Q3 2022 Nuvei Corp Earnings Call
Good morning, ladies and gentlemen, and thank you for attending by welcome.
Welcome to <unk> Corporation's third quarter 2022 earnings call.
All participants will be in a listen only mode should you need assistance. Please open the conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on I touched on phone to withdraw your question. Please press Star then two.
As a reminder, this conference call is being recorded.
I'll now turn the conference call over to Anthony Gerstein, Vice President and head of Investor Relations for Nuomi. Please go ahead Mr. Gerstein.
Thank you operator, and good morning, everyone and thank you for joining US with me today are Phil fare chair.
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 months and nine months period ended September <unk> 2022.
Elyse as well as the accompanying presentation is available in the Investor Relations section of the Companys 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.
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 <unk> industry to differ materially from 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 authorities and on the company's website.
Our discussions today will include non <unk> measures, including adjusted EBITDA adjusted net income adjusted net income per share.
Management believes non <unk> results are useful in with them to enhance our understanding and our ongoing performance, but they are a supplement to and should not be considered in isolation from a substitute for <unk> financial measures.
Reconciliation of these measures to I FRS measures is available in our earnings release MD&A.
We will open up the call for your questions. After our prepared remarks, and with that I'd like to now turn the call over to Phil.
Thank you Anthony and good morning, everyone I am pleased with our results for the quarter as we executed on our strategic initiatives and with continued momentum in the business. We are increasing portions of our outlook for the full year 2022.
Before we dive into the details and as we celebrate two years of being a publicly listed company I thought it worthwhile to highlight our performance and evolution over the last four years to help you appreciate from where we've come from where.
Where we are today and why we are so excited about our future.
First in terms of volume, we tripled from $14 billion in 2018 to 43 billion in 2020, and we expect the triple once again to an estimated 121 billion in 2022 based on the midpoint of our full year outlook.
In terms of profitability, we started with adjusted EBITDA of $51 million in 2018, which we more than tripled to 163 million in 2020, and now expect to more than double the $345 million based.
Based on the midpoint of our outlook for this year.
This is even more compelling when you consider that we continue to make large investments to scale the business and support our long term growth, while always focusing on profitability and cash flow generation.
And as an organization we've gone from 386 colleagues in 2018.
869 in 2022 1636 at the end of this year's third quarter.
And our business and product offering has also dramatically changed over the last four years, starting as a small north American small business focused organization and transforming into a leading global omnichannel payment technology platform.
In your stomach.
Turning now to our financial performance for the third quarter overall, the quarter developed the head of plan on all metrics total volume increased 30% to $20 billion or 38% on a constant currency base over the same period last year.
Revenue increased 7% to 197 $1 million and 13% on a constant currency basis.
Jousted EBITDA increased to $81 million with a margin of 41% and this includes approximately $5 million of foreign exchange headwind free cash withdrawal.
68, and a half million for the quarter adjusted net income was $62.4 million and adjusted net income per share at 43 cents.
Expanding further on our results.
We beat on.
On all our outlook metrics, including total volume revenue constant currency revenue and adjusted EBITDA due to higher volumes and wallets expansion from existing customers as is reflecting our constant currency volume growth for 38 per cent.
New client wins, which I'll dive into momentarily.
Continued investment in technology and product offerings.
Our geographic expansion, namely last time in APEC, which those small for us today are releasing some good momentum, especially as we continue to simplify global commerce for existing customers.
Highlighting several observations of interest in the quarter.
Dollar continued to strengthen driving an additional one half million unfavorable FX headwind compared to our outlook for the quarter and impacted revenue by 11, and a half million compared to last year's third quarter.
Assets continued to decline for the quarter, but we did however start to see some degree of stabilization in September and October Nevertheless for the third quarter same store sales and digital assets were down almost 70% year over year.
With respect to the performance of several other of our verticals on third quarter.
Online gaming revenue grew by 21 per cent online retail grew by 141 per cent social gaming revenue increased 16% and travel revenue increased 86%.
In summary.
Very important to recognize is that our performance outgrew both FX neutralized with headwinds as you can appreciate our underlining business is performing really well.
Turning now to an update on our go to market efforts, we continue to focus on enhancing our go to market investments across all regions, insuring, where local and accessible to our customers while remaining presence around the world.
To date, we increase our go to market spent to $27 million up from 10 million for the same period last year.
We've expanded salesforce in every region and results are very encouraging naturally. These are long term investments and we have more to do but remain disciplined in managing profitability and EBITDA margins.
Deep and growing pipeline, we've gone from being Underpenetrated in our markets to now have a much more meaningful invisible presence.
Breaking it down by region in North America revenue grew 9% in this your third quarter and while it may appear low it is important to recognize that R. E. Commerce business is outgoing a large and declining small business channel in the region.
