Q1 2022 EVO Payments Inc Earnings Call
Good morning.
My name is Joseph and I'll be your conference operator today at.
At this time I would like to welcome everyone to the Evo payments first quarter 2022 conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you ask a question. During this time simply press star followed by the number one on your telephone keypad.
You'd like to withdraw your question. Please press star and the number one on your telephone keypad. Thank you.
Ed Ohare, you may begin the conference.
Okay.
Good morning, and welcome to Evo payments first quarter earnings Conference call.
Our press release and supplementary slides are available on the Investor relations portion of our website.
Before we begin I want to remind all listeners that evo payments exactly under the safe Harbor provisions.
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 our press release and filings with the SEC.
Please refer to our press release for an explanation of the non-GAAP financial measures discussed in today's call along with a reconciliation of those measures to the nearest applicable GAAP measures.
Today, we'll discuss our first quarter results and overall business performance.
Joining me on the call is Jim Kelley, our Chief Executive Officer, Tom Panther, Our Chief Financial Officer.
Aaron Wilson President of the International segment, and Brendan <unk> President 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 in the first quarter Eva demonstrated strong performance across our markets as we executed on our solid sales strategies to capitalize on the favorable macroeconomic trends across the Americas and Europe to grow the business.
To begin today's call I would like to acknowledge the ongoing tragic events in Europe . Following Russia's invasion of Ukraine in February .
As you are aware, we have a very significant business in Poland with shares its eastern border with Ukraine.
Since the hostility in Ukraine began over 3 million people.
Cross the border into Poland, resulting in higher volumes across all verticals and our Polish market.
Darren will provide more detail regarding the war's impact on our business later on the call.
In the first quarter the company demonstrated volume growth of 26% compared to the first quarter of 2021, which is the third consecutive quarter of volume acceleration.
On a constant currency basis revenue grew 23% adjusted EBITDA grew 21% and margin of 32% remained flat with the prior year.
These results reflect our ability to execute on our well established bank referral and tech enabled distribution strategies across both Europe , and the Americas, which includes growing our existing channels and a key focus on new capabilities and M&A activity.
Interbank channel.
We continue to make progress on our joint venture in Greece and have completed all the necessary actions to launch. This business later this year upon receiving regulatory approval.
Darin will further discuss our business in Greece later on the call.
And our tech enabled channel, we continue to sign referral partners and expand our capabilities across all our markets.
Specifically in the U S.
We completed a native API integration to the <unk> ERP system and now have four certified ERP integrations.
Which will grow our <unk> business as.
<unk>.
Further into 2022 I'm excited about the sales momentum we have generated in the first part of the year and look forward to continued strong performance across the company.
Im confident that we will be able to execute on our strategies and generate solid topline and bottom line growth for the company given the diversification of the business the cash to card <unk> across our markets and our significant M&A pipeline and capital capacity I will now turn the call over to Darin, who will discuss our European.
Business in more detail Darrin.
Thanks, Jim.
For the quarter Europe constant currency revenue increased 51% and volume increased 40%.
These results were largely attributable to our strong sales execution across our bank referral and tech enabled channels as many COVID-19 related restrictions were lifted throughout Europe.
Additionally, we also benefited from a strong DTC volumes across many of our markets, which reflects the increase in cross border activity during the quarter.
As reflected in this quarter's financial results.
We are experiencing broad based growth across all of our markets and industry verticals.
The strong rebound in economic activity is further evidenced by our continued new business wins from a bank and tech enabled referral channels this quarter.
In Ireland for example, we signed the Gucci among Blonk stores. In addition to the select group.
As the premium Apple reseller in Ireland, and the U K.
In Germany, we renewed and expanded our relationship with a large online clothing retailer DNA.
We will now proceed to this merchant across 22 countries in Europe .
Further we strengthened our portfolio in Poland, and the Czech Republic, as we sign new merchants via their respective cashless programs.
Which remained in effect in both markets.
Our strong first quarter performance.
Given by our solid sales execution, which is supported by a well established bank referral relationships and a compelling suite of products and services.
To drive accelerated growth for our European portfolio. We are also expanding our tech enabled referral network across all markets by signing new partners.
And enhancing our existing relationships as we continue to invest in our integrated software capabilities.
In the first quarter, we enabled open banking solutions in Poland to support bank transfers at the physical point of sale and <unk>.
Mine by a pay by link capability.
We also launched the soft post smartphone terminal application for our check merchants earlier this year, which is continuing to generate new business as these merchants embrace software at the point of sale.
We will look to extend these capabilities.
European markets later this year.
Turning to Greece, we've continued to make progress to launch a joint venture in the market since our last call.
Our executive team has recently made several trips to Athens to meet with <unk> executives.
Both parties remain excited about the development of our business integration plan and sales and marketing campaign.
We will be ready to launch operations in Greece upon securing regulatory approval, which we now anticipate occurring in the fourth quarter of this year.
Lastly, we are working with our bank partners in the Czech Republic, Raiffeisen Bank and Vanessa.
Identify additional growth opportunities as both banks recently announced acquisitions in the market.
We look forward to further enabling digital payment acceptance and increasing market share in the Czech Republic, and now with the expansion of our existing referral channels.
As we execute on our bank and tech enabled sales structures across our European segment. We look forward to the continued growth of our business and strong financial performance.
We're excited about the continued resumption of cross border activity, including DCC on the launch of our business in Greece, which will accelerate revenue growth for this segment.
As we continue to expand our European footprint. We are also making additional investments in market, leading products and capabilities to enhance our market share and maintained strong growth in the region.
