Q2 2022 Nuvei Corp Earnings Call
[music].
Yeah.
Good morning, ladies and gentlemen.
Thank you for standing by.
Welcome to new <unk> corporations.
Second quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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I will now turn the conference call over to Anthony Gurnee theme.
Vice President and head of Investor Relations for a new way.
Please go ahead Mr Gostin.
Thank you operator, and good morning, everyone and thank you for joining US with me today are Philip <unk>, Chairman and CEO and David Schwartz CFO .
As a reminder, this conference call is being recorded and webcast and is copyrighted property of <unk> and rebroadcast of this information in whole or in part without written consent of <unk> is prohibited.
This morning, <unk> issued a press release announcing financial results for the three and six months period ended June 32022.
The release as well as an accompanying presentation is available in the Investor Relations section of the company's website <unk> com under events and presentations.
During this call we may make certain forward looking statements within the meaning of the applicable securities laws and.
Such forward looking statements involve known and unknown risks uncertainties and other factors that may cause the actual results performance or achievements of the business or developments in new basic industry to 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 <unk> filings with the Canadian Securities regulatory authority and on the company's website.
Our discussions today.
Include non <unk> measures, including adjusted EBITDA adjusted net income adjusted net income per share and free cash flow.
Management believes non <unk> results are useful in order to enhance our understanding and our ongoing performance, but they are not a supplement to and should not be considered in isolation from a substitute for <unk> financial measures.
A reconciliation of these measures to <unk> measures is available in our earnings release and MD&A.
We'll open up the call for your questions after our prepared remarks.
With that I'll now turn the call over to Phil.
Thanks, Anthony and thank you all for joining the call. This morning, as we share our results for the quarter and highlight the progress we're making across the company.
We had an operationally solid second quarter, driven by our disciplined investments sustainable growth, which continued to enhance our already attractive financial profile driven by strong revenue growth exceptional cash generation and unlevered balance sheet, which combined provides us with tremendous optionality.
I want to stress that we are one of the few high growth fintech with such an enviable financial profile, especially when it comes to free cash flow.
Today I'm wondering if Q4 topics first our results for the second quarter.
Second recent operational highlights related to our technology and go to market strategy.
Third details on the current trends and expectations for the rest of the year and for our forward looking view of the business.
Turning now to our financial results, we had a solid second quarter with total volume adjusted EBITDA exceeding our outlook as we continue to execute on our strategic initiatives.
Dave will go through the results in more detail, but at a high level total volume increased 38% to $30 1 billion as we continue to grow with our customers and scale our platform more impressively total volume grew 44% to $31 4 billion on a constant currency basis for the same period last year.
Revenue increased 19% or 24% on a constant currency basis and grew 16% organically on a constant currency basis.
Adjusted EBITDA increased 17% to $93 million with a margin of 44% and free cash flow was strong at 81 million for the quarter.
Adjusted net income increased 16% and adjusted net income per diluted share increased 15% to 51 cents.
As mentioned, we exceeded our outlook for both volume and adjusted EBITDA, while revenue of $211 million was below our outlook range previously provided of between 217 and $223 million.
This was mainly as a result of chain.
Changes in foreign currency exchange rates, which negatively impacted revenue by approximately $2 million as the U S dollar strengthened more than we anticipated.
Higher volatility and lower volume than we anticipated and digital assets in crypto currencies, which negatively impacted revenue by approximately $4 million.
As well as the change in volume mix from alternate payment methods for which revenues are presented on a gross basis.
Which is presented net of interchange and payment network fees, which negatively impacted revenue by approximately 6 million.
In total these factors combined contributed approximately eight to 12 million of revenue headwind in this year's second quarter.
Outside of these factors many of which were largely unforeseen our revenue would have been $223 million or at the top end of the revenue range. If the outlook we provided.
Naturally these headwinds ultimately impact our adjusted EBITDA free cash flow and earnings per share.
It is important to recognize that these headwinds are expected to temporarily impact organic growth in the second half of 2022 as we lap very strong activity in digital apps in crypto currencies in the second half of last year.
We continue to support our customers with our trusted and robust on and off ramp infrastructure and we are very well positioned for an industry rebound.
With respect to alternative payment methods.
Our strategy has always been to provide our customers with all preferred payment options that are relevant to their customers.
Your second quarter, we saw an increase in the usage of credit overall program payment methods, which as I. Just explained has a greater impact on our revenue.
Adjusted EBITDA.
Turning now to our operational highlights for the quarter, we continued to make meaningful progress executing our strategic growth initiatives, including growing with our customers expanding our geographies and driving technological innovation I will highlight what we're seeing in some of our verticals.
In travel revenue increase of 139%.
Even more interesting is that on a same store sales basis alone increased to 85%.
While traveling represents less than 3% of our overall revenue.
He really has a lot of momentum, which will be driven by existing customers as well as new customer wins, including air Transat West yet in the second quarter, along with a deep and advanced pipeline.
Looking at our online retail vertical showed amazing progress I did had revenue growth of 112% over last year's second quarter, and which is driven predominantly by new business.
With investments in our global Omnichannel solution and expanded go to market efforts. We are confident retail will continue to play an even greater role in our revenue mix for the future.
Recent success, such as helping you and Nick our Forte and sheen to grow from region to region or the recent win of happening which is utilizing our solution across multiple regions is really just the beginning for new debt.
