, there that the Mastercard payment Gateway services. So I think there will be on opportunity prospectively to move some of that volume off of third party solutions and see some earnings accretion within within the portfolio, but the the more interesting story rather than converting the back book on to an internal solution.

A sensibly no variable cost the bigger opportunity is the go forward that we continue to see an enormous amount of card present merchants express an interest in establishing a new ecommerce presence.

And we continue to see you know net new activity in the market.

With new entrants in the we've seen no.

Degradation in the in the the volume growth story that as I say has been ongoing since 2015, when we entered the market.

Yes.

Add to that 1 of the reasons, we bought Pago for C. L. A while we're using our European gateway in this to support Mexico currently.

And this is kind of keeping with the earlier question on I got a.

Being able to acquire a business that is doing business in Latin America and has many of the feature functionality that we would have to continue to build out in Europe.

We're going to leverage the.

Part of the seal acquisition across Latin America, So, we'll kind of have to available to the market in Mexico, and then part of the sale for the.

For the rest of of Latin America.

I think like everyone. You know while E Commerce was super important before the pandemic it is nothing but.

On the Bulls eye right now and if you look at a.

E Commerce across Latin America.

Brazil out maybe the markets that we're mostly focused on Mexico being 1 of them a.

Penetration in E. Commerce is still very low so I would expect to see over the next several years, a very high growth in E Commerce in this region.

Great a lot of helpful detail there I appreciate it thank you.

Yes.

Your next question is from George on the Halo <unk> with Cowen.

Hey, good morning, guys. Thanks for taking my questions.

I guess the kick things off Jim on on some of the prior calls if we're sort of thinking or looking at the business geographically you sounded more upbeat about opportunities in Latam on the M&A side on the partnership side.

I'm curious of that maybe has changed at all just with the Europe opening up what are you still kind of see.

The more near term opportunity out of Latam, maybe the details vs versus the European geography.

Kind of like a with your kids you don't pick 1 side versus the other I like them both.

I think the Latin America actually for us because we're in 2 major markets now we're in Chile, and with a bank partner there with technology, that's localized as well as Mexico, we've been in since 2015 on our dominant player in.

In that market with the outstanding team that looks after a Latin America for us.

I think in terms of opportunity of Latin America.

A smaller GDP, but the growth opportunity in Latin America is absolutely a high focus is fight high focus of Brendan responsibility is to and David Goldman who runs our M&A group to open up more.

A more markets and in opening them up it's not to just start signing up merchants across the border.

Looking for another bank partner of Dci is an outstanding relationship now with us.

I've said multiple times theyre extremely excited about being able to for the first time launch payments into the market just to remind you Chile is a.

Monopoly 1 provider owned by all of the banks, that's being broken up largely by the government and a where the first entrants into the market. So this is the first time <unk> really been in this aspect of a of payments and are excited so we're looking forward to finding other.

A opportunities in Peru, Ecuador, Colombia, Argentina.

Probably more of the Spanish speaking, but you know I wouldn't say, Brazil was out of Brazil is a pretty crowded these days with lots of of players and then I think for Europe and Darin.

Once he is allowed to travel freely across the market as he's been sitting and it's a.

Home office for 18 months.

The Europe remains a key focus and we have a new general manager for our Spanish business has already made some inroads in Spain, and Portugal, and even into a Italy. So I.

Im looking forward to the awakening of Europe, and banks, who are not well positioned and payments to a to listen to us about our opportunities to do business with them and then lastly, the U S is not as though we've abandoned in particular on the <unk> side I think we will continue to be very acquisitive as well as on the IC side not in the <unk>.

Software, but in enabling a.

Capabilities, and then lastly Asia.

To get into that region really like any other a.

A new market. We go into we're looking for a bank partner in there we need to be a sizable 1 just given the the time zone difference youre essentially setting up an entirely new business halfway around the world. So as the world opens up we're well positioned financially to be able to take advantage of of M&A opportunities and as we said we've been able to do 2 in this quarter.

Thanks for I think that that's a pretty comprehensive answer there just the.

Darren quickly quickly as a follow up I think you've commented about kind of post pandemic.

Europe achieving a.

A higher rates of growth than than the pre pandemic I was hoping maybe you could talk a little bit about that is that a mix shift more of your push on the tech side, what youre seeing with the comps maybe some commentary there.

Sure. Thanks, George Yeah, I mean a.