Third quarter R E Commerce right channel in North America represented 31% of revenue and grew 40% compared to last year, so called us while small business represented 42% of the revenue and declined approximately one per cent to the same period.
With an estimated time for E Commerce, a 12 trillion North America, clearly represents a large opportunity for us, but it's still very early days.
Looking at any age with revenue growth of 4% on the quarter. It is important to recognize it yours performance has been negatively impacted by foreign exchange fluctuations as well as volatility digital assets since a significant portion of our digital asset portfolio originates from European operators.
With an estimated time of nine three trillion, there's so much more opportunity for us are growing EMEA, especially as we continue to diversify across appropriate verticals.
Turning out the latter.
Which still growing from a smaller base saw revenue increased 28% in this year's third quarter. After you've reached an inflection point in our business in the region is accelerating rapidly or.
Our investments in both technology and distribution, allowing us to strengthen engagements with both current and new clients exploring the region.
We continue to invest in our infrastructure and licensing with multiple applications across all key markets.
With an estimated time of one and a half trillion, we believe Latam as an attractive Avenue for continued growth.
And a tax revenue grew 47 per cent and a quarter as we're scaling in Singapore, and Hong Kong and sorry to see real momentum attraction. The region. We're also in the process of launching our third market in the region, Australia, which is an important market for new base future.
He was activating our licenses we've been focused on scale and go to market efforts in APAC, including recently opening a sales office in China.
With an estimated time of 28 trillion, we continue expanding across the region with new markets like Australia, and others to come which provides us with significant opportunities going forward.
Bringing it all together, we are making the right investments to remain local and available to our customers as they expand around the world and we're headed down executing on a very large and growing half.
When considering regions, it's important to highlight the customer relationships can be bought in a certain region for process and another is for this reason they building at our global go to market efforts are so critical to our growth and driving very compelling opportunities globally.
This quarter in particular, some meaningful uptake in new business wins, and wallet <unk> mansion across regions and politicos, including the Virgin Atlantic Group.
Sure lives.
<unk> and pain Kazan, 88 automatically tiny blue Arcadia epic games, Rappee coda payments Mary Kay cosmetics amongst many many others.
You can appreciate our investments and go to market, the yielding <unk> and driving a solid foundation for long term growth.
Moving on now to our specific advancements in technology and product capabilities in the quarter I'd like to highlight several achievements as.
As a technology first company will always innovating continuously releasing enhancements to help our customers execute on their own growth initiatives.
With respect to our platform. This year, we've made architectural enhancements and infrastructure investments to allow us to support and exceed 2000 transactions per second a multiple of what we're seeing today, giving us ample opportunity for continued growth in scale.
We've also enhance our infrastructure to accommodate local data protection residency rules further enabling new way to expand in more countries around the world. Additionally, our infrastructure investments now allows us to offer segregated environments for large clients should this be a requirement.
In terms of acquiring payouts, we're scaling and normalizing offering in Hong Kong, Singapore with the addition of visa direct payouts and other functionality since launching self process with last quarter.
We're actively working on Australia, and important market for our verticals and Columbia as we continue to target launching three to five new markets per year.
Turning to alternate payment methods, we continue replace efforts to make sure that our customers et cetera every form of local alternative payment method that is applicable to their business model now increasingly portfolio to 586 different atm's at the end of the quarter.
We enhance our payment orchestration platform introducing ourselves service routing manager, allowing our customers choose surrounding the transactions amongst different acquired based on your preferences using our data analytics.
We recently launched a new baby for platforms accelerating our marketplace offerings with are fully customizable solutions supporting complete functionality of a module a platform you a single integration.
In addition, we had so many other product will lessen the quarter, including launching account update or in Europe .
Supporting Mastercard Tokenization, enabling visa account funding transaction support.
Enabling a partnership with these in Canada for buy now pay later.
<unk> has a rich services and reporting offerings amongst many others.
But to take away here is that as a company.
Never standing still.
We're constantly evolving and enhancing our solution stack of adventure competitive position.
It's worth mentioning that each new product solution expander Tan and offers US a platform to grow with our customers as we remain focused on relentlessly helping them execute on their own growth initiatives.
Turning announce our financial profile and capital allocation strategy.
We are in an enviable position with our balance sheet and the attractive cash generation nature of our business. This provides us with flexibility and leverage capacity.
Our preference and primary focus for the time being.
Preserve capital for emanate.
As a reminder.
Highly disciplined with our M&A methodology and continue to look for strategic opportunities, reflecting appropriate valuations to expand our capabilities scale Andrew geographies.
We are particularly interested in North America.
<unk> and <unk> is priority geographies to expand our reach drive greater value to our customers and naturally to our shareholders.