Turning to online gaming.
We also had an excellent quarter, especially when you consider this your schedule versus last years.
As you May recall, the European Football League schedule was pushed into the summer in 2021 due to the pandemic, whereas this year. It ended in May this makes for a more difficult year over year comparison, but even with effectively one last month and this year's second quarter and the headwinds previously highlighted.
Online gaming same store sales revenue increased 2%.
New business in online gaming is also progressing well and helped drive an increase in online gaming revenue by 22% in the second quarter.
Compared to the second quarter of 2021.
In terms of our progress in North America, our online gaming revenue run rate is now approximately $25 million and we're on pace to deliver on our target of $100 million of annual run rate revenue in the medium term.
With respect to this year's third quarter and the remainder of the year. It is important to recognize that the 2022 2023 European Football League season started earlier this week and will finish later than usual due to this year's World Cup, which run from November 21.
December 18th historically, we've seen a 10% to 15% revenue lift in our online gaming vertical related to the World Cup depending of course on country qualification.
Overall, we continue to make progress and saw strength and momentum in many of our focus verticals, excluding digital assets and crypto currencies.
Turning now to an update on our go to market strategy.
We continue to invest in our direct commercial sales teams globally and are performing extremely well as reflected in new business growth, specifically, we had more customer activations in the second quarter than in the first quarter and are on pace to approximately double new business revenue globally comments direct channel from 2021.
This coupled with our deep pipeline is providing us with additional confidence outgrown both the FX and crypto related headwinds.
We have gone from being Underpenetrated market to now having a much more meaningful meaningful and visible presence in this year's second quarter. We also expand our teams in APAC and Latam and opened our first sales office in China.
Our objective remains to be local to our customers around the world and remained focus on continually expanding our sales force and every region to make sure we have global coverage.
Highlight that our investments in our direct sales channel are yielding exceptional results as reflected in the 36% increase in revenue at constant currency in the second quarter with our global ecommerce business.
Impressive outcome given that almost all of the headwinds we are experiencing in the quarter impacted this channel specifically.
Moving on to other operational highlights. We also had an excellent quarter in terms of product and innovation delivery. We continue to believe that our modern <unk>.
Scalable technology stack is unique and offers clear most of our business when compared to our peers our ability to constantly innovate is driven by our talented team of more than 500 engineers relentlessly focus on supporting our customers as they execute on their own business initiatives.
We remain at the forefront of innovation never standing still by expanding our modules and solution stack quarter after quarter.
With respect to specific advancements in products and capabilities I'd like to highlight a few.
And payouts, we enhanced and expanded.
Our solution offerings to now include instant payouts for all European countries. We also launched visa direct in Canada and added local payment options in Brazil, Canada, Chile, Colombia, Malaysia, Mexico, Peru, and Romania.
Our continuous roadmap offers our customers more choices and more options to drive greater productivity and efficiency with their customers.
And remember the more pad solutions, we offer the more relevant our pain solutions become.
Next we launched new based simple connect SDK, which dramatically simplifies integration to our platform. We believe our SDK solution is ahead of our emerging peers as its the easiest to integrate allow for more than just card payment options and offers customers a full array of customized capable.
<unk> and flexibility.
With a simpler integration.
Expanding our Tam to penetrate tier two and tier three global customers and will focus on developing our technology partnerships globally.
Another product launch that we're excited about and creates meaningful opportunities for US ahead is our omnichannel solution.
As recently announced we started with our first customer supporting their in store payments across 40 locations in North America, and our global ecommerce presence.
The single integration our customers can now use <unk> for multichannel multi geography integrations supporting single tokens simplified reporting and reconciliation to streamline our global operations.
Omni channel is an important part of our growth platform and integral part of our growth strategy is going to allow us to accelerate penetration into new verticals.
<unk> current client relationships and be far more competitive in rfps.
And it is relevant to all our verticals and we're just getting started here.
We believe Omnichannel is a true game changer, and potentially transformational to our business development efforts.
In terms of our geographies.
We're actively pushing to expand local acquiring capabilities with over 20 licenses and scheme applications in high priority markets. We've also enable car brands, including discover diners.
Diners Union pay international and now actively working towards enabling JCB to round out our vast acquiring capabilities.
In summary.
Each product solution expands our Tam and offers US a platform growth with our customers as we remained focus on brand relentlessly helping them execute on their own initiatives.
To put into perspective, we typically see on average 25% to 30% of the wallet share of our customers. So the more capabilities and solutions, we can provide to our customers the better our position to capture greater wallet share.
Turning now to market trends, we continue to see momentum in the business, excluding the FX in crypto related headwinds, which we believe we're going to lap over the next few quarters.
As you can see from our constant currency volume growth of 44% in this year's second quarter and the performance of our global ecommerce channel there's been no visible change in consumer spending.
However, considering the macro environment it is challenging to predict how when and if trends will change and.
And we have decided to err on the side of caution with respect to the second half of 2022 as such we are amending our outlook for the year to take into consideration.
Quarter results continued headwinds from FX, a prolonged crypto winter and to be cautious we have included an additional buffer.
I'll emphasize that we're heads down and laser focus on executing our strategic initiatives and are very confident about the direction in which we're headed.
