Q1 2022 Nuvei Corp Earnings Call
Good morning, ladies and gentlemen, and thank you for standing by welcome two new very Corporation's first quarter 2022 earnings call. As a reminder, this conference call is being recorded and now I'll turn the conference over to Anthony Gerstein, Vice President and head of Investor Relations for New Weil. Please go ahead Sir.
Thank you operator, and good morning, everyone and thank you for joining US with me today are Philip there chairman and CEO and David Schwartz CFO .
As a reminder, this conference call is being recorded and webcast and is copyrighted property of the debate.
Any rebroadcast of this information in whole or in part without written consent is prohibited.
This morning, <unk> issued a press release announcing financial results for the three months period ended March 31 2022.
The release as well as an accompanying presentation is available in the Investor Relations section of the company's website yoga dot com under events and presentations.
During this call we may make certain forward looking statements within the meaning of the applicable securities laws.
Such forward looking statements involve known and unknown risks uncertainties and other factors that may cause actual results performance or achievements of the business or developments in new base industry could.
Could differ materially from the anticipated results performance achievements and developments expressed or implied by such forward looking statements.
Information about these factors that could cause actual results to differ materially from anticipated results or performance can be found in new base filings with the Canadian Securities regulatory authority.
On the company's website.
Our discussion today will include non I FRS measures, including adjusted EBITDA adjusted net income adjusted net income per share and free cash flow.
Management believes non I FRS results are useful in order to enhance our understanding of our ongoing performance, but they are not a supplement to and should not be considered in isolation from or as a substitute for ifr S financial measures.
Reconciliation of these measures to I F. R. S measures is available on our earnings release and MD&A.
We'll open up the call to your questions. After our prepared remarks with that I'd like to now turn the call over to Phil.
Thanks, Anthony and thank you everyone for joining our call today, it's good to once again be sharing our progress with you following our inaugural capital markets day back in March where we had the opportunity to meet many of you in person.
We're off to a strong start in 2022 delivering results ahead of our financial outlook driven by the successful execution of our growth strategies.
For the quarter total volume increased 42% to $29 2 billion revenue increased 43% to $214 5 million and adjusted EBITDA increased 40% to 91 6 million.
Organic revenue growth, which excludes revenue from acquisitions completed in the trailing 12 months period increased 32%.
It's important to note is these excellent results include a revenue headwind of approximately 7 million from unfavorable changes in foreign exchange rates year over year.
As a company we are just getting started as our turns are large and growing with so much white space in each of our focus verticals and current geographies as well as significant opportunities and are Underpenetrated global geographies in North America, Latam and APAC for future growth.
Looking at revenue by region in the first quarter, EMEA, North America, Latam and APAC represented 58%, 38%, 3% and 1% of revenue respectively.
From a growth perspective, EMEA, North America, Latam, and APAC increased by 73%, 13%, 25% and 64% respectively.
We experienced sequential growth quarter over quarter of more than 100% in April and 6% in North America.
It is worth reminding you that while our global ecommerce channel is our largest channel in EMEA, Latam and APAC. It remains some scale and local Marvel.
As you know we are making investment on a transformation in North America is well under way.
For perspective, North America E Commerce direct revenue increased 71% to 27 million in this year's first quarter from last year's first quarter and now represents approximately a third of the total North American revenue.
As I will highlight in a minute, we see enormous opportunity converging in North America, with recent customer wins, and expansions, which will contribute to our growth in the upcoming quarters.
Overall, the prospects for our business remains strong and we are well positioned for sustainable and profitable growth.
Turning to new customers. The first quarter was notable for the number of new customer wins, and increasing wallet share gains we achieved with existing customers.
As you recall growing with existing customers drives the majority of our in year growth, while the onboarding of new customers contributes to our future growth and so those relationships scale overtime and open doors to further opportunities going forward as we help them grow their businesses globally.
Meanwhile, our robust pipeline gives us good visibility for the year.
Looking at our high growth focused verticals in gaming, we're executing and on plan with our strategy for North America. It's a market continues to evolve shiny new flagship customers, including fan dual this score Northstar gaming hard rock and desert Diamond.
We also added the province of Ontario, the newest market to open in North America.
We also expanded wallet share, adding further capabilities and geographic support with existing gaming customers like tracking.
M G M 88.
Vegas maintain Kazan gaming veteran and double your play.
As you can see new ways, now integrated and supporting really the who's who of the industry and has made meaningful progress essentially with all the leading online gaming operators in North America as well as globally.
It's really important to remember that each state and product isn't additional implementation, which creates ample opportunity to go to state to state.
Countries of the country.
Product solution to product solution, helping our customers grow.
In travel, we added new customers, including International Hotel operators Salina supporting them globally in EMEA, Latam and North America with local payments in a vast number of capabilities luxury tour, operator, Scott done, which we want to an RFP in the first quarter disregard the largest online.
Company in Latam with operations in more than 20 countries and started using new vein, Colombia in the first quarter and wholesale travel company Dieter travel, a leading wholesaler and travel industry out of Asia.
We also expanded support with existing customers, including Israeli National carrier L O, which extended our contract to support paints in North America, and Israel, and BHP processing online travel and leisure retail a last minute dotcom and we also expanded our partnership with Universal Air travel plan Yuichi P by enabling.
Payments versus globally.
And digital goods and services, we added Cabot life, a leading ride hailing company in Latam, which started to use them to convey in Chile are cash the first Croatian a fintech offering a digital wallet for money transfers and celebrate our global digital intelligence company.
We also increase wallet share with Robby and on demand delivery leader in that town fighting more of our solution offering in the region.
And online retail, we accelerated new customer wins announcing agreements with wix global marketplace Sheen and of course, the hot glue.
At the same time, we've expanded existing customer relationships with nukes and airport paid Valentino and Canadian online retailer Hadley.
And online and social video gaming, we added fast growing video games marketplace, Anita and expanded wallet share with war gaming and digital video game distributor valve.
And digital assets, we added several new customers, including crypto currency exchange crypto dot com and Panamax as well as several in F T exchanges and marketplaces, including Ultra arena.
And I'm not sure.