However, we will also consider becoming more active with our stock buybacks as we had been earlier in the year given the current market dislocation and in our view of depressed valuation.
With respect to other more recent corporate development.
<unk> Welcome Vicky Bengal, who joins new Bay, and a newly created positions of Chief operating officer.
Israel Vicky brings years of global paved industry experienced having helps senior leadership positions, including a mastercard.
What is the president of APAC in Middle East and Africa at Visa Pre-med product solutions globally, and most recently at F. I S where he served as Chief officer responsible for the strategic product function.
Defying at creating competitive products on propositions for its customers.
Kazmi based on growth strategy starts with beautiful product strategy real world solutions that accelerate our customer's businesses.
He is a perfect addition to our team, especially as he knows our markets.
Understands are differentiated product offerings and the needs of our global customers.
Look forward to working with them.
I would also like to take the opportunity to welcome our 66, new colleagues, who joined US in the third quarter. We are delighted to have you <unk>.
Turning out to our expectation for the fourth quarter.
C. Three things continued strong momentum in the business.
Additional ethics headwind 5 million and approximately 7 million of headwinds some digital ashes beyond our prior expectations.
But because of the continued momentum in the business here to date through October we are increasing certain metrics or a previous outlook as well reaffirming the guidance for the full year 2022.
And reiterating our medium and long term targets.
In closing.
Really active quarter and we're pleased with our results were excited about the momentum in the business and the investments we're making the opportunities are meaningful for the company.
Continue to have an excellent profile amongst the high growth technology appears highlighted by disciplined and highly profitable growth focusing on the right vertical continuously diversifying both regions and verticals generating cash and maintaining a solid balance sheet.
As always I want to thank all of our team members for their tireless efforts in supporting our customers.
Guys are rock stars and with that I'm going to turn the call over the days to discuss the financials and a financial outlook for the fourth quarter in for Ya.
Thanks, Bill on good morning, everyone.
Pleased with our third quarter results, which exceeded the high end of the outlook across all four metrics total volume Rev.
Revenue revenue constant currency and adjusted EBITDA.
Total volume for the quarter was $28 billion, which was above the top of our previously provided outlook range of between 25 and $26.
Total volume, which is a key measure of our performance increased year over year by 30%.
On a constant currency basis total volume increased by 38%.
Revenue for the quarter increased 7% to $197 million, which was above our outlook range of between 185 and $195 million.
This overachievement, despite the incremental headwinds from foreign currency.
On a year over year basis, the unfavorable revenue impacts from currency fluctuations was $11.5 million, which was $1.5 million greater than we expected.
On a constant currency basis revenue was $208.6 million, which was above our outlook range of $195 million to $205 million.
Revenue in constant currency growth was 13%, which was 600 basis points higher than reported revenue growth.
I still mentioned during the quarter, we saw revenue growth across all four regions, including <unk>, which was most impacted fluctuating currency rates.
And the third quarter or take rate was 70 basis points compared to 85 basis points and last year's third quarter, primarily due to volume.
Sequential basis. This quarter's take rate is consistent with the second quarter take risks.
As you know our approach is to provide our customers with solutions they need to accelerate our growth irrespective of the resulting yield.
On driving incremental gross profit dollars by expanding our solution set in winning wallet sure.
In terms of gross profit for the quarter, we generated $159 million, which represents more than $13 million increase are nine per cent growth compared to the prior year.
Gross margin in the third quarter was 81% compared to 79% in the third quarter of 2021.
Selling general and administrative expenses increased by $43 million or 41% to $149 million as a result of organic growth as we continue to grow and invest in a business as.
As well as the acquisitions of simplex payment has a missoula.
Which were all completed in the third quarter of last year.
Share based payments represented more than half of the SG&A increase has increased by almost $23 million.
$34 million due to awards for employees, who joined as part of the acquisitions, you completed last year as well as other brands.
Of the $34 million a share based expense in the quarter, approximately 44% or $15 million relates to awards with an exercise price or share price performance condition in excess of $100.
As a result of the high exercise price and share price performance threshold, a large proportion of the outstanding units are significantly out of the money.
Approximately $4.7 million incentive units, representing 38 per cent of the total units outstanding.
And exercise price our share price performance condition in excess of $100 or relate to awards with a non market performance condition that were not achieved at the end of the third quarter.
As a result is 4.7 million units are not considered diluted in terms of diluted shares outstanding.
Employee compensation other than share based payments increased by almost $13 million the <unk>.
Increase year over year reflects our investment in our global team.
I'm, an organic and acquisition perspective, including those in direct sales and account management to drive future growth and execute on our strategy.
Adjusted EBITDA in the quarter was $81 million, which was above the outlook range. We previously provided of between 70 and $75 million.