Maintaining our medium and long term targets and you aspire to first achieve 1 billion of annual revenue as you heard today, we continue to invest in a disciplined manner and are making the right investments in people technology and geographies.
<unk> for the long term.
We have built a resilient and durable business model, our strong financial profile, including diverse revenue growth exceptional cash generation and strong balance sheet with low leverage provides us with a lot of flexibility we maintain a disciplined approach towards capital allocation for continued growth and have multiple alternatives at Argus.
Posed to drive shareholder value.
That's for M&A.
We do see many opportunities with the market dislocation, but remain disciplined to maximize shoulder value, which has served us very well in the past.
I'd like to welcome our two new recently appointed Board members Merlin low regional Vice President of Latin America of meta and Tinder, and former Chief Financial Officer, and Chief compliance Officer of Draft Kings.
Both Maryland, and Tim are adding additional 12 board. They are proven leaders, who bring extensive knowledge skills and experience, which are highly relevant to our fast growing verticals and geographies.
They further strengthen our corporate governance by increasing the number of independent directors and advance our diversity targets, where women wellbore, which represent 30% of the board by the end of 2023.
As chair of New Bay, I look forward to working with and learning from them.
And finally to our employees I want to thank you for your relentless hard work you guys are amazing.
Also want to welcome more than.
100, new team members, who joined the company in the second quarter. We're excited to have you.
With that I'm going to turn the call over to Dave to discuss the financials and our outlook for 2022.
Thanks, Bill and good morning, everyone I will start with our Q2 results and then turn to the outlook for the third quarter and rest of the year.
Overall, we are pleased with our second quarter operational and financial results, we exceeded the top end of our outlook range for both total volume and adjusted EBITDA, while revenue was below our outlook due to headwinds, which bill mentioned and I will elaborate on.
In addition, during the quarter, we generated cash from operating activities of $91 million, which represents the highest level in the company's history.
Our balance sheet continues to be very strong which gives us flexibility.
Total volume increased year over year by 38% to $30 1 billion.
On a constant currency basis total volume increased by 44% to.
$31 4 billion demonstrating.
Demonstrating that consumer spending remains strong throughout the quarter and that we are successfully scaling and executing on our plan.
Revenue increased by 19% to $211 million and still mentioned was negatively impacted by three factors.
The exchange rate fluctuations.
Crypto currency volatility and volume mix, which on a combined basis and unfavorable revenue impact of approximately $12 million as compared to our previously provided outlook range for the quarter.
Adjusting for the $12 million impact we would have achieved the top end of our outlook range of $223 million.
As for currency exchange rates.
Our diversified business provides advantages in terms of geographic diversity does come with increased exposure to currency fluctuations.
The current GBP and Euro dollar rates are at levels, which we haven't seen in recent years.
These evaluations and the rapid decline has had a significant unfavorable impact on our revenue. This year and has continued to move against us since the last time, we spoke during our Q1 earnings call.
As a result to help understand our performance. Excluding this uncontrollable factor we have added revenue at constant currency to our disclosures.
Organic revenue growth at constant currency was 16%.
On a year over year basis, the unfavorable revenue impact from currency fluctuations was $9 million, which was $2 million greater than what we expected.
Without this impact revenue growth on a constant currency basis was 24%.
In terms of geographic reach our revenue comes from four regions.
In the second quarter, EMEA revenue, which is our largest region at 57% of total revenue increased 28% to $120 million.
In North America, our second largest region, representing 39% of revenue we.
We saw revenue increased 8% to $83 million.
However, our global E Commerce direct channel in North America grew by approximately 34% year over year.
In Latin America.
Revenue, which represents 3% of total revenue increased 29%.
In this region and we have expanded our local team by more than 30% since December 31, and now have more than 75 team members.
And finally in Asia Pacific, which represented less than 1% of total revenue you've expanded our local team since December 31st by more than 75% for a total of 23 team members.
I will now turn to take rate.
In the second quarter, our take rate was 72 basis points compared to $81 five basis points in last year's second quarter, primarily due to volume mix.
However, this take rate level was consistent with recent quarters.
As we have mentioned previously our approach is to provide our customers with solutions they need irrespective of the resulting take rate.
As we support our customers and provide them with payment technology solutions, we are able to maximize our gross profit dollars.
Such as through expanding our wallet share with them.
In terms of gross profit for the quarter, we generated $175 million, which represents more than a $30 million increase or 21% growth as compared to the prior year.
Gross margin in the second quarter was 83% compared to 81, 4% in the second quarter of last year.
This increase in gross margin as a result of a more favorable revenue mix.
Selling general and administrative expenses increased by approximately $51 million or 53% to $147 million as a result of organic growth as we continued to grow and invest in the business as well as a result of acquisitions of simplex payments has and the zuma, which we complete.
In the latter half of last year.
The largest contributor to the increase in SG&A was share based payments, which increased nearly $28 million to $33 million, primarily due to awards to employees, who joined US as part of the acquisitions, we completed last year as well as other grants.
Share based payments with sequentially lower than the first quarter of this year due to downward adjustments pertaining to incentive awards, which have non market performance conditions.
Furthermore of the $33 million of share based expense in the quarter Approx.
Approximately $15 million or 45% related to awards with an exercise price our share price performance condition in excess of $100.
As a result of the high exercise price and share price performance threshold, a high proportion of the outstanding units are significantly out of the money.