Before I turn the call over to Brendan I would like to follow up on Jim's comments regarding the crisis in Ukraine and its impact on our business. We have many merchants or third party service providers in Ukraine, or Russia. However.
However, the war has indirectly impacted our central and eastern European business.
As Jim noted there has been a significant influx of Ukrainians into Poland and adjacent European markets, which has resulted in increased consumer spending since March specifically in Poland.
With regard to the sanctions placed on Russia, we have implemented certain system functionalities to prevent processing for Russian and associated Russian territory issued cards.
In Poland, we have real estate recently enabled our terminals to provided donation option at the point of sale to allow our merchants and their customers to show their support for Ukraine.
Further we are working closely with our partner Bank PK IBP to support Ukrainians and the market demonstrated by our donation to the bank's refugee fund.
Other charitable activity and special Thanks go to the significant efforts of our Polish employees.
While offering significant support to the refugees and those adversely impacted by the war.
We remain focused on enabling digital payments for all merchants and consumers and our European market as we work to facilitate economic activity and the flow of commerce to assist this region. During this extremely challenging period.
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 increased 9%, which reflects the segment's 11% volume growth in the quarter. These.
These results were largely attributable to growth from our bank referral channels in Mexico, and Chile in our tech enabled businesses across all markets.
Beginning with Chile.
We demonstrated accelerated growth once again in the first quarter as we worked closely with Dci to accelerate our bank referral activity and continued to sign new ecommerce merchants via our <unk> acquisition. We now have more than 10000 merchants in Chile less than a year since launching operations in the market and our new merchant signings are.
Month over month.
In Mexico, consistent with previous quarters, we demonstrated mid to high teens volume and adjusted revenue growth of 18% and 15% respectively, driven by our bank referral channel is COVID-19 related restrictions have abated and customers resumed in store buying activity.
Turning to the U S. R. Tech enabled channel is delivering strong results. This year as we continued to expand and enhance our referral network and build out our products and capabilities to drive growth for this market in.
In the first quarter, our tech enabled revenue increased 13% compared to the prior year, which reflects our ISC and <unk> growth and strong momentum for our repositioned direct E Commerce business.
In our ISP business, we continue to distinguish ourselves from our competitors in the U S by providing superior customer service and market, leading technology, which enabled us to sign new merchants and delivered strong financial performance in the quarter.
And our <unk> business, we continue to execute our organic sales strategy by forming new integrated payments partnerships that allow us to sign new merchants through our growing referral network most.
Most recently, we completed a certified native integration to the <unk> ERP system, which has already enabled us to sign new customers further <unk>.
This integration expands our opportunity to sign new referral partners, who offer <unk> products as part of their software offering.
As the world's fastest growing ERP system.
<unk> has more than 8000 customers and relationships with approximately 250 value added resellers.
Their customers represent nearly all industry verticals, including retail construction and manufacturing consumer services among others.
This is EBIT fourth proprietary integration to a scaled ERP solution since we entered the <unk> market in 2017.
And we are excited to build market share among <unk> users as we continue to expand our suite of integrations to additional ERP systems.
Many of our existing distribution partners in the <unk> business already operate in the <unk> channel and this new integration should increase our penetration of those partners' customer base.
Lastly, I would like to provide an update on the repositioning of our U S E Commerce business, which we announced on our last call soon.
Since we expanded the capabilities of our <unk> fabric gateway to process <unk> transactions, we are continuing to sign a steady stream of referral partners across a range of industry verticals, particularly those that require subscription alternative forms of recurring payment capabilities. These verticals such as field services.
As health care and veterinary are underpenetrated compared to traditional retail e-commerce.
I'll provide additional growth opportunities for our U S Tech enabled channel to complement our ISP and <unk> businesses.
I am pleased with the performance we are demonstrating in 2022 as we execute on our sales strategies across our markets 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.
As previously noted Evo delivered strong results for the quarter, providing a solid start to 2022 on.
On a constant currency basis revenue increased 23% adjusted EBITDA increased 21% and margin of 32% remained consistent with the prior year.
These results reflect strong volume growth in the quarter, which increased 26% compared to 2021, and 32% compared to 2019 as lingering COVID-19 related restrictions were lifted in Europe, and economic activity rebounded across all of our markets.
With respect to segment performance in Europe , our year over year constant currency revenue increased 51% and adjusted segment profit increased 82% or.
Our European performance reflects a widespread easing of COVID-19 related restrictions, which remained in effect during the first quarter of 2021.
In addition, the increase in cross border activity resulted in DTC revenue tripling compared to the prior year and increased more than 20% compared to pre pandemic levels.
In the Americas year over year constant currency revenue increased 9% and adjusted segment profit increased 13%.
Adjusted corporate expenses for the quarter increased $3 million, primarily due to the deferral of certain personnel costs in the first quarter of 2021, when COVID-19 was having a significant impact on our business.
We continue to actively manage our cost to mitigate the inflationary pressure, we're experiencing across our markets.
Adjusted net income for the quarter increased 51% to $19 million compared to last year and adjusted net income per share for the quarter was 20.
Which increased seven 454% compared to a year ago.
At the end of the quarter diluted shares totaled $95 million, an increase of 1 million weighted average shares compared to the prior year.
In the first quarter capital expenditures were $8 million versus $11 million in Q1 2021.
Of this amount approximately 65% was for terminals as we continue to capitalize on the strong cash to card tailwind and board new merchants.