<unk>, an adjusted EBITDA in the quarter was due to higher revenue and lower SG&A costs as we continue to be disciplined and our investments and expenditures.
Adjusted EBITDA margin was 41 per cent and a quarter compared to 44% in the prior year period.
I would also note that the foreign exchange and digital asset headwinds experienced during the quarter also impacted our adjusted EBITDA.
On a constant currency basis, adjusted EBITDA would have been approximately $5 million higher than reported.
Net finance costs was $3.7 million compared to $4 $6 million in last year's third quarter.
Decrease was primarily due to higher financing come a $3.6 million from interest income earned on our larger cash balance offset by an increase in finance costs of about $2.7 million primarily related to higher interest rates are outstanding debt.
Income tax expense in the quarter was $5.4 million.
This represents an effective tax rate of 29%, which was slightly above the Canadian statutory rate of 26 and a half per cent.
Mainly due to share based payments that are non deductible in most jurisdictions.
Partially offset by favorable impact of low income tax rates in other jurisdictions.
Net income for the quarter was $13 million or eight per share compared to $28 million.19 per share in the third quarter of last year.
As I mentioned earlier this year third quarter included $23 million increase in non-cash share based payments, which on its own represented approximately 16 cents per share.
Adjusted net income was.
$62.4 million or 43 cents per diluted share.
$62.3 million.42 per diluted share in the third quarter of 2021.
Looking at our balance sheet and liquidity.
Our cash position in cash generation remains strong.
Due to the operating leverage our business and relatively low capital requirements, you have a strong financial profile.
This is demonstrated adjusted EBITDA less capital expenditures, which was 68 and a half million dollars for the quarter.
Cause you need financial profile, it gives us flexibility with respect to capital allocation.
As a result, we continue to invest in the organic growth for business, while remaining strategic and disciplined and our capital allocation approach.
At the end of the quarter with cash and cash equivalents of $754 million.
We also had turned that a $499 million, resulting in a net cash position of $255 million with access to an additional $385 million available under a revolving credit facility.
I will now turn to our fourth quarter and full year 2022 outlook.
A financial outlook for the fourth quarter and full year of 2022 is as follows and I'll refer you to our forward looking information disclosure and our press release and MBNA.
For the fourth quarter, we expect total volume of between 33 and $35 billion.
Revenue of between 197 and $227 million.
Revenue constant currency of between 210 and $234 million.
Justin EBITDA of between 75 and $84 million.
For the full year of 2022.
Third quarter performance, you're increasing certain components of our outlook and now expect total volume of between 120 and $122 billion <unk>.
Revenue of between 820 and $850 million.
Revenue in constant currency between 861 $885 million in.
And adjusted EBITDA of between 341 at $350 million.
Outlook, specifically adjusted EBITDA reflects our strategy to continue to invest in our business and key areas, such a distribution technology and marketing.
Our outlook also takes into consideration a cautious approach considering the current volatile and uncontrollable unique macro environment.
With our strong balance sheet and cash generation, we are 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.
Oh, Yeah, we will now begin the question and answer session to ask the question.
You may prefer one touchtone phone if you are using a speaker phone please pick up your hands.
Okay. Thank Nicky.
Had any time your question has been <unk> and you would like to withdraw your question. Please.
<unk>.
In the interest of mine.
Ask you one question and one follow up.
At this time, we will talk momentarily.
Yeah.
Okay.
10, guys economy with K B P. M. Please go ahead.
Thanks, Good morning, maybe Dave we could start off where you ended just on the fourth quarter expectations. Just curious if we look at it relative to what may be the implied number was last quarter. What what are the puts and takes here I know you mentioned, you're assuming a cautious outlook that didn't seem as a parent.
The numbers in the third quarter, maybe you could just talk about that and maybe the incremental headwinds maybe from effects or not and and some of the other pluses or minuses. Thanks.
Sure Good morning sounds right and thanks for the question so in terms of our fourth quarter outlook.
It's you know certainly factoring in the macro environment is certainly something that we've been doing construction. That's what we did last quarter. That's an important factor when you think about some of the key components, we talked about the three CS last time does still.
Are relevant this quarter, so anything about currency from an F X perspective, we assumed.
No current rates going forward, but those current rates that we are at today are different than what we saw when we last spoke to you back in August so there's about a $5 million additional impact.
On revenue from an F X perspective.
And then digital assets as well.
There's there's certainly some volatility there that we've seen over the past couple of quarters that has about 7 million dollar impact.
On queue far from a revenue perspective, and then the last C as caution.
And I I point, you back to looking at our full year was still really.
What we're coming in on a full year basis switches revenue growth on a constant currency basis of about 20 per cent. That's a good 0.3, 19 and 22 per cent.