We've also partnered with ledger, leading hardware wallet provider to enable a direct on ramps with the leading to get funding options because they support allowing ledger users to purchase crypto currencies through our vast supported payment rails.
And in financial services.
We added that'd be the end of one of the largest banks in Colombia, which launched portal debacle is platform powered by new way to process collection payments for more than 5000 of their customers in Colombia. In addition.
It's a sign of payment orchestration everything one of the largest processors in Mexico.
As you can see the momentum of new client wins across all focus verticals is accelerating.
As we discussed on our last earnings call. We recently launched a dynamic new global marketing campaign, the largest in the company's history highlighted by our distinctive brand refresh that.
The campaign is designed to strengthen and support our brand awareness and lead generation by leveraging all channels to make an impact across our verticals and geographies.
Cause of the macro environment, we prudently deferred some of the planned marketing spend for Q1 into Q2, we're now on track and those who havent seen the company's rebrand I encourage you to visit our corporate website to get a flavor. There are many exciting things to come.
You'll start to see some of the bigger elements of the advertising campaign on leading media outlets over the coming weeks I'm really excited about the overall program. This is the first time, we've undertaken a marketing campaign at this scale and I look forward to sharing the results with you throughout the year.
Turning to product innovation highlights.
As a technology company, we continuously invest in product in order to drive more feature functionality with our modern and scalable solution stack.
And even.
Innovative product capabilities always expands our tam and creates opportunities to expand wallet share with our customers.
Most recently.
We announced real time deposits in the United States using the RTP network there.
First in the industry to do so like with realtime withdraws, which again, we were the first to offer last year real time deposits are game changers, enhancing the experience and proving market credibility and trust between customer and merchant. Furthermore, it reduces fraud and no isn't sufficient fund risk to the merchant.
While relevant to all our verticals real time deposits are immediately advantageous to our online gaming customers the United States as in play betting occurs in real time during live sporting events and players need to fund their accounts instantly and safely.
As we stated before with respect RTP and bank account based payments in real time payments. We believe there's a significant opportunity for growth as this is an increasing popular and accept the payment method.
Having customers to purchase as simply as using a credit card and to receive both patients and payers instantly into their bank accounts 20 $473 65.
With respect to adding to our capabilities in the first quarter, we added multiple new alternative payment methods, increasing our portfolio of alternate payment methods to over 550, expanding access and allowing customers to accept more forms of regionally familiar and preferred digital payment methods specifically.
In Europe , we added online offline voucher solutions for customers in Romania, Greece, Cyprus and Italy.
In Asia, we enabled several local car payments any P ends in South Korea and added several of central payment methods, such as net banking pay T N rupee funky as well as other E wallet solutions in India.
In Africa, we began offering bank transfers vouchers mobile money local car payments and E wallet solutions in Kenya for Wanda, Nigeria, Ghana, Tanzania.
Wonder and Zambia.
And in Latam, we implemented our own direct integrations, rather than using third parties into several areas, including pixel, but let them in Brazil, resulting in significantly higher conversion rates for our customers.
And finally, we implemented unionpay globally under our own acquiring license.
In digital assets and crypto currency solutions, we launched in North America with localized payment acceptance path functionality, providing liquidity risk management, Ky, she risk, scoring zero chargeback guaranteed capabilities.
We're really excited about what's happening with digital assets and we believe we're well positioned for the industry with a seat at the table with our technology and growing list of customers as the industry continues to evolve.
As of March 31, the company's support of 136 coins and ninety-seven Fiat currencies.
In travel, we expanded our footprint, adding enhanced connectivity to BSP, which stands for billing and settlement plan a system designed to facilitate and simplify the selling reporting and remedy procedures of IATA credited passenger agents BSP is a central point through which data and funds flow between travel agents and airlines.
Rather than agents, having individual relationships with each airline all information is consolidated through BSB and you've taken out process and accept payment the BSP through networks like E. T P.
Although travel remains our smallest vertical it's having these types of capabilities that will help us grow, especially as a category with Congress.
I like now to shift gears and talk about new ways unique financial profile from a financial perspective, our consistent revenue growth profitability low capex yield exceptional cash flow generation and when combined with our strong balance sheet gives us incredible flexibility with respect to capital allocation and ample opportunity to create shareholder value.
Q.
For the quarter, we generated free cash of nearly $83 million.
Previously we have discuss our disciplined approach towards capital allocation for continued growth and outlined the multiple alternatives, we have at our disposal to drive shareholder value.
This includes investing in organic growth pursuing inorganic opportunities and manage our capital structure, focusing on governance and stewardship of capital.
With respect to organic growth, we continue to invest in the business for future growth. This includes our investment in product people and our recent marketing campaign.
When it comes to inorganic growth, you'll recall that M&A remains one of our key growth pillars, focusing on capabilities geography and scale. However, we maintain a disciplined approach and have never subscribed to revenue without profitability model.
In other words, we don't do financial engineering to simply buy short term growth.
We do believe however that our position strength of our balance sheet and cash flow generation affords us tremendous opportunities to pursue acquisitions.
To date, we are focused mostly on smaller tuck ins. The current backdrop of the market and compression of valuations is making for really interesting environment, both for private and public companies and we're ready and looking to execute on potential transformational deals in the future.
Finally, with respect to capital structure, we have purchased approximately one 6 million shares as part of the previously announced share buyback plan. We communicated in March for total consideration of $99 million as of April 30 of 2022.
Looking at our priorities for 2022, our areas of focus are continuously expanding our commercial teams globally, expanding our geographic footprint as we look to continue growing in APAC, Latam and you're now accelerating our global gaming footprint and which we believe we are the industry leader.
Building out a card issuing product capabilities, enhancing our marketplace and platform capabilities.
Omnichannel capabilities in certain markets offering single API, Tokenism mission and reporting to simplify multichannel operations.
Monetizing our banking as a service solutions in EMEA.
As you can see we never sit still and we're constantly evolving to support the needs of our customers as they continue to grow globally.
Before I turn the call over to Dave who will provide more details on the financials, we're maintaining our full year outlook for 2022 and are reiterating our medium and long term targets previously provided despite the current FX headwinds and macro environment.
Finally.
I wanted to welcome all of approximately 100, new teammates who join us in the first quarter from around the World. We're excited to have you part of the new 18, which totaled 14 68 at March 31st.