Approximately $5 3 million incentive units, representing 43% of the total units outstanding have an exercised price or share price performance condition in excess of $100.
Or relate to a non market performance condition that were not achieved as of the reporting date.
As a result, these $5 3 million units are not considered dilutive in terms of diluted shares outstanding.
Employee compensation other than share based payments increased by more than $14 million.
This 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 across all our regions.
The acquisitions completed last year also resulted in an increase in head count.
Responded employee compensation costs.
Adjusted EBITDA increased in the quarter to $93 million, which was above the outlook range. We previously provided of between $88 million to $91 million.
Adjusted EBITDA margin remained strong at 43, 9% in the quarter compared to 44, 5% in the prior year period.
I would also note that the headwinds experienced during the quarter would have also impacted our adjusted EBITDA.
Net finance income was approximately $4 million compared to net finance cost of approximately $3 million in last year's second quarter.
Primarily due to a gain this quarter of $8 million relating.
Relating to a favorable change in fair value of the share repurchase liability.
Turning to the automatic share purchase plan established earlier this year.
This gain was as a result of share is being subsequently purchased at prices below the market price on the date of which the automatic share purchase plan was established.
This gain was partially offset by increased interest costs from higher debt as well as the higher interest rate environment.
Income tax expense in the quarter was approximately $6 million.
This represents an effective tax rate of 14, 3%, which was below the Canadian statutory tax rate of 26, 5%, mainly due to the favorable impact of lower tax rates in certain jurisdictions in which we operate as well as specific non taxable items, such as a favorable change in fair value of the share repurchase.
Liability.
Net income for the quarter was $35 million or 23 per diluted share compared to $39 million or 26 cents per diluted share in the second quarter of last year.
As I mentioned earlier this year's second quarter included a $28 million increase in share based payments.
Which on its own represented approximately <unk> 19 per diluted share.
Adjusted net income was $75 million or <unk> 51 per diluted share compared to $65 million or <unk> 44 per diluted share in the second quarter 2021.
Looking at our balance sheet and liquidity for the quarter, our cash position and cash generation remains strong.
Cash flow from operating activities for the three months ended June 32022 was $91 million compared to $86 million for the comparable prior year period.
This level of cash generated from operating activities represents the highest level in the company's history.
Free cash flow, which is defined as adjusted EBITDA less capital expenditures.
$81 million for the quarter, representing free cash flow conversion of 87%.
Our unique financial profile, resulting from our strong balance sheet and high cash generation gives us flexibility with respect to capital allocation.
Such we continued to invest in the business, while remaining strategic and disciplined in our capital allocation approach.
With respect to the normal course issuer bid, which we implemented in March we purchased approximately 560000 shares for total consideration of $34 million in the second quarter in.
In total we have purchased $1 8 million shares for total consideration of $109 million through June 32022.
Also in the second quarter, we purchased the 40% minority interest in a subsidiary for approximately $40 million.
As at the end of the quarter, we had cash of almost $722 million. We also had term debt $499 million, resulting in a net cash position of $223 million with access to an additional $385 million available under our revolving credit facility and <unk>.
Addition, our leverage remains low.
I will now turn to our third quarter and full year 2022 outlook.
As a result of the unpredictable macro environment and currency fluctuations certain trends, we have observed to date volatility in crypto currencies and the strong performance of crypto currencies in the second half of 2021.
Taking a more conservative view and amending our outlook.
Our financial outlook for the third quarter and full year 2022 is as follows and I'll refer you to our forward looking information disclosure in our press release and MD&A.
For the third quarter, we expect total volume of between 25 and $26 billion.
Revenue of between 185 and $195 million.
Revenue at constant currency of between 195 and $205 million in.
And adjusted EBITDA of between 70 and $75 million.
For the full year of 2022.
Adjusting our previously announced outlook to total volume of between 117 and $121 billion.
Revenue of between 820 and $850 million.
Revenue at constant currency of between 855, and <unk> hundred $85 million in.
And adjusted EBITDA of between 335 and $350 million.
The outlook specifically the adjusted EBITA reflects our strategy to continue to invest in our business in key areas, such as distribution technology and marketing.
Our outlook also takes into consideration the factors I mentioned previously as well as a cautious position considering the current unpredictable and uncontrollable unique macro environment.
With our exceptional balance sheet and high cash generation, we are very well positioned to not only manage through the current environment, but also take advantage of opportunities as it relates to organic growth acquisitions and capital allocation.
With that we will now open the line to take your questions.
Thank you very much.
Okay.
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One moment please for questions.
We request you to restrict to one question and one follow up.
We have our first question from the line of Sam.
Joseph <unk> with <unk>. Please go ahead.
Thanks, Good morning.
So David maybe my first questions for David Obviously, a big swing in the revenues for the second half for a number of variables that you guys outlined could you maybe just break down and dimensionalize sort of the severity of each of those points as Phil did for the second quarter.
Okay.
Good morning Sanjay.
Thanks for the question.
So yes, so in terms of the breakdown those three factors of course that if any.
<unk> Q2 also impacted the second half of the year.
What I'd say in terms of FX.
When we did our original outlook earlier this year and then reaffirmed in May of course, the rates have changed pretty meaningfully since that point in time.
What we kind of assume now in terms of FX rates, there's a flat FX rate based on the last month or so.