So those are those are pretty much puts and takes we continue to invest in the business as well so from an EBITDA perspective, we continue to invest.
Grow for the future. So so that's that's kind of the the the high level of how we see the rest of this airplane.
And I appreciate that and.
Both mentioned capital management, a decent amount and and I'm. Just curious if we could just maybe drove down a little bit deeper on that and talk through some of the opportunities that might be out there from an M&A standpoint, and and it sounds like you know you might be more aggressive on the share buyback, maybe we could just talk a little bit more about that.
Certainly Sanjay thanks I appreciate it.
Would I would like to highlight that we have ultimate flexibility because of our balance sheet or casual generation and that really allows us can drive and focus on building shareholder value building solutions that expand our relationships with our customers and just being really good from a capital allocation perspective and that flexibility is something that we are unpacking as we.
Start looking at opportunities specifically with the dislocation valuations in the market. Today. So we are being are opportunistic I think we also being patient it's worthwhile highlighting that we are lapping one year since the last acquisition, which closed I think at the end of August . So again, we're being highly disciplined in terms of market for us.
U S. As an area that would I would put on top of my list, but certainly last time in APAC as well as we want to continue going our business.
Meek about new very restart thinking about M&A opportunities is that out of all of our modules all of them have their own time and associated opportunities, which assassinating. So as we are growing our issuing businesses were growling are open banking business is we're growing our acquiring business and orchestration business and a risk businesses and opportunities and products that we offer to our customers. It creates a pretty nice.
Platform for unique capability expansions and monetization with our customers. So we have a far greater list that many of our peers of area that interest us and certainly warheads down executing on that.
Thank you.
Thanks century.
The next.
The next question comes from Scotland tablet <unk>. Please go ahead.
Hey, good morning, guys and thanks for taking my questions. Thanks for the disclosure on some of the growth metrics you saw on some of your key vertical as I was just wondering maybe if you can maybe give a little bit more color on how some of those vertical as to whether it was online gaming or travel or financial services, how those vertical performs relative to your expectations.
Thanks.
Thanks, a lot you know wishing really good momentum across the board and we talked about the vertical is there is there is ultimately the three components add that release our plane for today, but first of all I mentioned his wallet your expansion with our customers as we add capabilities and as we add geographies.
And the second right behind that is as we continue scaling new client wins.
Client wins, we have a tremendous pipeline really across the board of Oliver verticals, which are reflective of ongoing market investments.
We have taken a cautious approach on activation certainly that is something in the fourth quarter that we expect post November of plans that don't activate that will fall it back into the first quarter. So we're very excited with the brands. We are winning marquee names across the board. So for example, a Virgin Virgin Atlantic Group and travel, which is a marquee name.
We have done significant expansions within pain in Europe , with a new countries and now engaged in gaining with a top 10 providers across the board and use gaming the same thing with social games with a with a winner of ethics, which we're really excited about and ultimately good momentum building across all of our verticals. What we have seen in our vertical from the same store.
Perspective is as we expected.
The things that we found noteworthy was digital assets declined year over year about 70%, which I, which I mentioned in the prepared remarks, we have seen a floor on that which is which is interesting but.
But to give additional color on that it's not just the the digital asset volume that declined it also our appetite.
In terms of one.
One expanding relationships and that vertical we think today our exposure to digital assets is appropriate we felt that a little bit high last year and certainly that's something that we're gonna unlock over the next few quarters, but in general as we said today.
Very little concentration by merchant, which we really think is a is a great tribute to debate on the profile perspective, and really good momentum across all of our key vertical.
Great. Thanks, that's very helpful. And then just to follow up here on the on free cash flow.
Conversion ratios casual margin was maybe a little bit like we.
We were expecting so just wondering I mean, it seems like Capex is running a little bit elevated David I Dunno. If you can give a little bit of color on what sort of driving that and how we should think about it going forward. Thanks.
Yeah, Hey, yeah for the most part I mean, our Capex is still pretty low at our cat or cash conversion is still pretty high it is a little bit lower we did in the last couple of quarters have some investments and some new offices, we mentioned and the prepared remarks as well so that that's part of it but you will see some fluctuations, but there's nothing cigna.
<unk> from an investment perspective on the Capex side that we need to make.
Or have been making it's really just supporting a bit of the growth and so some of that is is one time in nature. So nothing I'd specifically call out there.
Great. Thanks, guys.
Alright next question comes from Jason.
Sarah with Bank of America. Please go ahead.
Hey, guys. This is Kathy under Jason Congrats on the corner Uhm I need for that kind of a clarification question. So I know you guys said that you know with the crypto piece of the business of jealousy relatively stabilized in September and October .