As usual I also want to recognize all the fabulous and the hard work of all our employees, who contribute to the debate success each and everyday.
Keeping with our recently implemented policy that each time, we beat our outlook our employees received an additional two and a half days of vacation.
You guys are rock stars.
Grateful for your dedication and contribution to our mutual success.
In closing.
I'll reiterate how pleased I am with our results and the progress we're making across the entire company with that I'll now turn it over to Dave to discuss the financials.
Thanks, Bill and good morning, everyone. We.
We had a solid first quarter and are pleased with our performance. We were ahead of the top of the range of our outlook for the quarter and all three of our key metrics total volume revenue and adjusted EBITDA.
Total volume increased year over year by 42% to $29.2 billion run.
Revenue increased by 43% to $214.5 million above the high end of our outlook range of between 208 and $214 million.
Revenue in the quarter was unfavorably impacted by changes in foreign exchange rates by approximately $7 million.
Organic revenue, which excludes revenue attributable to acquired businesses for a period of 12 months following our acquisition and excluding revenue attributable to divested businesses grew 32%.
Gross margin in the first quarter was 78%.
The 82% in the first quarter of 2021.
The change in gross margin compared to last year, primarily as a result of the inclusion certain acquisitions, which have a higher associated cost of revenue.
As we've stated in the past our focus is on meeting the needs of our customers and driving incremental gross profit dollars through our land and expand approach.
In terms of gross profit for the quarter, we generated $168 million, which represents more than a $44 million increase as compared to the prior year period.
Selling general and administrative expenses increased by $58 million as a result of both organic and inorganic growth.
The largest contributor to the increase in SG&A with share based payments, which increased by $33 million, primarily due to awards to employees, who joined US as part of the four acquisitions, we completed last year and.
And other employee grants and last year's fourth quarter and late in the first quarter of this year.
Employee compensation other than share based payments increased by $17 million.
The increase year over year, mainly reflects higher head count both from organic and acquisition growth, including those in direct sales and account management to drive future growth and execute on our strategy.
Our acquisitions also resulted in an increase in head count employee compensation and acquisition related compensation.
Adjusted EBITDA increased by 40% in the quarter to $91 $6 million as compared to the outlook range. We previously provided of between 82 and $85 million.
Some of the outperformance relative to the Q1 outlook as it related to our marketing spend which results from some of the spend being deferred from the first quarter into the second quarter.
Adjusted EBITDA margin was 43% in the quarter compared to 44% in the prior year period.
Net finance costs was $7 $1 million compared to over $2 $5 million in last year's first quarter, mainly due to increased interest cost as well as the recognition of more than $2 million and change in fair value of the share purchase liability relating to the automatic share purchase plan, which we implemented.
March.
Income tax expense in the quarter was $8 $6 million. This translates into an effective tax rate well above the Canadian parents statutory tax rate of 26, 5%, mainly due to share based payments $37 million recognized in Q1, 2022 but are non deductible for tax purposes and search.
And jurisdictions.
Excluding the unfavorable impact of non deductible share based expense.
The effective tax rate for Q1 would have been approximately 18% and consistent with our past disclosure.
Net income for the quarter was four and a half million dollars or two cents per diluted share compared to $27 $8 million or <unk> 19 per share in the first quarter 2021.
As I mentioned earlier this year's first quarter included $33 million increase in share based expense.
Which on its own represented approximately 22 cents per diluted share.
Adjusted net income was $69 million or <unk> 46 cents per diluted share compared to $51 million or <unk> 35 cents per diluted share in the first quarter of 2021.
Looking at our balance sheet liquidity for the quarter, our cash position and cash generation remains strong.
Cash flow from operating activities for the three month period was $66 million compared to $53 million for the comparable prior period.
Free cash flow, which we define as adjusted EBITDA less capital expenditures increased to $83 million for the three months period, representing a free cash flow conversion of just over 90%.
As Phil stated, we have a unique financial profile, which gives us flexibility with respect to capital allocation.
As such we continue to invest in the business, both organically and through M&A or any discipline in managing our capital structure appropriately.
Part of our capital allocation approach. We also implemented a normal course issuer bid in March which authorized us to buyback up to $6 6 million shares.
After the end of April we have purchased approximately one 6 million shares at an average price of $63.04 per share.
For total consideration of $99 million.
As at March 31, 2022 we had cash of nearly $735 million.
In addition, we had term debt of $500 million, resulting in a net cash position of $235 million with access to an additional $385 million available under our revolving credit facility.
In addition, our leverage remains low.
Turning now to our financial outlook for the second quarter and full year 2022.
I'll refer you to our forward looking information disclosure in our press release and MD&A.
For the second quarter, we expect total volume of between 29 and $30 billion.
Revenue of between 217 and $223 million.
And adjusted EBITDA of between 80 and $91 million.
For the full year of 2022.
Turning our previously announced outlook of total volume of between 127 and $132 billion.
Revenue of between 940, and another $80 million and adjusted EBITDA of between 407 and $425 million.
The outlook specifically the adjusted EBITDA reflects our strategy to continue to invest in our business such as in distribution technology and more recently in marketing.
Our outlook also takes into consideration recent unfavorable movements in foreign exchange rates and takes a cautious approach to new customer activations.
We're very pleased with our Q1 results and with that we're now happy to answer your questions.
Operator, please open the lines for Q&A.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the camp for participants using speaker equipment it may be necessary.
Pick up your handset before pressing the star keys.
In the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Sanjay <unk> with BW. Please proceed with your question.
Thanks, Good morning, and good good results. Phil you mentioned a few times there are a couple of times just the macro.
A bit choppy here could you just talk about the downside risk to your growth given some of the verticals you might have or discretionary spend.
Yeah, Thanks, Sanjay and good morning, Great question, you know when.
We look at our current momentum we look at quarter to date.
Pretty pleased with what we've been seeing across our current customer base and.
And we have we've been accelerating new client wins, and it's really about new client on board the timing of new client on board. So we feel we feel there's upside naturally it's always going to be dependent on when clients launch, but overall from a macro perspective, when we kind of unpack. It the conflict in Europe has had minimal impact to us.