Tom has already outlined some of the underlying mix shift but for that.

Actually the the majority of the trend really is the cash to card conversion on the also the tech enabled and become a.

<unk> kind of as Jim outlined a.

Thinking kind of answering bob's questions about and the way, whereas the market going we're seeing a lot of the move to an app on the attended software E com.

Supported by the underlying cash to card conversion trends.

Also the.

We've seen obviously as Tom commented the big drag on the lack of international travel.

You know the real opportunities there that we'll see the growth rates of all of the DCC coming back as well so.

You know there are many drivers, but but we've seen various schemes of the torch.

It's about 5 years a movement in the last 12 months in terms of maybe.

Moving from cash to card a in.

In terms of our core acquiring business.

Amazingly in some markets, where we support them.

ATM customers there is still ATM withdrawals growing a amazingly.

Especially in the Netherlands for example, so it's not happening anywhere, but the overriding trends is definitely a cast of the card conversion at a scale.

Thank you.

Your next question is from Bryan Keane with Deutsche Bank.

Okay.

Hi, Good morning, guys I know, we're running late so let me just keeping the 1 question.

Jim just love to get your thoughts on you know the concern in the market about the traditional acquirers, losing share to stripe and square.

And the growing fintech so a.

We've seen net impact multiples on some of the peer group. So how do you think about share shifts and acquiring.

Is that an overblown concern or do you think it is real.

You on my honest answer.

Yeah. That's that's that's why we're kind of it's a philosophy of of Jim here today on a kind of how you see things so it's on.

My wife, she doesn't think my philosophy is a very good about anything.

I think it's a massively overblown.

I say that because you buy a company Australia, it's going on.

And adversely impact.

3 very successful large players in the marketplace.

I I didn't see that a.

That comparison I think the the success to any industry is to build distribution, we happen to use financial institutions, because that's been the genesis of our industry, but if you look in the United States. So we don't support a financial institutions.

Really at all of them and we have 2 that are sponsors, but otherwise that's not a model that we pursue so I think any business as long as I can continue to build distribution too.

The leverage or take advantage of the services that they offer I think youre going to be successful I don't know why youre not going to be successful and banks have been around since the <unk> hundreds so I'm not expecting in the next year or 2 that we're going to see the end of the financial institution model.

Look you know the market is very fickle and people are trying to figure out what's positive or negative from the pandemic.

No I'm I'm, a big believer in financial institutions I think there are.

A bedrock of any of our economies and I.

I don't think the new entrants are trying to find another way the digital bank or otherwise I don't think that that's going to change the landscape in the near term you know if youre talking 10, or 15 or 20 years out I'm not that smart to be able to suggest it but.

I think those 3 companies are are well positioned to I think they're very strong competitors to ours, a massively larger than way.

<unk>.

I'm not I don't think our business model is a.

It's a challenged anyway, because somebody bought a on existing public company.

But the shift to digital on the omni into a.

More ecommerce does that in itself have an impact on the traditional acquirers are they they're able to reap the benefits as well on their name 1 of those companies that doesn't have a digital solution.

Jeff has been buying software companies since they bought heartland.

He has a gateway in Europe called relax that he is required of them I Havent worked the global for a long time, so I don't know how many assets. They have in terms of E. Commerce, a first data likewise I mean, they are heavily invested in technology with Clover. Among other solutions, just given their size as well and the.

Chips with banks for distribution and.

In F.

Likewise, I mean, maybe more of a bank processor.

That a core acquirer like we are but they bought.

Vantiv for World pay whatever the name was at the time it was acquired.

And they have they have a leading e-commerce gateway.

Obviously being challenged by Audi and stripe and frame for you, but we all have competition.

I think as long as you meet the needs of the market relative to the solution youre going to be fine and that's what each of US try to do every day is is keep up with the needs of the marketplace.

Got it helpful. Thanks, so much.

Okay.

Your next question is for Mike del Grosso with Compass point.

Hey, guys good morning.

I'll keep mine limited for 1 as well.

Thank you provided a July volume update in the prepared remarks on.

The kind of a segment level, but wanted to dig.

A little bit deeper into country level true.

Trends in July could you just provide an update for.

The Poland I know, it's a big travel destination in a week.

And for Europe, and then and then Mexico as well.

Sure I think Tom Tom has got the charge so I'll, let him take the.