What'd, you say that same characterization holes for the rest of the business in terms of you know the kind of trends that you're seeing in October .
Yeah, good morning, and thank you.
What we have actually seen and I mentioned that the prepared remarks, we shouldn't really good momentum year to date, including October across across the board in our business from a crypt.
Crypto perspective, we haven't seen continuous declines and that has stabilized in September and October and we've taken at that view in terms of.
What we expect in the fourth quarter, but in general if you really unpack the business, you're talking about 38% constant currency volume growth.
Could appreciate the momentum that we're having in all of our core channels as we are.
Growing massive headwinds around the FX in crypto, so our businesses really performing and we're excited to where we should.
Okay got it thanks, and then a follow up and I guess I know, it's too early to talk about 2023, but kind of have to act a little bit about it at least.
I know you guys reiterated the medium term guidance of the 30% plus is there any way you can help us think through some of the pieces that would take that down right now.
F X headwind cold what could be the impact on 2023, you know and.
And then if the crypto pieces kind of hold 30 to where we are now you know what that could mean and any other pets.
Let's take that we should think about asthma modeling out 2023.
Yeah, certainly certainly and I I would I would look at the building blocks for 2023 as consistent as they've always been historically the first building block is growth with our own customers and 80% of our growth comes from our current customer journey and that has to tend to close to it. The first is geography's as we continue building and open new markets.
And allowing us to expand wallet share it with them and new geographies and the second is keep abilities as as we're building additional capability said that allow us to kind of enhance the experience for our customers. So that is kind of an existing customer base and right behind that is new client wins and new client wins naturally is what we see in year, which what we've done.
2022, which we have the full benefits for next year. So those those three combined is what we what we expect in terms of the mid term growth targets of around 30%.
I think something to point out today is we are seeing approximately 20 per cent constant currency growth. This year with a total collapse of the digital asset market, which was around 13% of our revenue certainly we expect it.
<unk> that over the next few quarters, and we don't expect digital assets to be that level of concentration in our future. So we feel quite strongly about how 2023 will perform pipeline client activations, new geographies and our execution.
Thank you I appreciate it.
And that's <unk>.
Question comes from Todd <unk>, let's see ITC. Please go ahead.
Good morning, everyone I wanted to ask about seasonality into the fourth quarter in the past you had talked about.
The gaming business, specifically gaming in in North America around some of the sports betting and the World Cup and I'm wondering if your expectations for that have been adjusted in the current Macroenvironment just give us an update on those trends. Thanks a lot.
Thank you John Uhm, if you look at historical seasonality, obviously, the Covid year had a distortion just because certain leaves were delayed and how they were slipping from Q3, a day from from one quarter to the other this year is more of a normal year with the exception naturally of the World Cup in the fourth quarter, which we believe will be a pretty significant uptick in.
In our gaming vertical but in general what you what I'm seeing is you see momentum from Q1, Q2, typically Q3 flat to slightly down from shoot you in queue for an uptick in we expect the same here.
Yoga.
We saw some sports books, calling out elevated activity embedding around the world series and the NFL season is your U S business material enough for you to see that that trend as well comment on that please.
Uhm, yes or no.
I would say that argues business momentum is really strong as clients are activating integrating so I think I think it's gonna be more of a 2023 2024 opportunities. We do building blocks last quarter ton, we mentioned run rate of about $25 million from from effectively zero. So really good uptake and that is obviously continued to progress. So we're very.
Excited about what we see in the U S, but in our industry. It's typically sign integrate tests to make sure that we do the testing we sure that we drive the best possible authorization rate et cetera with operators and then we continue scaling wallet share expansion. So we're in that last stage right. Now we think next year will be a pivot for us and U as gaming.
Great.
Last question for me on M&A.
You've you've talked about how your deal pipeline has been very active I think you've said in the past you looked at 70 deals.
This year could you just update us on the activity there.
And what do you think about current state of valuation expectations. Thanks, a lot.
No. Thanks a lot.
We constantly look at opportunities I think our M&A pipeline is rich and and has quite a lot of depth to it.
They take away here is that we have enormous discipline and making sure that what we buy is truly accretive.
For our shareholders drives value for our customers and expand our geographic reach which is.
Area of focus so we're going to continue down that line I can't tell you anything Pops up at me that that's worth kind of I'm packing further from an evaluation perspective.
I think it fits into two buckets. So we're typically looking at larger opportunities within regions specifically is.
The further away they are we need more infrastructure versus small tuck ins and they it turns valuation depends on where they are within their journey in terms of how much cash they have on the balance sheet are they are profitable or not and can they wait it out we haven't seen the private market necessary adjust.
Due to the public market, but then again.
It's still early days, we haven't gotten further further than that with respect to the evaluations and opportunities that we're exploring so it's T. B D to see how evaluations will continue shifting towards opportunities that were radio.