We did have in the first quarter, some smaller impact from Omi krone as there were certain lockdowns in Canada versus in North America, which impacted which in fact, our small business portfolio in Canada, but overall from from the momentum that we're seeing in the business. When we're looking at the core verticals wallet share expansion globally with our current clients we're really.
Pleased with the momentum.
Thanks, Mike.
Follow up is on North America, when I look at that revenue growth slowed to I think 13% this quarter and it was much higher than 47% last quarter. I know you mentioned E com, which is about a third.
Growth was strong there, but maybe you could just touch on what drove that deceleration and your expectations for the rest of the year.
Yeah, No I mean, North America, which we're all witnessing is that the transformation of our North American business. So we see the growth of our digital business specifically.
Specifically a method with a client wins across our key verticals in North America is a really exciting whats happening in North America today.
We we feel omni as a as we launch that in the second half of the year. It will expand our Tam again in North America, and that will impact a lot of our small business and card present capabilities and then naturally from a comparison for both quarter over quarter and year over year small business was impacted in our portfolio predominantly because we had some <unk>.
The exposure to Canada around 35% to 40% of our SMB portfolio isn't Canada, and we did have some lockdowns for the first three weeks of January .
Okay. So you don't expect that to persist at the lockdown sort of subside.
No we don't but you know what you end up seeing is our businesses dramatically focused on our global ecommerce business certainly our SMB, we support but the vectors of growth Sanjay for new way is our global digital business.
Okay, great. Thank you.
Thank you. Our next question comes from the line of George Melas with Cowen. Please proceed with your question.
Great. Let me add my my congrats on the strong results guys, especially in the environment that are that we're in right now I guess first question David.
Two points of clarification can you just help us think about the cadence of the marketing spend throughout the course of the year. You said, it's gonna be elevated obviously, how maybe we should be thinking about that coming through the course of the year and then just the second quarter revenue growth.
If I'm not mistaken that's going to be the toughest comp for crypto I believe throughout the course of the year, maybe kind of talk a little bit about how you're thinking about the comparison to Q and then I would think the acceleration again in third quarter and beyond.
Yeah, Hey, George Good morning, and thank you.
In terms of marketing spend what we outlined in the past is that the marketing spend you know for the year. It's about a 20 million dollar investment, we're making for the year as I mentioned in my prepared remarks earlier, we did defer some of that spend out of Q1 and into Q2 overall.
We're really excited about the campaign and the program that's been put together by our team and you've seen a little bit of it George in terms of the rebranding, but there's more to come in I think I think you'll be really pleased we are so far from what we've seen so we're excited about it so.
So that will kind of play out into Q2 and into the rest of the year, we'll still maintain that that spend that we're planning.
But you'll see it you know.
They are out into Q2, and I think that's part of what you're seeing and you know reflective in our in our Q2 EBITDA.
And then in terms of revenue growth I mean look we're.
From a from a 2022 perspective, you know the 30% to 35% organic revenue growth. That's that's you know that's a that we're very comfortable with that that's what our plan is we're reiterating our full year, our full year outlook.
And and again there is you know in Q1, we did see some headwinds as it relates to revenue is with respect to FX.
From an outlook perspective, we did obviously take that into consideration both for Q2 and for the rest of the year and so that's certainly something that we've considered in the outlook.
Okay, and then just a quick follow up Phil I think you.
So when you were talking about.
Looking for M&A I think he used the term transformational I'm just I'm just curious should we be thinking that you're on the lookout for larger scale acquisitions different functionality more omni channel or anything like that can you just sort of help us think through what a what new ways is working through them on the M&A pipeline. Thank you.
Yeah, Great question, George you know, what's amazing about new ways, because we go far beyond acquiring and we have so many different modules that each of those modules are their own product in their own time and their own capabilities to our customers. Our net is really wide and we've been looking at some really interesting opportunities to help our customers in terms of connecting better converting better and running their business, but from a <unk>.
Size perspective, so we go across multi multi solutions to actually go across multiple geographies as well and from a size perspective, we have we have real flexibility. So this we think displays into new base strength.
If you look at the backdrop, George there's plenty of companies that rush to be public companies that shouldn't be public companies. We think those are real opportunities for new way and there was plenty of you know high growth companies that can leverage our new base balance sheet to accelerate their continued growth and to provide greater value to our customers. So we're engaged with really interesting conversations.
Across.
Typically the scale opportunities to geographic opportunities or the capability opportunities. It's just that these happen to be larger.
Which we think is really compelling and plant in your basement.
I appreciate the color congrats guys.
Thanks George.
Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.
Hey, guys. This is Kathy on for Jason.
Well it is if I missed this but I just wanted to confirm because you guys talked a lot about the incremental FX headwinds how much is exactly baked into 2022 in Q2 relative to the 7 million of <unk> just trying to figure out you know you're maintaining your guidance, but theres more FX headwind. So maybe that's not actually adding maybe a point or two to go out there I'm just trying to figure out how much incremental.
The fact is being absorbed and it thank you.
Yeah, Hey, good morning.
Yeah, so from a from an FX perspective, basically what we did for both for Q2 and for the rest of the year. As we you know we looked at of course, those step downs right throughout the first quarter, we saw a step down specifically as it relates to let's say the euro versus the U S. Dollar we saw step downs.
Starting really kind of end of end of March or into March and then again, we saw another step down recently until the beginning of May So from an outlook perspective, we considered basically where we're at with with current rates and what those step downs look like Ah recently of course, it's hard to hard to know exactly where the rates are going to go of course, but.
We basically took the you know the current rates and use those as.
In our consideration for outlook for both Q2 and for the rest of the year.
Okay got it and you know QQ guide kind of implies minimal quarter over quarter acceleration.
Relative to wanting to you I just wanted to know is that due to like FX or seasonality or any other factors, we should be aware of that and what are some of the drivers of that maybe like the more back end loaded.
Bigger ramp up in two age relative to the first half of the year in terms of top line. Thank you.
Yeah, Great question I think the biggest impact for if you look at Q2 is FX as we've taken that into consideration. If you. If you take a look back at Q1.
I don't know 214, and a half a million dollars of revenue there was a 7 million FX.
Effects headwind right, so that that brings us into the low twenty's so exceptional performance in Q1.