Free cash flow for the first quarter increased 67% to $28 million compared to the prior year, resulting in a free cash flow conversion of 71% driven by our strong earnings and lower interest expense from the refinancing of our debt in the fourth quarter.
Our capital position remains extremely strong with over $200 million of available cash and $200 million of capacity under our revolver.
The generation of free cash flow and the active management of our balance sheet resulted in us lowering our leverage from two eight times a year ago to 2.0 times at the end of the first quarter.
Turning to our outlook 2022 is off to a good start and we're encouraged by the recent business trends, we are seeing across our markets. However, we remain cautious about the global economic uncertainty from the crisis in Ukraine lingering supply chain constraints and the recent surge in inflation.
As a result, we are maintaining our previously issued 2022 guidance, which anticipates revenue growth of 11% to 13% adjusted EBITDA growth of 13% to 15% and 80% to 90 basis points of margin expansion.
Given our first quarter performance, we now expect our revenue and EBITDA growth rate to be at the mid to high end of these ranges.
Specifically for the second quarter, we expect revenue growth to be slightly above the full year growth rate and margin to modestly increase compared to the second quarter of last year as Covid continue to impact our markets. During the early stages of Q2 2021. These results.
Let's exclude the incremental earnings from any acquisitions that closed during the year and assuming FX rates remain consistent with the first quarter.
With that I'll turn the call back over to <unk>.
Jim.
Thanks, Tom our strong results demonstrate our continued ability to execute on our strategies and growth initiatives. Despite the global and economic challenges we faced over the last few years, particularly COVID-19, now the war in Ukraine, and more recently inflationary pressures.
Across our developing card markets in Latin America, Central and Eastern Europe and Greece.
We remain focused on investing in technology, driven solutions to support card adoption <unk>.
Domestically, we are building out our software solutions and key Underpenetrated verticals, particularly <unk> and E Commerce to drive long term revenue and EBITDA growth for our business after more than two years since the onset of the pandemic, we are proving to be well positioned for the recovery in consumer spending across <unk>.
Europe as cross border travel and related DCC activity increases across the segment. Similarly, our new merchant sales have continued to accelerate as they respond to the increasing consumer demand for digital solutions, both the physical and online point of sale, our adjusted EBITDA margin of 32% this quarter.
<unk> is up 400 basis points from Q1 2019, driving our continued high free cash flow conversion, yielding us substantial dry powder to drive increasing shareholder value.
Both our margin and cash flow remain a key focus of our business as we continue to prioritize investments in our products and services and M&A opportunities to further accelerate our growth and expand our global reach with that I will now turn the call over to the operator to begin the question answer session operator.
Okay everybody.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line as Tien Tsin Huang.
Your line is open.
Thank you good morning, everybody just.
Really really strong results here, especially in Europe . So wanted to ask on that Europe coming in well ahead of the visa Mastercard.
Benchmarks on volume and transaction growth So would you.
Darrin attribute the performance to how much is you talked about easing conversations how much of that is unique to you sounds like DCP played a role of course, new sales from bank referral and tech enabled as well so I'm just trying to better understand.
The benchmark.
On the performance side. Thanks.
Thanks, Tien Tsin I appreciate that yes, I think you answered your question.
Absolutely Q1 saw.
Excellent and then you mentioned sales across all channels, but specifically the tech enabled division is doing really well in terms of ISC led opportunities and e-commerce.
The volume recovery is really across all sectors.
With the markets opening up travel is back and travel being domestic travel. So people are getting back to work people staycation ing as well domestically, but also business international travel coming back as well so.
Travel across the piece restaurants banks trading.
Lockdowns and restrictions are lifted.
Obviously, there's some inflationary effective just underlying cost increases, having some impact but not at a level that's curbing spending.
So that's encouraging trends as well.
E Commerce business is maintaining the high level of growth rates, we saw.
Through the pandemic. So it really is across all sectors or verticals and all channels. So youre encouraging trends consistently across most markets.
Just to add to that if you recall in the comments Tien tsin that.
Yes, the war in Ukraine.
Terrific as it has it had some.
The economic benefit to the Poland business their revenue was up.
How much of that 40%, 50% volume was up about 50% revenues up probably 18, 19%. So that was a benefit but I had just come back from Europe excellent comps over there a couple of weeks ago and each of our markets showed very strong growth the U K market with integrated.
Irish market very strong start to the year, Spain as well.
To a good start we've lapped the popular stuff and.
They were also heavily impacted by Covid. So it was really across the board and tackling with Darin said, while we were over there while we're not European and we're not we haven't been there in a few years.
It seems to be a very busy place these days.
We are increase as well the restaurants are full so.
Very good sign for <unk>.
I think for the coming summer months of travel.
Great.
So just my quick follow up if you don't mind moving to the upper half.
Of your guidance.
Encouraging and different than your peers, so I'm curious how much.
What trends are you seeing in April and Jim given your comments around the summer just how much are you weighing conservatism in that outlook versus maybe something that you are seeing differently here in the recent days and weeks. Thanks.
We stayed within the guidance I think we just felt like we were off to a good start.
And.
And maybe it was somewhat informed by what I, just described but the gms across the markets.
Latin America as well in the U S. I think is performing equally so we stay within the range that we were just trying to narrow our expectations at least at this stage now.
Clearly the overhang as is.
Where does this war ultimately end up.
Net.
Maybe we have felt the effects of that but.
That's always.
<unk> is a concern and then inflation where does that go.
Potential of a recession, yes, theres definitely factors out there that could pull back but at this stage is seeing what we are.
Given what we've seen thus far we felt comfortable to stay within the range in and guide up a little bit from where we had started.