Great. Thanks, a lot.
The next question comes from PA Triborough with RBC capital markets. Please go ahead.
Good morning.
<unk> you know some really great new customer wins on this call can you just elaborate on the nature of these wins you know in terms of like is it is it is focused on specific geographies, our atm's or use cases, and then what did you see the fundamental underlying driver new a.
Seeing perhaps a larger brand name wins than than in the past.
Thanks for the great questions, Uhm, I think wins and I'll I'll lump them. Both together it's directly related to our go to market efforts. We always felt that we had the best technology, we compete toe to toe with with a lot of the larger players out there with our flexible modular solution stack that go well beyond.
<unk> that truly create differentiated.
Revenue drivers for our customers as they continue executing on their global expansion strategy. So.
The things that new way is doing is in public companies, making these investments to make sure that we are local and present, meaning that we're engaged speaking to them and making sure that they know about <unk> and evaluate duvet within their own technology stack requirements.
That is what's been driving.
A lot of the engagement that we're seeing on the marquee names that were winning in each of the vehicles that were focused on so.
Why they choose us really just depends on where they are at within their own journey. Both from an initial onboarding perspective, but also crossover themselves. So great example is one of our social game client has been a large client for many years with now selected us for six in.
In.
In Brazil. So you have multiple tentacles for continued adding new countries and adding new geographies within our existing base as we continue expanding our solution stack and the second is that we are truly out there now and his clients are thinking about.
To take their payments that drive their future new as part of the mix. So very excited to where we started and by the way. It's just the beginning of that journey or go to market efforts are continuous investments for us it's going to be a focus for the next three to five years, but we're really pleased with the initial momentum.
And just related to your customer momentum in the last quarter thing last quarter U you launch the simply connect which is S. D. K and then it seems like you're going more directly to developers and self service, perhaps and what you've done in the past.
What's been the.
Early uptake of that and then in terms of self service in general you know how much does that tie into your branding campaign.
I think they're both they're both uniquely tied to it. So we now offer four distinct integration. That's analogies. Some that are really simple right. If they want to use our cashier are simply connect that gives them the flexibility of using our services with low code all the way down to full API integration. So we really have the level of requirement that as a.
<unk> for the business from an integration perspective, and allows us to go up and down market. So typically tier one merchants will have more complicated need smaller merchants will have less complicated needs and all of these continue to expand our town's so as an enterprise focused platform for large institutions and operating globally. We typically had long complex integration requirements and now we've been able to bring that down.
And ultimately what that drives for is from signing to time to revenue is really what we're focused on it to make it easy for clients onboard and makes it easier for us to execute on partnerships across the development community with that has just started but.
G P. Two other Arcadia that we announced in other partnerships, it's really driven by the flexibility of how people can integrated consumer base solutions.
Okay. Thank you I'll pass on.
Thanks, Paul.
The next question comes from Bob Pony with him in May.
Please go ahead.
Good morning.
Phil David could talk to you.
Nice to see the the rebound.
The results.
And I know, it's too early to talk about 2023, but just broadly reiterating your your guidance and this is maybe a play and what is your visibility how do you feel about being within.
Generally within your medium term targets around those rages in.
What what what looks most promising I guess, if if you would as you go into next year and in what areas are most most challenging.
Articles, if you would.
Good morning bump all Greek.
Like to hear your voice I think this.
This is true for every C O across North America, it's difficult to forecast next year, right, where an unprecedented macro environment.
With our business. If you think about 2023, we will unlock crypto.
There will be a headwind for the first few quarters as we continue driving momentum so.
I would I would probably suggest that the medium term targets are probably more appropriate for the second half of 2023 forward, but when we end up looking at the underlying performance of our business.
We really bullish.
The new clients over Onboarding, we loved the momentum that we're seeing across we think engagements that nobody's having today are exceptional and we're just heads down plugging away. Bob. This is not a sprint alright, so and help our customers is not like what what do you do next quarter and unfortunately, sometimes we lose a narrative because you're always thinking about quarter to quarter, but we're really thinking about the moment.
Over the next four years.
And to match, what we've done over the last four years. So we think there's a lot to come it's not just about 2023 by 2023 were pretty bullish about but it's really about the next four or five years that keeps us really really excited.
Thank you and then some of the newer products or.
Do you have like opened banking card issuing.
I think some of it is what is.
What areas, what new investment areas.
Really be able to move the needle over the next few years for Ya.
I think it's all encompassing omni we think is a meaningful market opportunity for us within most of our verticals card issuing for on us for loyalty. We have some pilots that were in the launch.
The first half of next year, our marketplace solutions, we just launched new day for platforms that will continuously making investments there.