As Dave mentioned, we took the lowest rate of FX and then didn't have multiple step down throughout the quarter. So we took the lowest wanted to be conservative and then we straight line that throughout the remaining of the year. So you guys can appreciate that that is a pretty significant.
Headwinds in the second quarter, so pretty excited about the buildup. So if you normalize it for FX, we're really excited about Q2 and what continues to accelerate throughout the business is is really the new client activation the pace of new clients or the performance of the business has just been really really strong engagement with a who's who across.
All of our key verticals and we're really excited about the transformation in the different regions. We're seeing acceleration in Latam, we're seeing really meaningful acceleration in North America. You know these were the two new terms that work that would that have come on board last year, and we're making appropriate investments across our Asia footprint. So I think the biggest out there.
Biggest element for Q2 for everyone to appreciate is FX and it does move around that that is why it came a little bit lower than street, but if you normalize it it's very impressive in terms of the momentum of the business in the first quarter and that's continuing and highlight the momentum that we've been seeing quarter to date has been also really compelling.
Thanks for taking my questions guys.
Thank you. Our next question comes from the line of will Nance with Goldman Sachs. Please proceed with your question.
Hey, guys. Good morning, Nice results, Phil I wanted to follow up on the earlier question on you guys looking at a little bit harder at transformational acquisitions. I think you guys have been really clear on the acquisition strategy in the past Schroeck sanyo capabilities geographies and scale I just when you talk about transformational acquisitions I think back to the one that you guys did with save charged.
And North American SMB focused business, and adding kind of global E com acquiring so when you look at the business today, you know what.
What do you feel like is missing that you think could be solved through the transformational acquisition and could you could you kind of talk about that.
The three kind of different.
Reasons that you guys look to do M&A, you know, what what and what would drive a more transformational acquisition.
Well a great question. So for US the three reasons are always a primary ones geography capability at scale. If you look at transformational M&A for example for US is to accelerate opportunities like card issuing we think there's a significant opportunity in our current customer base to monetize and that's our payout business with the card issuing.
But the same is true really with all the modules that we offer will be think as risk as a service or if you think of our payment orchestration.
In certain regions or certain capabilities would be additive to us. So we're taking a key book across the sphere. The big two I would tell you is geographic expansion and capabilities and and really scaling some of the solution stack that we currently have or that's in the pipeline for US launch. So it's quite a wide web and I think that puts us in a pretty unique position.
Got it Super helpful. I appreciate the details and then just a follow up question.
You guys are obviously reiterating the guidance and you've had a pretty solid.
Announcements here on adding new partners and capabilities with crypto companies could you help us kind of piece of part of what you guys are seeing from a macro perspective on the on the crypto part of the business and then maybe help us kind of pull that apart from the momentum you guys are saying from adding new clients.
Yeah. So I mean, we've always been clear that we think digital in a crypto strategy is critical for payment companies specifically as the industry continues evolving what's fascinating is how fast the industry has changed right. It's been alive for two or three years really when you think about it and how fast has changed you know, we we think that there's opportunities to expand and enhance our payout business for example, with with our <unk>.
Capabilities and there's multiple levers for continued growth well, we did do and what we are executing on naturally is.
As we see slowdown in our current portfolio, which was fully considered in the outlook for this year. We are cross selling these merchant opportunity that our new geographies and that is allowing us to remain relatively flattish and in a in the current vertical revenue for us. So we're really excited about the execution and then thereafter, we have been adding Keith.
Abilities and signing more partners in cross selling our solution stack with both our simplex for Onboarding expanding point capabilities, and then naturally geographies, where we're just launching North America with Latam in the pipeline as well so we like where we sit within the industry, we think theres a lot more to do.
Our product roadmap, there's infrastructure and capabilities that theres custodial capabilities. There's a lot of things that we think are vectors for growth that we're going to continue executing on and I think the biggest thing is to separate crypto from just buying a digital ASIC when the speculated perspective, but really utilizing the digital asset in the blockchain to help you.
Transform payment as we know it and we think we're on the ground floor, so really exciting things happening within that vertical.
Got it appreciate all the detail thanks for taking my questions. This morning.
Thanks, a lot.
Thank you. Our next question comes from the line of thinking with J P. Morgan. Please proceed with your question.
Thanks, so much good to be on the call I wanted to ask on the although logo additions you talked about can you comment on how many of these are for core acquiring versus.
Other modules and it looks like a lot of these logos also show up.
At your competitors I'm, just curious if you could maybe define a little bit more how you're taking wallet share and in what areas.
We won't take more wallet share, but all kidding. Aside would you end up seeing from a from a logo perspective is new vase flexible stack allows us to enter the relationship really whatever is appropriate for the merchant at the time of on boarding and that's I think they're they're really highlight our uniqueness is if it's for a single alternative payment method if it's for.
Payment orchestration or if it's for local acquiring in one particular market. It allows us to pull a chair and grow with our customers and that's really one of our unique attributes and so as we entered the relationship with some of these logos like you know last year, we were doing with wrapping for example, only gateway today, where were doing payouts. It allows you to continue growing with with with customers.
They're more profitable and more and more capabilities and there is no one size fits all so for example, you know we entered the the relationship as is appropriate for them for the time of on boarding and that's what's so fun as you know.
<unk> beyond Onboarding typically are larger than when the client onboarding and and I think that's a that is something that is super compelling when we look at what we've added so far this year. If we look at North American gaming or if we look at what happened in Latam or or some of the big wins that we're doing in other of our core verticals, it's really just creating the relationship in a platform.
For continued growth.
Great No. That's helpful. Here's just my quick follow up I know.
A lot of folks as well Sanjay in Georgia, and others asked about the consumer end.
Discretionary spend in crypto, but I think it sounds like you're capturing a lot of that in your thinking for the year, but you did mentioned a cautious approach to customer activations I fit because what I'd break down so does that mean, you're thinking that backlog conversion potentially could slow maybe that's a little bit new Ah.
So I'll make sure I understood. The addition, there thanks.
No. It's really just getting in so when we found we found was really interesting is a lot of folks utilize European back office. So for example, it was very interesting to us to see how many people had their payments and software development teams out of Ukraine and that caused the delay for certain people to actually execute on their on their integration with new bank. So that's the way.