Or so ago, when we gave our original guidance.
I appreciate the prudence. Thank you guys.
Okay. Thanks, Tien tsin.
Your next question comes from the line of Ashwin sure by car your.
Your line is open.
Okay.
Thank you good morning folks.
Cortlandt manor.
Thank you.
I have a few sort of.
Yes.
Verification questions.
Later.
One is to start.
DCC.
As an input in the startup normalized at let's call it 2019 levels.
How much incremental benefit.
Would that would that bring you and is that incorporated in your outlook and then a similar kind of numerical question.
This is a difficult Glenn but is it possible to size the benefit beneficial impact from.
Ukrainian.
<unk>.
Ashley Good morning, it's Tom So on your first question if you look at our expectations around 2022.
To pre pandemic levels as I mentioned in my comments, we saw quarter over quarter.
A 20% increase in DTC.
Some of that has to do with quarterly effects I think full year as a as a better way to look at it and we would see DCC.
About 10% relative to full year 2019.
And that's what's factored into our thought process again, some of thats going to be dependent upon our cross border activity and what we see but we're pretty bullish not sitting here in Atlanta, but talking to our gms in the local markets, we're pretty bullish with the level of cross border activity that we anticipate seeing.
Thats going to international travel as well as Pan European travel as you recall last year.
We saw most of the travel confined to within Europe .
Now, we're seeing a lot more international travel to.
To your second question.
<unk> related impact from DCC associated with Ukraine in particular.
Not to get too far into the weeds, but we're actually.
Have the benefit of having our GM from Poland.
Atlanta This week, so we had the opportunity to visit with Joanna.
And she was educating us on a little bit of the ebb and flow in terms of the way Ukrainian issued cards are being handled from a DTC perspective, there was a period of time, where we were able to charge DCC on our Ukrainian issued card, but more recently the Polish government has pulled back on that and has suspended Ukrainian.
Issued cards that have DCC I don't know the percentage of our volume comes from Ukrainian issued cards, but I would.
Venture together.
It's pretty negligible, yes, it's pretty negligible Tom.
To the point the margin Ashwin that we charged on Ukrainian DCC with very modest against standard.
DCC margins typically because.
Government guidance Empire lenders really not to penalize already pretty penalized.
Individuals, but now as Tom says zero DCC margin on any.
Foreign exchange product in the countryside bank transfers lingcod transferred.
Really theres no DCC lift from Ukrainian side.
Obviously has been some volume lift in terms of Ukrainians.
Spending in Poland domestically.
And thats within some of the pylon growth numbers, but to be able to call out specifically.
What was Ukrainian transactions.
Against domestic.
As we said, it's a de minimis part of the volume so it's negligible impact.
And Ashwin and for the rest of the group on a clarify one comment I made when Jim was speaking because I was looking at the wrong reference points volume is up just shy of 50% and so as revenue I referenced earlier, 18% I was looking at a different frame I was looking at a different relative points. So volume and revenue are moving into patient patterns I should stop correcting them remember I used to be a CFO .
I will learn from I would like to remind me.
Okay.
Well I'll talk about it.
Humble enough to admit that when they occur.
We're going to have to file something otherwise.
Okay.
Yes.
Thank you thank you for that.
You mentioned you would also increase.
Is there any.
Update on timing for Allied and Gilead.
The.
Quantity of hit balance sheet.
David.
You're thinking of already or.
Sure I guess the first question I don't have a crystal ball I think if we're super Lucky we'd be the third quarter, it's probably more likely the beginning of the fourth quarter.
The only reference point, we have as you.
<unk> acquisition of <unk> and I think it took almost 365 days to today to actually close so theres two two in front of us.
And maybe the hope is they get faster at it as they do more and more.
But when I had dinner with Paul the CEO of the bank a few weeks ago. They didn't seem to have any greater insight, but given their position in the marketplace.
And he is he and his team are very encouraged about the opportunity to get this thing closed to move on.
Potentially we can pull it back.
A little bit.
Yes.
Applications of the first one took a year subsequent to the next approval took six months.
The regulators are getting more used to these transactions and structure.
So consequently, we are still targeting the end of Q3 for that.
With respect to the approval.
And on the second one I appreciate you, saying that our our balance sheet looks really good that's a few years if I've heard that.
In terms of what countries I think we're going to stay with the team.
<unk> seen while we are across.
Much of central and eastern Europe by virtue of following large customers out of Poland.
Hey, consistently encourage Darren and the team over there to.
Look for bank partners, just as a bigger wedge into the marketplace just to have more presence in these very very fast growing markets and then I think for.
For Brendan in South America that remains.
A high priority to find our way into other.
Central South America, Central and South America markets.
So we look as I said in the comments, we look to put the balance sheet to work and as the.
The World is.
Maybe passing the.
COVID-19 dealing with the inflation and the other stuff that's going on right now I think we'll see more and more opportunities.
Up on the market.
Okay.
Thank you Keith.
Thanks Ashwin.
Your next question comes from George Melas.
Your line is open.
Great. Good morning, everyone and thanks for taking my question I guess I guess first first question Tom as it relates to the guidance and reiterating the 11 to 13 on the topline given.
Stronger bigger.
<unk>.
FX headwinds is the right way to think about it.
On a on a normalized constant currency basis.
Basically growing kind of call it 14% to 16% that thats, what youre looking at sort of a three point headwind but.
The conference App is considerably higher.