Which is kind of consistent it's hard to forecast of course, if you look at the impact in Q2.
We talked about it being a $2 million impact.
We did have a bigger drop it's much larger impact as you look forward into the second half of the year, we haven't quantified it externally, but I'll kind of leave it at that and you can kind of run some math, but you can see kind of from a constant currency basis on a reported basis on a full year.
The full year impact you can kind of see the differential we gave is about $35 million between reported and constant currency on a full year basis.
In terms of crypto and digital assets, we've taken it down pretty materially significant year over and that's both for each one versus H two and then from a year over year perspective also a pretty significant reduction.
And then again on the APM component.
That's also something that we use as a data point from Q2, and that's taken a cautious approach. So no overall, what I'd say, so Andrew when you think about.
You know the the outlook it kind of falls into three.
<unk> three buckets I would say is currency.
<unk> is kind of how we think about the currency crypto currencies and caution is how is how I'd describe it for the rest of the outlook.
Okay, Great and I guess follow up question I know in your medium term growth target commentary you qualify that they don't necessarily apply to 2023 or any other fiscal year for that matter, but maybe you could just help us a little bit as to how 2023.
It's up given some of these assumptions, especially crypto if we were to assume this crypto winter sort of just sustains itself like how does that affect the medium term expectations. Thanks.
Yeah.
No. It's a good question and so it was 2023, we haven't given our outlook obviously, you'll have to wait on that until we got later in the Euro will obviously provide 2023.
In a future quarter, but.
Those you know those the crypto specifically, it's a hard one right there's some volatility.
We've tried to take a caution that cautious approach and from an investment perspective. This business is certainly more than that and you saw the disclosures we gave at our capital markets day, and certainly we're investing in.
In the other verticals.
And so we do see good growth and good momentum in fact, new business in those other verticals. So I think that's kind of the way to think about us.
Say go forward not specific necessarily 'twenty 'twenty three.
But that's kind of what I, what I would say I don't know if there's anything you wanted to add on that point.
Yes, sure I'm happy to first of all Hi, Sanjay I think the interesting thing is last year's activity. When you look at the second half of 2021.
The majority of crypto activity that we saw so we are going to be on lapping at over the next few quarters I think that's the first point and we've taken that into consideration and second which I find really interesting is our momentum in new business and our momentum with our current customers continues and in fact, our new businesses.
It's really been performing well and we're making continuous investments as we expand both in North America as well as in Latam and APAC. So we're quite bullish on the business I think something to highlight right great businesses are not built overnight.
Long term investments and investments that we're making certainly we are going to lap. This unprecedented meltdown of the digital asset vertical we think we have excellent technology to help as the market recovers, but we don't expect it to recover over the next 12 to 18 months.
Thank you.
Thanks, Andrea Thank you.
We have next question from the line of Bob Napoli with William Blair. Please go ahead.
Thank you and good morning.
David.
Anthony.
Maybe a follow up on sand Jays question on the <unk>.
Now to caution part of the fees I mean, what can you give any color on how the month of July performed relative to your guidance for the third quarter in <unk>.
The economy were to essentially be steady.
From where it is today and you don't get.
Yes.
And meltdown in the macro economy, how much caution have you built into the numbers.
Bob I think the biggest thing that I can leave you with it's not the time with the macro environment to be a hero, we like to be cautious we want to obviously be heads down executing we really like what we see throughout the business, but it's very difficult to predict really if when and how consumer spending will change and how that can impact our verticals from a.
Are you spending perspective, we have not seen a change in <unk>.
Our own business, but that doesn't mean it won't come.
We have seen an uptick in travel as I mentioned in my prepared remarks, and obviously, we are expanding our travel footprint, but it is extremely difficult to predict what the next few quarters will be.
What will happen in Europe , and other regions. So we have taken a cautionary tale.
From a July perspective, we're well within line.
Naturally in our business gaining <unk>.
Gaming was not very active in July we have seen the activity resumed earlier. This week. So from our perspective the business is performing as we expected.
Okay, and then you made some comments on omni and importance of omni in store can you give any more color on.
What your goals are there how you or what is.
No.
We break out the omni mix of your business today, and what you think the opportunity is over the long term.
And we think all of these can be quite substantial and we thank all of you is going to be substantial across the board and to unpack that a little bit.
Omni naturally our unique offerings on a per country basis. So we are focused on U S. Canada and UK. Initially and then we're going to be looking at mainland Europe and other markets that we operate in so a very nice journey, there, but predominantly Bob and most rfps that we see coming through really across most of the verticals on visa requirement and something that we're pretty excited.
The drive through because it will help us we think when far more business that we see today.
The first one I think the second thing is to appreciate that omni as part of verticals that we have an appetite to expand into online retail and retail are emerging well together, but not just the knowns. If you think about gaming for example, right and the U K. The vast majority of gaming is still on site. So it has a relevant in all aspects of our portfolio.
Leo.
And I think the third thing that I would leave you and then we'll get to materiality is because when we look at our own customers. When you look at our own modules and our own journey a lot of our growth comes from helping our customers execute on their own strategies and their own initiatives and it's a fascinating topic of what modules. How do we help them how do we help them grow from country to country and simplify their operations and omni search.