Mean by activation is or if you are scheduled to go live in the first quarter, but that slipped into the second and third it has an impact. So we're really focused on not only signing these great logos, but getting them live and getting them live as quickly as possible and we're all hands on doing that with our current customers. So we've taken a cautious approach to saying when do they come on naturally the amount of business that was signed.
Difficult in fact, its the most significant in the Companys history, and it's a matter for US now to execute on getting those customers live with the feature functionality that that we know they want at the end.
Got it thanks for clarifying Phil Thank you.
Pleasure.
Thank you. Our next question comes from the line of Todd Copeland with CIBC. Please proceed with your question.
Great. Thank you and good morning, just following up on that last question. Phil you talked about Activations are moving out a little bit awesome.
Most business, you've signed and in the company's history.
How do you how many quarters do you see that playing out over meaning the elevated onboarding just just just walk us through the rhythm of that thanks a lot.
I taught it it's about our expansion that we've done in our distribution channels. So they're all connected right. So we feel we feel we're really still in the ground floor. We're a sales force of about 100 F. D E R.
Our objective is to continue expanding that by a multiple so we're still heavily investing into that this year, we're going to augment the sale capabilities with marketing both digital and associated we're attending 60 plus different conferences there to assist them. So we are being extremely relevant in our core verticals with the investments that we're doing and I think we.
Can sustain this because the Tam is large and our solution stack as fast. So we're pretty excited about what we see ahead of US. We're just scratching the surface in some of our markets and there's a lot more to do.
Okay.
And then just following up on gaming you've had a lot of our.
Customer and end state approvals, you've talked about this as a building year just update us your thoughts and end and when you see gaming and regulate gaming in the U S, becoming more material to our two year results. Thanks a lot.
Yeah. Thanks, So I'm I'm. So proud of my team you know we came in here with heads down.
Working on integrations working on platform integrations building relationships across the board and and we opted to take a really conservative approach, saying hey, guys. We.
We think we're gonna be a meaningful players we are in other parts of the world and the execution has just been really really good I'm Super Super proud of our leadership today, we're integrated and connected with the who's who and something that we want to highlight is that you may get a particular product with a particular, operator with whatever suits their need at that particular time, but it opens.
Doors for other conversations and other opportunities and other things that we can do for them and we're just seeing that now so you know from launching the province of Ontario, with both card acquiring alternative payment methods. All the solution stack that we offer integrating to the gaming operators and platforms and using that platform to cross sell.
North America is pretty meaningful so I like where we sit today naturally we're making progress, we're making progress with the who's who of the industry.
Testament and success breeds success, so as we gain and gain more and more momentum. We think we can be accelerating the wallet share expansion with our customers. So we're still heads down Todd.
We think that we are now clearly running well, we're seeing real opportunities. We're live we're operating we're processing, we're driving not just acquiring the payouts we're doing.
All forms of open banking capabilities and gateway capability. So it's looking very very good for us.
Great. Thanks, a lot Phil.
Yeah.
Thank you. Our next question comes from the line of Andrew Baum with F. N B C. Nikko Securities. Please proceed with your question.
Hey, guys and thanks for taking the question just wanted to touch upon the take rate dynamics in the second quarter I mean I fully appreciate the FX impact on the revenue line. However, the volume looks like it came in pretty much in line with our model. So maybe help us think through is there something in the year over year comp that we should.
Are you considering and understanding that you know take rates are an output, but any color would be appreciated.
Yeah, Andrew it's David.
Yeah, like we said in the past take rate essentially as an output we're focused on really driving the gross our gross profit dollars, what I would say, though maybe just to kind of give you some color around it.
Think about sequentially. It's a sequential increase from Q4 Q4, we're about 67 basis points. When you think you want about 73. So it is an increase over Q4 in there.
You'll recall that you know that Q4 number has some seasonality in it we talked about that at Q4, you know were really around the you know the government of charity sector that we have which has a higher.
Transaction size, but you know basically a fixed fee for many of those transactions.
And so that's kind of.
You know what what you see in terms of the swing from Q4 to Q1 and some of the seasonality impacts that that happens, but again, it's where we're very much focused on driving the gross profit gross profit dollars and.
And look as we add product and capability.
The take rate will you know well will also kind of move around so it's really for us about driving that incremental gross profit dollars and you know we have you know sequentially.
About a 3% increase on gross profit dollars in year over year about 36% increase in gross profit dollars. So that's that's really the focus.
Yeah definitely a fair point, I mean thinking about products that could be added into the platform over time card issuing seems like a natural extension to two what new vegan can offer to clients. So maybe you could just provide us an update on when you kind of think.
<unk> card issuing platform could potentially start rolling out in a meaningful way and in longer term reach scale.
Yeah, Great question, Andrew I mean, we're working diligently on it I I think where we're now implementing.
Extra handful of customers in Europe .
We have a lot on the road around that it'll be a 2023 opportunity to be meaningful but did you ever going to continue scaling. It. It is an avenue that we will look to accelerate with M&A as we think card issuing from an overall offering to our customers.
Enhancing our payout business and driving a 100% approval ratios and allowing them to create loyalty with their customers is very meaningful and it's something that we want to accelerate on but when you look at our priorities across across they're all meaningful priorities and we think they all have a real real expansion opportunities with our current customers in that.
It's really what drives it.
I appreciate it though.
Thank you. Our next question comes from the line of Joseph <unk> with Canaccord Genuity. Please proceed with your question.
Hey, guys. Let me add my congrats also on a on solid results here.
Bill you mentioned.
Your you've got a you're you're a single global license for Union pay.
Wondering what that May mean for the business here you now is that that card network is quite important globally.
Yeah, you know Joe Great question, and I think all payment mediums are critical so from an acquiring standpoint, we have we have the four core without a union pay you know in certain parts of the world JCB and others are also as critical so our objective is to have every form of card acquiring.
Capability through our platform Union pay is something that is a wallet share expansion opportunity with our current customers and we're going to continue driving that forward.
Okay, Great and then I know you can lead with almost any of your solutions.
Or modules, let's say and I know you rolled out your real time capability can you lead with real time or do you need to have other module attached to it and how do you how do you use that strategically.