Yes, George you got that exactly right and just look at Q1 as a data point constant currency was 23% reported was 20 and if you look at the quarterly FX in Q2, three and four of last year, where the euro and the.
<unk> in particular it was round one spot 16 now it's obviously around 105. So yes, it's about on a year over year basis, three percentage point headwind to US we did factor in what rates have done so far this year in that guide.
Obviously can't predict where they go from here to date as Jim said, we've been able to earn our way through it.
If they hold then we feel pretty good with with where we are in that mid to high teen.
Keep in mind, we only have three months in our rearview mirror, so and Theres a lot going on in the world with a lot of global macroeconomic inflection points with FX and inflation.
Covid waning consumer spending some people are talking about recession. Although these are some are positive some are negative so.
We felt like we would it would be balanced for us to hold the line signal where in the range, where we see things trending.
And let another 90 days lap before we revisit guidance.
The other piece I'll give you just as way of information do you think about the construct of our business.
About a third of an FX headwind or tailwind effects EBITDA. So while you get an impact to revenue you also get an offsetting not equally but an offsetting impact to expenses so not all of that.
<unk> through the bottom line.
And the other piece of information to help you think about this obviously about using round numbers, 40% of our business is USD.
Peso is 20% zloty is about 20% a little bit shy of that Euro <unk> and if you are keeping score the residual five is in sterling and our UK business. So while the euro has taken a beating the peso and the zloty has generally held and theyre more of the peso then the zloty.
Although the Polish bank has been quick to raise rates, which I think has been helpful to those larger so it hasnt taken as big a beating as the euro. So again, we take all of these things into consideration and.
That's where we landed but I'll end with where you started and that is when we talked to our Gms in Mexico City and in Warsaw and in Madrid, and then the U K and in Dublin.
They are neutral to all of this and what they talk about is what they are seeing with our merchant portfolio, what their volume growth, what they're seeing with transactions.
And those core health indicators of the business when you take the static of FX out are very encouraging.
That's great really appreciate the.
Color on the clear outperformance. So I guess I guess just on that point Q2 quick ones here.
You mentioned, obviously, Poland up up 50%, but it sounds like throughout all of Europe .
<unk>.
The performance is exceeding your expectations and then.
Just quickly for.
For Brendan the 13%.
Tech growth in in the in the Americas do you happen to have a rough breakdown of <unk> versus <unk>, thanks, guys and congrats on the results.
Yes, I think you threw a couple in there George but but yes, Europe overall is doing well.
Poland.
As the leader of the pack both in size they have more of a tailwind from DCC, but all of Europe in terms of volumes you saw on the on the slides that we distributed that year over year volume growth for Europe was up 40% compared to pre tax pre pandemic, 44%. So it wasn't just an easy comparable it was also up forehand all relative.
2019 with respect to.
<unk> you.
U S.
What youre seeing in terms of growth ISP is leading the way.
It was mid to high teens, b b to be not that far behind we've talked before about E com being a little bit of a <unk>.
Laggard relative to kind of that three pronged mix of tech enabled but the businesses that we're investing and we see them.
In that.
Low teens low to mid high teen kind of consistent growers, a quarterly youre going to see some unevenness I think I'd be cautious about looking at things on a quarterly basis, particularly.
Particularly sometimes in these businesses, we're onboarding can be a little bit lumpy and things like that but overall isd in.
Was the highest grower in <unk> not far behind.
Thank you.
Okay.
Your next question comes from the line of Kartik Mehta. Your line is open.
Hey, good morning, maybe Darren or Jim.
And Chris I know you said you think it will close.
Fourth quarter I'm wondering how much.
Can you do with your bank partner before it closes.
And so that when you do close that you're kind of up and running and ready to go.
Thanks Kartik.
A lot of work in summary, we've got a full team on it.
And the bank is similarly doing exactly the same.
With senior Exec staircase underway. So the next two months will be at a very granular level documenting all the buying processes procedures.
And products.
With a view to understanding exactly what they do what the nuances.
Individual customer solutions off of major corporates et cetera, then mapping those two business requirements set of documents for our build onto our Poland platform and then commencing that build so our goal is to not only be ready for four new new merchant boarding.
As we kind of have to close but also ready for.
Our platform migration as well as the existing portfolio and Grace.
There's a lot of work streams underway, there's been multiple visits.
Already.
Multiple visits planned over the next few weeks to really accelerate in the next few months a lot of documentary.
Exercise.
But well have a lot of that work done we're going to have to work we will still work with the bank for I think the TSA is for upwards of three years.
And typically that's that's a contribution at the bank makes to the the joined joint venture just like the cost that we incurred to stand up our side of it is our contribution to the joint venture. So we.
We hope by next year. This time, we've got it all dialed in but it will be.
I think well baked by the time, we close.
And then just Brendan on the <unk> side, I think Tom said.
Thank you had mid teens growth there so that business continues to perform well.
Is there a backlog of business, they're in or how you might measure the success of that business for 2022, and maybe what your outlook is for the year.
Yes.
Yes, I mean in terms of our backlog.
As an example, one of the high priority items that we've been working on as we acquired circa 70 SAP customers at the time that we bought the <unk> business in Kitchener, Ontario, and as you recall the Lego specifically provides integrations to SAP ERP solutions. These are very very big accounts.
And.
They are.
Our captive audience that are ripe for conversion and so we've been aggressively pursuing those guys and the opportunities there.
Adding a handful of year would prove to be enormously additive to the contribution margin of the overall business.
And we also have a portfolio of.
Resellers that we've been signing I think we signed 22 resellers in the last quarter and those resellers all have back books of business.