Rob services as as we have been doing some a b testing in Mexico, or the markets and senior really nice uptake from.
From fraud, and you know and fraud. It it's easy to turn away all sales and get no fraud, it's really about maximizing the authorization. So.
We like what we have coming in and one thing I would highlight Bob Z as a tech company. There is no conclusion of products and that's really important to highlight guys because you're constantly.
Enabling them and expanding them so from account update or having the flexibility of doing batch updates or real time updates or from you know the issuing of consolidating authorization path. So that there is no breakage fee that you'll get 100 per cent of the value of the car that you are able to drive through all of these little things from a product roadmap make differences to our <unk>.
Customers and they all have the intent of helping them authorize more help them sell more help them grow their businesses and simple technology stack.
Okay. Thank you.
Thanks, Paul.
The next question comes from John Davis with <unk> go ahead.
Hi, Good morning, guys I just wanted to quickly touch on the margins.
David just obviously quite a bit better than than your guidance in the third quarter, but full year still kind of largely unchanged just timing yellow or did you kind of tighten the belt, a little bit given kind of the currency headwinds and the third quarter, just a little bit of help on margins <unk> it would be helpful.
Yeah. Good morning, John So look from a margin perspective part of it relates to of course and a quarter of the beat me add on revenue.
So that's that's part of it and obviously, it's a business that has operating leverage and then as we look forward insert into Q for.
We continue to take a cautious approach and we can change the investment business I mean, our emergency or.
We think quite strong.
And we do see so much white space ahead of us from from every region in in the various verticals, we plan and so investing back into business.
Back to our capital allocation.
<unk> investing back into business is something that's really important to us and we we think it's the right thing to do so that.
That kind of is.
Is kind of how to think about the Q4 margin as well as we look forward.
Okay, and then just just to clarify philcox called out first half next year, you are still lapping crypto. So I was.
Margins, followed a similar cadence were second half margins will be better than the first half next year.
But you say any color there is we kind of constantly miles for 23.
Yeah, I mean, what will laugh crypto really after the first quarter digital assets. After the first quarter. So that that will be <unk> that will be very helpful from a revenue growth perspective.
In terms of mergers.
We haven't seen any kind of give you more information as we as we come into next quarter in terms of what next year. It looks like but we still see mmm good opportunity like I said in terms of just invest in back in the business and capturing some of that market share and white space that's out there.
So we will continue to invest and continue to grow the business, but that said, we're we've been very disciplined and you can see some of that reflected in this quarter's margins and very disappointed in how we're investing.
Where it's always been in our nature to be that way to to make sure that we see a return before Randy just grow.
Throw money at that certain projects. So we will continue to take that same approach as we look forward to and for the next year into the future, but we're really.
We're really excited about the white space and so that's that's really gonna gonna help us grow into into next year.
I appreciate it thanks guys.
Our next question comes from Andrew Bollock S. M D C police telehealth.
Hey, good morning, guys and thanks for taking my question.
I just wanted to ask a higher level of question.
In the context of macro deteriorating and potential recession, you mentioned, a healthy pipeline, but just trying to get a sense like even historically.
Are there more opportunities that that surface amid economic uncertainty or is there a pullback in deal activity as far as not necessarily what you can win but how many opportunities are there to go get when the macro kind of softens.
[noise], Andrew Nice to hear from you I'm, assuming you're talking about M&A because honestly the pipeline in this type of macro from a new customer perspective actually opens up as well. So the reality is I think we need to lap the 52 week high across the board from our public peers for reality to set in so I would say from the <unk>.
Public perspective that is that journey and from a private perspective.
We'll address and and it will adjust some have happened faster some depending on their needs, but we think next year will be a pretty fundamental year with four M&A.
I went ahead.
I was actually was speaking on the merchant side like armor more merchants willing to look for more efficient solutions for their payment needs in times of uncertainty or how do you kind of see those dynamics, playing Abby from a demand.
Demand environment for next Gen payments solutions.
Yes, I would a great question. So we've actually seen two things, yes, we've seen merchants look at the overall holistic payment solutions to how to drive better authorization rates and how to simplify their stock. That's one we have also seen time to implement actually.
Extent right as merchants themselves are kind of working through their own business. They are not necessarily as fast as converting in activating that we've seen historically, we've taken that into consideration for this year, but.
<unk> across the board has been very very strong for new way and those of increase so from a pipeline perspective.
Discussions at over 80% have never been higher.
Oh, that's great to hear thanks.
This concludes our question and answer session I would like to turn the conference back over to Anthony 19 for any closing remarks.
Thanks, everyone for participating today as we know we're we're around any available and just feel free to reach out but thanks for your time today and we look forward to speaking with you.
Shortly thanks.
Thanks, everybody.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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