Great question, Joe actually we can lead with any one of our modules. So it just just depends on where the appetite and the requirements for the customers. You know when you think about newest gaming in particular and I found this to be an interesting learning curve.
Is out of all of our offerings, Joe acquiring was the least interesting tonight the gaming companies.
Last thing when you think about that but we weren't solving new solutions from a gaming perspective, but we were actually selling the new solutions from <unk>.
Gross and net sentiment capability and instant payouts and more payment medians and consolidate that and the offering. So it's in every market in every region and every appetite is different what we found but in North America and it gives us the flexibility of engaging with the customers is what's right for them at the time and then expand from there.
Great. Thanks very much.
Yeah.
Thank you. Our next question comes from the line of Robert Napoli with William Blair. Please proceed with your question.
Thank you good morning so.
David Nice nice job on the quarter I just wanted to follow up I guess on the the amount of wins that you guys had this quarter you know, obviously sports betting stood out but.
But it just really broadly is there any way to quantify kind of the E. R. R that you've added relative to historical levels.
And.
If there's been any change in your your win rates if you would.
First of all.
I Love hearing your voice, so I'm I'm happy that you're on the small cell.
I are in terms of talking about wins, yes, really good momentum that we're seeing across the board I can't give you the profitability per customer, but we're really excited about what we've been seeing across all of our verticals. It is the most successful onboarding quarter that we've had and its normal right. If you think about it because we've been we've been.
Expanding our distribution channel and focused on building regional support for our core vertical. So this is all part of the plan, we've been winning and expanding wallet share. We think that there's more momentum to be had but we really like what we're seeing in ultimately the two new times that we've added but also our core town in Europe from where we started building up the sales channel.
An opportunity that we see across Asia as well. So there is a really deep pool that we're just scratching the surface and that's why at capital markets day, and ultimately the feeling internally in new ways, We're really just getting started.
Right. So I guess, we're planning to crawl walk run on the gaming side to where we should be running by the end by the end of the year the change.
We are running now right and we're running okay.
And not just each vote in the gaming vertical, but we're running it in all the regions that we're operating in.
Thank you and then just a follow up on a couple of areas that you've highlighted fill open banking banking as a service fraud are there. It just seems like there's so many opportunities.
Those markets in so many ways to go after.
Those are you know those businesses are any.
And any thoughts on which of those areas, how youre going to be how you want to attack open banking no fraud, there must be hundreds of interesting smaller companies to build a solution on your supply strategy does it I guess open banking and pod would be helpful.
Yeah, I think you're alluding to it right is M&A there I think the answer is yes right.
Are there scenarios that we're doing internally so for open banking and our banking as a service we're embedding our banking within the merchant applications and when merchants Automd board with new vein don't have it.
Bank banking account provided in Europe , and that gives them access to weekend settlements and other opportunities that we can provide to them that would be beneficial on the fraud standpoint, we've done a lot of work internally with that with our amazing data architects that came on board with simplex and finding ways to improve authorization rates and analyzing between where we are.
Straight payments, where we process on our own and how we drive that value over and how we implement that so really these are all vectors of continued growth as the business just gets better and better.
Thank you I appreciate it.
Well I was surprised to hear you on the call, but I'm glad you're here.
Thank you. Our next question comes from the line of Timothy Chiodo with Credit Suisse. Please proceed with your question.
Great. Thank you good morning on the 100 FTE number that you mentioned and all of the new wins on slide eight really impressive and also the brand marketing coming up but it all seems very supportive of the new customer component of your growth algorithm, maybe just given that backdrop, you could provide a little bit of context around how we should think about the new.
Or component within the 30% medium term outlook.
Yeah.
Great question, Tim It it's it's all embedded into the outlook. So when we when we build our outlook in the rolling forecast, we do it by merchants So we're pretty specific.
We look at what we sign in the year and that is driven by FTE and region and vertical.
And we build it from there and it's always building blocks, Tim right. So what you see in year is always a fraction of what you end up seeing in the outer years. So this year. We're certainly building. We're excited about these customers going live but it creates that springboard for 2023. So every in years more gardening the faster we get accounts approved in the past we see revenue in year.
And I mean accounts onboard it and as those accounts start developing expanded wallet share for us. It gives us a really great continued platform for growth in 2023.
Great. Thank you for taking the question.
Thanks, Dan.
Okay.
Thank you. Our next question comes from the line of John Davis with Raymond James. Please proceed with your question.
Hey, good morning, guys lots of them talked about it on the guy, but she'll just really wanted to put a finer point on it. So is it fair to say that to Q. Rev. Guide is in line with your initial expectations, excluding FX and maybe some go lives.
In other words are you seeing no slowdown in the business.
Exactly that and we tried two or two to.
Make sure that that was clear the biggest impact in Q2 is just FX and FX, we've updated from taking a conservative approach and in the lowest rate that we saw in the beginning of may but otherwise if you look at the outstanding achievement in Q1 normalized for FX that momentum is continuing and we're seeing really good momentum in the business.
Okay. So in other words I'll mention on the business is actually offsetting any pushing.
Go lives. So it really is just FX.
Correct.
Okay, and then so bigger picture question.
Notice the pretty meaningful tone change and when you talk about M&A and even through the word out transformational now what's driving that is it were far enough beyond safe charge the balance sheets been healthy for a while as valuations coming in and just just curious what's driving that tone change.
I think there's that's a great question, John So I think one is bandwidth.
Integrated the historical acquisitions, we now have capacity and capability I think that's the first one we're always very cautious of doing the right thing and it's never about engineering, it's about building platforms for long term growth.
I think the second thing is the health of our balance sheet and our profile and really I think the world has changed right growth in revenue at all costs without being profitable I think is out the window in the backdrop that we're seeing today and we think that opens up the opportunity for us. When we are hungry we have capability, we see some great businesses out there and we're now in.
To execute on them. So I think really those are the big items. The great thing for US John is we don't have to do anything that we have such a great powerful expansion opportunity for new way across our core verticals, but we do think that they'll opportunity present themselves and we intend on looking for them.
Okay. Thanks, guys.
Thanks, John .