The first order of business when you sign a new partners not necessarily the next new merchant that the partner signs, but more a back book of business that again represents a captive audience, where we would try and sell the merchant on our integrated payments solution.
So if 2000 I think in terms of like we saw our partners more so than individual merchants within the merchant sell a bundled solution.
We talked a little bit about this yesterday at our board meeting if we signed 22 a quarter that to me would represent a very productive year. So I'm focused on partner wins as much as anything else and then I think.
I think.
As we also talked about in the quarter, we signed to or we finished a new integration with <unk> and I think to encouraging things came out of that we got that.
<unk> integration done in four months and as axiomatic, who is reviewing the quality of the code and the development work that our team in particular the pseudo team.
Dead.
They were enormously impressed and I think the timelines that we achieved with them where as I understand it nearly unprecedented with the other partners that they've worked with and.
<unk> as I said in my comments on the call has a portfolio of 250 resellers now that we're going to be actively pursuing for new relationships and in fact, we've actually already boarded a couple of vacuum Attica customers. In <unk> has I think been impressed with how smoothly smoothly. This has all gone which is to say you look at the 22 partners. We just saw.
<unk> the 250 partners that are in the in the <unk>.
In the <unk> channel you talked about the 70 very large accounts at the Lego and I think there is a lot of fertile ground for us to be to be hunting.
And then I guess, one final thought for you which is to say when we say, we build an integration and it takes four months to complete.
This is not like a screen scrape, which is what you would see some of our competitors. Though this is a native integration where the payments acceptance resides within the ERP and it completely automates the receivable collection process. So it shortens our working capital cycles. It limits your loss ratios. It limits the number of head count that you need in the receivables.
Department.
We call this a native integration and I think you know.
Not all integrations are created equally and these are more complex and time consuming to bill, but I think we feel and our customers tell us that there are infinitely more user friendly and applicable. So I think thats why we see us winning the type of business that were winning I think thats why were experiencing the growth rates that we're experiencing.
<unk> and the challenge in front of me and the and the two folks that run our <unk> business is to continue to sign up another 22 partners every quarter and then continue to turn those partner relationships into <unk>.
<unk>.
Referral pipelines.
Hey, Thank you congrats on a very good quarter Jim.
Thank you Kartik.
Your next question comes from the line of Bob Natalie Your.
Your line is open.
Hey, guys, it's Chris Kennedy on for Bob. Thanks for taking the question Hey, Greg can you give us can you give us an update on Chile and kind of how that is.
<unk> relative to your expectations.
Sure Hey, Bob.
So Chile relative to expectations, we are in a very good spot as it relates to our sales cadence with the bank. So their CRM called Everest in RCM called Mercury are now completely integrated with.
Just to say that the bank can board merchants seamlessly through their systems and it feeds into ours and the boarding process is now completely automated. So we went from a business that was boarding obviously zero merchants at its infancy and today. We did I think 1300 last month in 1400 the month prior.
This has now become a very very active sales pipeline for us.
We have.
Also we are also focused obviously on some large corporates, which are chunky and can take time and in particular, we're in conversation with two of the very largest merchants and when I say very largest two of the top five in the entire country and I'm very optimistic and I thought that we are likely to have those already in the fold at this point and we are remaining.
In pilot today, and that's why I didn't talk about them in my remarks, but we're in we're in a we're in a good spot. We're also I think building a very capable team down there.
And are probably a little bit of ahead of ahead of where I expect it to be on the hiring front I think we now have 40 folks locally the integration of our Pago fulfill gateway is going extremely well.
That gateway will be processing through our Evo Evo Mexico platform imminently, so that whole process is run incredibly smoothly and the Pago <unk> Gateway continues to continues to be a vibrant source of new e-commerce business for the market as well so overall I am I feel exactly.
The opportunity set as I as I did before the market remains strong the economy locally remains strong.
And in the case of <unk>, we have an incredibly engaged bank partner that is very committed to the success of the JV.
That's great and then.
An update on the potential revenue contribution from that initiative. This year. Thanks, a lot guys.
Hey, Chris This is Tom So obviously, we're ramping so this was a little harder to predict as Brendan said time of on boarding and things like that our expectation is by the end of the year the businesses at $10 million run rate business.
The margins would be probably around 25% that's not the long term margins of the business, we're adding costs down there to continue to support the growth that we're seeing particularly in our customer facing and merchant support side, So I think longer term.
Obviously, the revenue will outpace the fixed costs that we're having to add on the out at the outset, but that's kind of right now where we see it as kind of at a $10 million run rate and a 25% margin as we exit the.
For the year.
Okay. Thank you.
Thank you.
Your next question comes from the line of Andrew Jeffrey Your line is open.
Yes.
Hi, guys with reference to the <unk> outlook are you.
Is it fair to say that <unk> could potentially accelerate.
That growth or is there a ramp.
Okay.
Yes, I mean, I look I think it's early days I think what as it relates to the axiomatic integration I think where you could see some acceleration is specifically coming out of a lot of our Microsoft resellers also sell <unk> business and these are merchants or partners with whom we already have a very active relationship and so to the extent that we can get a greater share of their wallet.
Our addressable market is.
Ah represents a larger portion of their customer base.
I think there could be some near term wins, there and that's why we've already boarded a handful of merchants in the channel in the early days of the integration.
But I think the second piece of or the second source of acceleration is potentially what we actually learned coming out of this which is that building ERP integrations as a very viable out.
Very viable strategy for us we've been focused on buys we bought notice into Lego as I've talked about on many of these calls.