A big part of that as they too look at their multichannel strategy. So we're pretty excited about not only looking at our best set of capabilities, but what we can do within our own customer base.
The upside opportunity is pretty meaningful so when you and I'm thinking about are seeing 25% or 30% of our customers' wallet share driving omni will allow us we think combined with all of our other modules and opportunity to meaningfully expand that wallet share and that's pretty impressive.
Thank you.
Thanks, Bob.
Thank you we have next question from the line of Tim Chiodo with <unk>.
Credit Suisse. Please go ahead.
Great. Thanks, a lot I wanted double down on the in store Omnichannel point, a little bit.
Particularly around the comments that you made so around RFP processes, maybe you could just dig into a little bit what's what's changed with the new <unk> capability.
That will basically allow you to be more competitive in certain of these rfps. It seems like you were doing quite well on them, even without whatever's changed on the in store Omni side, maybe you could just expand upon that a little bit.
Yes. Good morning. Thanks, Great question, what we found is most rfps, especially specifically about retail.
Even hotel and others had a requirement for.
Omni capabilities and if you look at we just won for example, radisson in Europe on their online, but that could have been a much bigger wind for us with respect to enabling Amit. So as we start looking at opportunities both on our win rate and our wallet expansion opportunity in our merchant experience.
Omni certainly was always part of our roadmap in terms of what has changed it's really just the building blocks right. So Tim we haven't changed really we've just executed really well on the roadmap and we're now at the point for Omni, which we think is really important and it's just scaling and diversifying our platform.
Remember, we support some of the most demanding clients in the world and utilizing that technology Knowhow has been our mission to expand into other verticals and we're executing on that right now so with expansion marketplaces with the expansion of our of our modules and now accelerating retail.
And really accelerating global retail and global operators with additional channel capability is exciting for us.
Excellent. Thank you Phil My brief follow up is on the marketing campaign. So at the Investor Day, you guys talked about somewhere in the May to July timeframe launching.
Our marketing our brand campaign could you talk about the <unk>.
<unk> on that if that's still on plan or if anything's changed given the deal.
Outlook.
No from a Q2 perspective, we have launched it we've seen some meaningful uptake both in brand awareness and sales. We've also attended.
Roughly 25 conferences from a from a partnership and development perspective, So we're well on pace naturally the great thing about marketing is that we are able to throttle. It based on what we see as a backdrop. So we have not we have not made any changes in the first few quarters. We lever is optional with respect to what we do in Q3 Q4 and the whole point here is we want to make.
Sure we are delivering the message at a time when businesses are interested in receiving them.
That's the biggest thing with the backdrop that we're seeing now how do we make sure that our customers are open and willing to absorb messaging and those are the discussions that we're having around our table.
Yeah.
Excellent I appreciate both of those on the in store and the marketing Thanks a lot.
Thanks, Dan.
Thank you we have next question from the line of Jensen Huang with JP Morgan. Please go ahead.
Hi, Thank you. Good morning, I was curious on the switch from APM to credit.
Is that a cyclical issue whats your interpreter petition there if any and I'm curious if you're seeing anything like higher charge backs that kind of thing.
And your phone.
Yes.
Hi, Good morning, no great question, no we have not seen any change to chargeback ratios or dispute ratios or even refund ratios, we've really not seen.
Any insight as we kind of mentioned like from a spending perspective.
And our consumer engagement perspective.
If you recall for us we help our customers connect with their customers and our best payment capabilities allow those customers to choose which payment median is most appropriate for them as they want to engage with our customers. So that flexibility is not necessarily driven by new age driven by the customer choice and that customer choice that we see.
From an overall total perspective has been more leaning towards credit and it is APM.
Okay.
For that I'll have to ask if you don't mind I know you've seen a lot of cycles before and you've seen consolidation in the sector before at different points in the cycle. So.
Given the comments on caution and it all makes a lot of sense does that change your appetite here to do M&A now.
Relative to when we talked to I guess 90 days ago, just love your thoughts there. Thanks.
I think there is a dislocation in the market and obviously we are open for discussions I think the good news from a new perspective versus other high growth peers is really just the strength of stress our balance sheet and cash flow and I think it's really important to highlight that guises.
Things may change or may not things may accelerate or things may stay as is the reality is.
Building, an amazing business, that's a locomotive in terms of enabling our customers as they drive their own business strategies around the world.
And because of our financial profile I think it just gives us enormous optionality. There is no rush, we're not financial engineering, we'd rather be cautious.
And then just takes a quarter and I think that discipline will pay itself off and I think utilizing opportunities that help transform the narrative with our customers and help transform the opportunity that we're able to help our customers as they execute on their journey.
It remains strong for us so we will absolutely consider the right opportunity, but it's not a must do for US you won't see us announce III transactions and one that all of the other goodies that we've seen over the past few weeks, you'll see us be disciplined and I think thats the message to the shareholders to our shareholders as we have lots of options.
Our capital allocation strategy is certainly a top of concern and we're going to have a lot of discipline.
I appreciate the thoughts.
Thank you.
Thank you we have next question from the lineup will Nance with Goldman Sachs. Please go ahead.
Hey, guys. Good morning, I appreciate you taking the question.
Phil or David I guess I feel like one of the key questions coming out of this quarter is going to be whether the revised guidance.