As you said, Mike we did provide overall Europe, just as a frame of reference we had Europe up 14% year over year, and 23% versus 2019, arguably 2019 could be the.

The comparison with respect to the the.

Polish market, which makes up.

A large share of of Europe.

They are seeing similar numbers as I just quoted.

On July.

The $25, 30% compared to 2019.

And up.

The low teens compared to 2020, I think the noise compared to 2020 is more about what was going on in 2020 than what's going on in 2021. When you look at things on an absolute level of relative sequentially to June you see some stability and actually a little bit of increase.

And in Poland.

And then similarly on Mexico.

Similar kind of numbers keep in mind, Mexico did not hit the same kind of trough that we saw elsewhere.

The market's just because of the nature of the economy down there.

Their growth relative to 2019.

Also.

And that mid teens level above or.

Pre pandemic levels and relate and relative to last year.

The $25.30%.

They are there.

A significant growers relative to either a benchmark that you want to look at.

Yes.

We were trying I was trying to get away from these charts I know they think they can vary.

Attractive to the marketplace that we were consolidating but it sounds like you'd like us to keep them for a little bit longer.

Yes that would be a we hope for my end, but.

I appreciate the incremental color youre on the call. So thank you.

Sure.

Your last question comes from Ken Zerbe.

<unk> with autonomous research.

Hi, good morning, everyone thinks a thanks for taking the question.

I just wanted to follow up on that last question, maybe we could touch on Poland and in the growth runway there over the next call. It 2 or 3 years. Just wondering if you could provide some detail on that growth runway I know, it's been growing fairly quickly but over the next 3 years I mean do you expect that growth to remain in the double digit range or does.

Is that decelerate something like high single digits since you've already captured a lot of that benefit from cash shifting of the card.

Okay.

Thanks, a yet.

Hi, It's Dan again.

Yeah, we do expect continued a strong.

The strong growth.

The a number of initiatives in Poland, a call for <unk>, I assume which is really the automation of tax recall, it's going through a.

On the acquirer on acquiring device.

So that's kind of pushed a lot of kind of a great bucket economy on too.

On to public.

The solutions.

With that many of storage data et cetera, so not only if you go and it's still a.

On a benchmark basis, the penetration of card usage relative to other European markets being so low.

And equally.

We're making some very good traction on the market.

Throw on there on the team there in terms of the RSV a tech enabled a.

That's a cool.

But it's still a kind of a embryonic again compared to the U S or the U K. So there's lots of upside growth in terms of the ISP world and the E Commerce World The digital World.

Already touched on in terms of in a software vendor then attended et cetera.

That with Underpenetrated card versus cash on the Cisco Ization strategy a.

And just the underlying inflation trends being above some of the other European markets. The there's a lot of the tailwind opportunity in front of themselves.

Yes that makes a lot of strength. Thanks for that and then maybe just if I could sneak 1 more on.

Just on the the more during the quarter I mean, the the incremental margin QQ vs. <unk> were really impressive.

Around 55%.

What's the what's the appetite to let incremental margins run at similar or higher levels or is there an appetite to reinvest back in the business as volumes recover.

Yeah.

There are as much as I think the market would like to believe as such I don't want to necessarily run to a specific margin.

We manage the business to the opportunities that we see in front of us either near term or a long term.

During the pandemic and then we get we definitely learned something about ourselves we were able to run the company more lean than what we had historically done we've pulled in a tight because of the.

Pandemic and the duration was on certain and I think that's just allowed us to recalibrate, what's needed to be effective in the market now.

For the company now having said that we do I think like a lot of companies right now are experiencing a.

Turnover is as people who.

Didn't leave their job of last year are looking at opportunities for whatever reason.

And.

The market is more challenging to hire so we are of a number of of open positions. So.

We will continue along the guidance expected for this year I don't see it.

Materially moving down a whether it will continue to move up at that rate I think thats unlikely without given more size you know at some point sides of our industry matters, because it's a fixed cost for a high fixed cost of low variable cost model. So we'll need more revenue more markets to be able to continue to drive that margin up at the.

On point.

Thanks, Bob Appreciate you squeezing me in and thanks for the thoughts sure. Thank you very much.

Yeah.

Okay.

Operator, I think we're.

Back to you.

Okay. There are no further questions at this time do you have any closing remarks.

Thank you all for your for your interest and a I appreciate your time.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.