And I still think there are things for us to buy and we remain actively hunting for similarly, situated businesses in new ERP ecosystems.
Or furthering our penetration to existing ERP ecosystems, but there are some very large erp's with very large addressable markets.
That.
We're buying is less an option and what we've seen out of the product team in Anaheim and the development team in China.
I think confirms our view that building is a completely viable strategy as I, just said and I think in totality. We are building a layer cake the.
We're building a or broadening a distribution funnel and every incremental ERP represents more net new merchants and I think in the aggregate youll see accelerating growth.
The business more broadly.
Great and then my follow up is just talking about.
E Commerce competitiveness, what makes <unk> stand out in the U S market.
Sure.
So we've been talking about <unk> to be a lot. The same technology that supports our <unk> business also supports our BDC business. It's a gateway that we inherited through the acquisition of notice that we have branded pay fabric and we feel like the technology is really best in class I actually this morning, when I was walking into the call. The gentleman that runs business development for a BDC.
E. Commerce is an early arrival earlier river and we caught up about the pipeline and a couple of the wins that he's recently had and I asked them. The exact question that Youre asking me why why Evo and its service and technology.
We the integration the documentation that we hand these partners as they're integrating to our gateway.
<unk> proven to be completely seamless and very low lift for these guys who have very limited development resources. So time and effort are at a premium for them and then we go to market with them and represent incremental revenue for partners that today don't recognize material revenue out of the channel.
And as we work hand in glove with their sales forces as they sell their product we sell ours, we have onsite meetings with them, we align on marketing collateral, we expose our marketing resources directly to them very open way.
The feeling of partnership.
I think runs deep so in any event, we're leading with with service and technology and then in the early days based on wins that I'm, saying, thus far that's proven to be a winning strategy.
Yes.
Yes.
Your next question comes from the line of Bryan Keane.
Your line is open.
Hi, good morning, guys.
Hey, Brian I guess, the I guess the first question for Brendan just to how is the U S business doing ex <unk> E com versus your expectations, just thinking about integrated indirect.
Okay.
So the <unk> business I guess, so you are asking me to talk about <unk> and direct specifically is that correct, yes, yes exactly.
How what's the trajectory for that and is it tracking.
That's been an area of focus to turn that business, a little bit as well.
Sure.
So the <unk> business had had a had a very good first quarter.
We've done some changes in the sales organization there.
And the energy around the building.
Has never been better so I don't know a couple of business reviews in the last couple of months with the operations team and we seem to be hitting on all cylinders. There. We have our annual operating plan. That's very metric focused focuses very specifically on things like gross adds in attrition and all of that stuff and we have been right on plan in terms of.
Gross ads, which are the last several months the attrition numbers are low we've stood up a new retention team that's highly focused on saves.
Or.
Yes, sorry saves in.
They seem to be hitting plan the partner quality, we had a big.
Conference with one of our most important partners down in Orlando last month. The conference was Super well attended and I think I spoke to the founder of the business they're in.
He was super encouraged with both the way this business outlook looks which which is super germane to ours and then.
Through the support and partnership that he is getting from Evo and Thats anecdotal but.
Is that sort of informs my view, so look I think the <unk> business is great. It is heavily skewed to restaurant and so as restaurants have now obviously been reopened for some time because of the Covid pullback.
We've been a beneficiary of that.
Inflation is coming to watch there is there a point at which inflation stops starts discouraging folks will go to the restaurant I'm certainly not seeing it in my personal life I live in New York and go out to restaurants, and they seem to be mobbed and that was gyms and.
And Tom's experience.
Around Europe , and it's been the same in my travels around the U S have been on planes quite a bit recently and it's everywhere I go so as the restaurant sector goes so will our ISP business and then I think we are making inroads in some new sectors that hold great promise for us.
Specific to direct.
We reorganized our direct business and gave it all to our team up in Montreal. The team in Montreal has put up exceptional results for the entire period during which we've been working with them and to be clear the Montreal business has been selling into the U S for more than 15 years it.
It just happens to be located just north of the border.
But they have been putting up more than 600 beds, a month, which in our.
Lexicon has is pretty phenomenal success.
But.
The direct channel as always it is what it is always going to be which is.
There are roughly 7 million card accepting merchants in the U S and I think rough numbers, a third or 40% of them have an integration integrated solution today and integrated is taking an increasingly large percentage of the aggregate pie. So integrated is growing at the expense of what we call direct which is terminal next to a cash register, but if you still have 660%.
Of our 65% or 70% of <unk>.
7 million card accepting merchants focused on a terminal in the cash register that is a very very large population of merchants that represent potential wins for us and the good news for our business here in the U S.
It's relatively small when compared to our peers and theres a lot of business and the direct channel and that addressable universe more broadly that arent our customers today that we can go get and we've got a very competitive solution, we price fairly we deliver what I consider to be best in class service and so while I don't think Thats <unk>.
We're going to be a bellwether of the U S business. It's a it's an enormous source of cash flow for the company that allows us to then reinvest in Super high growth markets like what Darrin is focused on his comments on Greece, or what I've been talking about with respect to our activities in Chile.
Got it got it no. That's helpful update thanks for that and then just one follow up for Darren as open banking takes place in Poland. What's the change of economics to Evo for open banking, just thinking about a card transaction versus an open banking transaction.
Sure It is a real opportunity Brian .
Terms of.
Open banking really is taking place for the online side is where we're seeing the trends coming initially.
On open banking <unk> transaction at point of sale.
As much more kind of.
Physical friction.