Is conservative enough to take into account some of the headwinds that we're seeing kind of broadly from the macro environment and maybe specific to some of the verticals you guys are and I'm. Just wondering if you could drill down on specifically I guess two of the three CS crypto and caution around the different parts of your business. How much are you baking in in terms of softness in the back.
Half of the year.
In order to observe the potential sorry absorbed the potential for further weakness that hasn't yet materialized in I guess.
I guess investors are looking for kind of an all clear sign that we've kind of absorbed some of these headwinds. So any color you could share there would be helpful.
And I think well first of all it's a great question and I think that's what we wanted to do here right. So you want to take it enough caution that we're not back at this in three months and six months. There is no point in being a hero out there when there's so much unknown. So certainly when you think about crypto currencies, we've brought it down to its lowest point.
If you end up looking at what's happened across the market right. The decline you had three trillion that has shrunk just about <unk> one trillion from a market from a digital asset perspective, and Thats just in currencies and you think about what's happening around in Ftes and other we've taken our lowest point and we believe that's going to remain fairly steady for.
For the foreseeable future I think the second thing to highlight is we are going to be lapping. So the bulk of our digital asset growth came in Q3 Q4 last year. So we are going to be unlocking that and that that gives us really good comfort in terms of flexibility. When you look at 2023, but the most important part for US is we went by merchant we went by vertical we looked at.
Historical trends current trends you can look at public disclosures from our current customers and we tried to really add a cautionary view of what can happen what is the outlook and where do we want to drive from a buffer perspective, and I think that has high discipline, we want to be extremely cautious.
Obviously, nobody can predict what happens tomorrow.
Pretty good with what we've put out there so far.
Got it Okay. I appreciate that and then second question on EBITDA margins I think on our math it seems like the implied in the back half of the year with somewhere in the high Thirty's and obviously I'm guessing from Europe from the <unk>.
The response, you just gave there's probably some element of conservatism there, but I just wanted to understand obviously timing between the brand investments in the go to market investments versus the macro headwinds are probably driving a little bit of that but I guess, how are you thinking about kind of the run rate for EBITDA margins going forward and I guess, how low would you be willing to say that go before starting to pull back on some of the spending.
Good morning real estate.
So that's right the second half the margins are implied to be a little bit lower than that we see in the first half were let Phil mentioned it before we have a really strong balance sheet and amazing cash generation and so and potential so much potential from a growth perspective, if you think about the regions. We're in and all the white space and then think about Omnichannel.
And combine all that we really want to invest.
In the business.
It comes back to capital allocation too.
Our number one priority is reinvesting back in the business.
And so yes, so margins are and the outlook.
Specced it to come down, but we will be disciplined and we will kind of find that right balance between margin and cash generation and driving growth.
Phil touched upon it earlier too when you think about marketing, it's something that we can measure to some degree and we will measure and.
And make sure that we're getting the return on that investment and same thing with distribution, where we are.
Being selective in who we hire them they have to.
That vertical expertise regional expertise and we just want to be disciplined and do it right, but we do think that there's a lot of growth potential and reinvesting back in the business makes it makes a lot of sense and that could impact margins and again you touched upon it in your in your question will.
Those headwinds certainly do have an impact on margin that you think about it.
If you kind of look at.
The $9 million year over year impact we had in Q2 from FX certainly that a portion of that fell down to EBITDA.
If you look at our disclosures from our year end financials, roughly 54% of revenues is U S dollar and a 35% on the expense side, if you do the math.
With that ratio you can kind of see that that impact in the quarter was probably around $4 million or so on EBITDA.
And so it's impactful and yet despite the headwinds we're still margins are still in the high <unk> low 40%. So we're really pleased and like I said, we will continue to be disciplined and I kind of find the right balance.
Got it understood I appreciate you taking all the questions.
Thank you.
Thank you we have next question from the line of Todd Copeland with CIBC. Please go ahead.
Hi, Yes, good morning, everyone I, just wanted to drill into the crypto customer base, if I could fill.
Maybe give us some comments on any financial risk.
New Weil from any of the trading thats been going on and obviously there has been some high profile sales in the market can you just talk to the nature of your customer base in this space.
Yes, great question Todd. So we have obviously, we are fairly resilient on the Fiat side. So we do not have exposure with respect to lending schemes or fancy tokens that come through there.
From our customer base.
We have the largest exchanges that are well capitalized we're very conservative with respect to underwriting.
And evaluating financial risks, so we feel actually fairly strong our customers are well capitalized.
It's not an enormous group of customers. So because it's really the tier one we feel that we're fairly insulated at this time with respect to the overall backdrop in the industry.
Okay.
And when you think about it from a risk management point of view do you do you review, whether or not you should keep all your customers is that something you think about given this volatility in the market.
Certainly and we have done that so we have looked at all of them not only of what what they are but also what they are selling and what we want to support for them yourself.
Our team is very hands on so we have clearly evaluated.
Really business and we do that anyway. So just from a regulatory framework because many of them are license and we have to make sure that they adhere to their own licensing, but we feel pretty good with the customers that we have right now.
Last question for me on gaming.
You talked about the reasons for the slowdown what's your opinion on inflation and the impact on the online gaming market. So far thanks a lot.
Yes, it's been a debate there Todd when we look at historical we have not really seen changes from from from what we've seen in our own portfolio from a historical basis.