Thank you. Our next question comes from the line of Ashwin <unk> with Citi. Please proceed with your question.
If it was kind of it.
I guess the first question I have is is it kind of look at the outlook and you guys have talked a lot about what brings to cube down into the Twenty's I guess organically maybe in the teens.
But the acceleration and the visibility into that because the back half does imply.
Turkey's right. So is that you mentioned Phil.
You do the modeling I guess based on client by client is that visibility coming from client conversations or is it a macro assumption.
Assumption that you've embedded could you talk a little bit more about that reacceleration in the second half.
Yeah, certainly I think look the only deceleration that we've seen in Q2 would've been FX, but based on client timing of client Activations that we're having visibility we're seeing now the momentum within the business, which we are ahead of our expectations. Just in terms of April and May So we're pretty confident.
So you know Q2 Q2 and at the current pace, excluding the FX headwind.
It would've been significantly ahead of consensus we're pretty pleased with what Q2 shaping up towards being in the naturally the.
That new business that will continue building upon in Q3 and Q4 I think there was one thing that maybe I should highlight for everyone. Here because we may have missed that Theres also the World Cup. This year as you guys know right and so the World Cup is going to be a meaningful opportunity for debate origins.
And in this year in particular, just because it seems that a qualified in Q4. So were our progress in gaining will have a nice springboard for us as the years continue shaping up.
Understood.
And then you know they just wanted to.
As the visit that pretty healthy and adding our employee count is that mostly in sales and then the related question is.
Definitely nationally are your commissions expenses that primarily third party associate adding direct sales, we should kind of see a flip within your SG&A Commission expense goes down as a percent of net sales and employee comp goes up is that how.
If you look at it.
Yes, exactly that so you know actually we had a slide in this section of the capital markets day, where how EBITDA margins, we're going to expand and one of the things that you highlighted as we continue expanding the direct sales Force Third Party Commission expenses will continue decreasing so yes, that's exactly correct.
Got it okay. Thank you.
Thank you.
Thank you. Our next question comes from line of Paul Cheever with RBC capital markets. Please proceed with your question.
Oh, good morning, and thanks for squeezing me in.
A quick follow up question just to clarify your comments on crypto she mentioned that.
Crypto revenue would remain flattish.
In the vertical I think that's what you said, but then also previously you said that 2020 to be down 50% is that more of its 50% is that more of the industry can you just help bridge those two comments please.
Yeah, its just where were seeing crypto prices down we have you know our objective and what we're working towards and actually with new eyes and vertical expansions we believe.
The vertical for new Bay will be flattish from a revenue perspective, we are seeing naturally shifts in the space with with the crypto prices down but from a new base standpoint, the strategy and exactly what we're executing towards is expanding the wallet share with our current customers and our new regions, we haven't done that successfully and with that we're keep.
We're keeping an eye on the crypto vertical flattish for the remaining of the year.
Okay. Thank you that makes sense.
Thanks, Paul.
Thank you. Our next question comes from the line of Mack Cali Autonomous Research. Please proceed with your question.
Hey.
Hey, guys. Thanks for squeezing me in as well.
Kind of just like one on the macro.
If you guys think about your verticals in your client within gaming Crypto financial services.
You could argue that they benefited from shelter in place. So I'm just thinking like when do you think about your full year guidance, how do you bake in a decent amount of conservatism there.
A great question. So for US we always look at week to week Whats interesting is when we.
We started looking at crypto bumps for us and kind of paralleling that four of our verticals and one and benefited from them for certain but the wallet share expansion that we had and the geographic expansion that we're having with all of those core verticals as dramatically outweigh any of the benefits that they've seen from a quote from a from.
Pandemic perspective, so we really like what we're we're coming back to I mean, there's a case in point some of our largest gaming claims from the momentum from the top 10 perspective with the new they are new clients that we've on boarded in North America. So the expansion of geographies is really really important in all of our core verticals and wallet share.
Spansion is also very important and that's why we've always highlighted that we've gone from mainland Europe , we double the Tam by coming into North America, We've expanded our Tam again into Latam, We're cross selling within our current base of opportunities as.
The significant amount of growth for new when he comes from our existing customers and we're executing on that and as we add geographies. It adds to our times and as we add product capabilities. It adds to our solutions stack as well. So you can't take one item in a vacuum and and and create a general blush for new way is our product mix has also expanded dramatically which is also really important.
Our solution offering Parisian has also expanded and actually our regional footprint has expanded as well so all of those combined pretty comfortable with.
All of our core verticals and the growth that we see in them.
Super helpful. Thanks.
Thank you.
Thank you. Our final question. This morning comes from the line of Andrew Hummel with West Park Capital. Please proceed with your question.
Hey, guys. Thanks for squeezing me in as well.
A quick follow up on on the expense line, particularly as you guys are bringing on.
A number of new employees and and you know on the.
On the direct sales side, but.
Have you guys factored in.
You know I'm, a meaningful increase in the employee comp just based on some of the inflation figures, we're seeing this year.
I just talked to like what what what you have built in and if you.
Recognizing that you have to absorb incrementally to.
So what you've built into the deal.
Michelle expectations for the year.
Hey, good morning, Andrew It's David.
That's certainly what do we we provide our outlook for the full year, we took that into consideration.
Shouldn't fears and factors what kind of.
Turning to stare a few months ago. So we certainly took that into account again looked at it again as we reiterate our full year now you know the other thing that I'd point out.
And you'd see this too is in our share based compensation like that's part of how we compensate our employees and you have seen that.
Pick up over the quarters, we do make sure that our all of our employees are aligned with shareholders and so we do.
We have and will continue to grant them all share based compensation. So long term incentive plan and so that's part of it to them and that helps you know from a from an inflation perspective as well. So just make sure. We of course align all of our compensation across the board. We don't look at just one component, but that's that's part of the overall compensation approach that we have as a share base.
Compensation and you'll have seen that pick up and.
Of course, we factored them consider that as well for the rest of it here, even though it doesn't affect us early our adjusted EBITA.
I think that.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Gerstein for any final comments.
Thanks, everyone for participating.
You know we're always here to follow up if you have any questions. So please feel free to.
Reach out and have a great day, and we look forward to speaking with you in the future. Thanks.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.