Over tapping in going with with a card.
Payments, so it's a real opportunity upside essentially we're taking a routine cost.
For the bank transfer capability, so economically wise.
It's an upside opportunity in that today in the online space essentially the payment is either cash on delivery.
Or a pay by link method, which is pretty clunky back to again, a bank account transfer so.
The cash on the pay by link we typically wouldn't partake in the economics, whereas in open banking transaction, we do because we are the reaching agent for our partner banks.
Is it a slick user experiences why is getting traction in the online space.
So we will take a more of the economic pool.
As we see kind of the transition from the old legacy pay by link or cash on delivery type model.
We see as a tailwind yet to be seen what the consumer adoption will be and how rapid it will be but we are seeing.
Significant potential growth there.
Great. Thanks for taking the questions.
Thank you.
Thank you.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Your next question comes from the line Ramsey LSI.
Your line is open.
Hi, guys. Thanks for squeezing me in here I appreciate it ramzi.
Hi, I had a question on Poland, and how we sort of think about incorporating pulling into into our models.
The Q1 impact was more towards the end of the quarter.
As you expect more of a.
Lasting step up in volume given the influx of like new populist areas, we move deeper into Q2 and beyond or is it do you think that more as like a onetime kind of wave that will subside.
In the not too distant future what are you seeing I guess.
In the most recent quarter to date view.
Hey, Ramsey, it's Tom and I will be glad to.
Phone a friend here from Darren or Jim for any help on that but I think we're at an inflection point. So it's hard to predict we've clearly seen an uptick because of what's going on in Ukraine.
They are not those 3 million people that have.
Moved into Poland stay there permanently remains to be seen but when you look at.
Destruction thats going on in Ukraine, it's unlikely that they go east anytime soon even if the conflict subsides.
So I think our predictions our expectation.
Is that Poland would continue to be a very strong market for us as I said this volume, except a little under 20% of our business.
Our bank partner there, we have an extremely strong relationship with they have over 30% market share.
And so all of those factors I think point to us being strong in the market.
Others want to add any comments beyond Poland, though so I don't I don't know that we know how many people stay or return and when this will and I think as long as they are there I think culturally the two countries are fairly well aligned and.
I think the Polish people in particular have been incredibly welcoming to bring them into the country and find them jobs.
Put them in there.
Are you able to continue to live well that conflict continues to go on but I was in Ireland seem to <unk>.
Think of Ireland.
I don't know three or four weeks ago.
And they were commenting also about the number of Ukrainians that have come into Ireland. So this is not a Poland only event people are.
Either based on families or opportunities and other markets in Europe , I think it's going to be.
Embedded in Europe for some time, but beyond that Ireland, we just reopened our office. This year in Ireland has been closed for two years. So I remember you remember as the U S opened up all of US wanted to kind of get back to life as we knew it and thats going to include travel and spending money so part of.
What we feel is occurring in Europe this year.
Is some of the bounce back that maybe we experienced in the U S earlier because of the Lockdowns.
In some markets lasted longer than.
Maybe what we were used to here in the U S.
Just to complement that.
What we're seeing.
From the in the first quarter is kind of record new merchant sales. So we're seeing merchant growth talking to merchants kind of that planning.
That maintaining their forecast for the year, then not forecasting a downturn with.
A short term lift of Ukrainians.
And then <unk> and then also when you look at some of the volume mix. We are seeing as I said its domestic spending but also.
What complements and supports the DCC traffic is Germans crossing the border and buying gas.
Many gas stations that we have on the basis, we have four of the top six gas companies petrol station companies in Poland. So that's kind of just steady recurring transaction.
That kind of it is indifferent to the Ukrainian factor.
So we're pretty confident that.
Not only the volume trends are strong and are not dependent solely on our Ukrainian factor.
<unk> cause underlying verticals the study, but also the new merchant recruitment, which is coming through buying through the bank partner as Tom outlined both.
Traditional merchants, but more importantly, the tech enabled e-commerce opportunities.
And the unintended is.
Toll roads or vending so all the tech enabled channel growth is where we're seeing the positive uplift in new merchants and transaction growth.
The fundamentals are strong.
Okay. So a broader set of drivers and that's super helpful. Appreciate it and one follow up for me Jim could you talk about the roadmap in terms of expanding into new geographies I guess, given the early stage of the chili's business, depending JV in Greece.
Early to start thinking about moving into new regions or is I know, it's a tough macro environment and geopolitical instability that causing you guys to kind of hit pause for a little bit.
How do you think about that.
No I think the only time, we had pause was the second quarter of 2020, when I said that it was hard to.
<unk> relationships, yes, I got a lot of feedback on that comment.
It's hard to form these relationships.
<unk> is a 20 year exclusive relationship so to to be able to put one of those together you actually need to be with the people have lunch dinner and get to know each other beyond just negotiating.
Contracts.
So now that travel unfortunately, the mass mandate at least for the time being is lifted I think.
Travel is going to only accelerate and banks who.
Went through this the last two years without really digital solutions and don't have an easy pathway too.
Two two.
To build it in house, which is almost always the case are going to be looking for partners and.
That slowing down at all it's a constant focus of the entire executive team to look for opportunities in new markets we have.
A team dedicated full time.
Pursuing that.
They are very enthusiastic about the opportunities that we're currently seeing already.
Come up in the market.
Got it thank you very much.
Okay. Thank you.
Got it okay I would like to thank everyone for joining us This morning, and your continued interest in Evo payments.
This concludes today's conference call you may now disconnect.
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Yeah.
Yes.
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