There's two things to keep in mind right, we have grown gaming, 22% predominantly new business, we have an entirely new Tam that's coming on in gaming in North America, and we're still early although we're really really pleased with what's happening.
And we also see a lot of activity.
With respect to what can be in Brazil, and other markets that are opening up. So I think there is a potential for slowdown from inflation, but I think thats dramatically offset with new markets coming on board and up to that.
Thank you.
Thanks, Tom.
Thank you we have next question from the line of Jason Kupferberg with Bank of America. Please go ahead.
Thanks, guys. Good morning, I know, it's obviously too soon to talk in detail about next year. It does seem like the second half of this year is largely derisked, but.
How would you encourage investors to Directionally you start thinking about next year versus the mid teens revenue growth. That's now being forecasted for this year, just trying to manage expectations because it seems like perhaps some of the second half.
22 headwinds could bleed into 2023, so just wanted to get your take on that thank you.
Thank you Jason No great question, we actually don't think so what we end up looking at it from a year over year perspective, certainly the biggest headwind is digital assets.
And that is something that over.
Over the next few quarters will be outgrown.
The second part is is ultimately the performance in both new business and what we are doing with our current customers. So the building blocks as we presented at capital markets. They are very much there. The delta really is FX certainly has an impact on the business and digital assets. Those were those would be the biggest ones and we.
Think over the next few quarters those will be outgrow.
Obviously FX has some unknowns, but most certainly digital assets will be outgrown over the next few quarters.
Okay got it and I know you had been assuming flat Cryptos flash digital asset revenue for this year, what is that assumption look like now.
Yes.
Transparency and all went out the window in the market fell apart we had no way to appreciate the rapid decline in digital assets activity volume.
Trading.
<unk> also down meaningfully and it's been well publicized Jason So we see that within the owned portfolio and I think what's really amazing for you guys on pack.
Even with that volatility volte.
Volume and growth is still really strong. So we're really pleased certainly will have to outgrow it.
It's something that is unprecedented.
And the on lapping part will be somewhat painful, but we think coming into 2023 will be back in line and Thats why we havent changed our midterm and long term targets.
Okay understood. Thanks.
Thank you.
Thank you we have next question from the line of Paul Treiber with RBC capital markets. Please go ahead.
Well, thanks very much good morning, just in regards to your outlook. It seems a lot of the change in our outlook is effectively related to your customers and volumes or transactions and just sort of just first is that a fair characterization and then related to that could you speak to your expectations for expanse.
And within existing customers and new customers wins and if your outlook for either of those has changed just in light of the macro environment.
Paul Great Great questions are our business. If you remember at capital markets day that there is just too big growth vectors for the company as we continue driving our innovation and geographic reach forward first is growing with our existing customers, which last year represented about 80%.
<unk>.
The growth.
And then new customer wins, and so those who remain highly relevant for the business as we continue expanding with our current customers and that is why our innovation, which is driven by customer input is so important as we continue adding new feature functionality and capabilities across the board to expand wallet share So I've highlighted Tom.
On the on the call, but we've also launched risk as a service in Mexico. We were one of the first processors to launch <unk> secure verification for Apple pay transactions and so our continuous involvement in development allows us to be front and center with our customers and that is really important for us to continue growing wallet share with them and we think we're well aligned.
When it comes back to new customers is where we have been making our investments and I mentioned, a little bit edition, our prepared remarks, but we are on pace roughly to double their performance in our global ecommerce business from last year from a new customer perspective, and so we're executing obviously we're building our teams out it takes between.
A year to two years for these teams to become really active.
But we have dramatically expanded the team and the conversations are very interesting of the who's who out there the verticals and we feel really confident in our abilities to execute on that so those two building blocks remain 100% of the same.
Are we reliant obviously on our current customers absolutely.
Are we satisfied with what we're seeing from the current customer base certainly have.
Have we seen changes from some of our customers in terms of their own expansion in their own performance, yes, but we think combined from our new.
An existing we're well positioned.
Thanks, that's really helpful. Just double clicking on new customer wins and the activity there.
The transformation has been a theme for the last two years or so has there been any change in the inclination for customers to rollout just all transformation initiatives just in light of the macro as you have you seen any movement in terms of sales cycles or conversions.
Yes.
Come on that please.
Yes.
A little bit in the first quarter. So we have accelerated our integrations and as I also mentioned in my prepared remarks, we've worked hard on our integration capabilities right with our simple connect offering now one line of code to drive really all customization capabilities. So in the first quarter, we saw a slowness in terms of client.
<unk> from a new from a new client perspective, we have seen ourselves and lap that and accelerate that theres a big pipeline of integration that's still happening from a timing perspective, we still feel very comfortable for this year, especially as the momentum that we saw in the second quarter, but yes.
From a client standpoint.
Most of our verticals are still digital first omni is obviously coming into play now and it will be more relevant in 2023, so because of that it's our vehicles are still fairly insulated on digital and digital first and still making the investments I think continued rollout.
Thank you I'll pass the line.
Thank you.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Anthony Gerstein for closing remarks over to you Sir.
Thanks, very much operator, and thanks, everyone for joining as you know we're always available.
Please feel free to reach out to me and obviously, we will schedule a follow up.
Enjoy the rest of your day and thanks again for your time.
Thank you very much.
<unk> and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your thoughts.
Okay.
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