Adyen N.V.

Good afternoon and welcome to IGN's 2022 H2 earnings call. We're delighted to be joined by Pieter van der Does, our co-founder and CEO, and Ingo Uytdaag, our CFO today, to talk you through the financial results for the second half of the year. We're going to structure the call as follows. We'll start with a short fireside chat hosted by myself with Peter and Ingo, after which we'll open it up for Q&A hosted by Sana. If you have any questions, please feel free to submit them already using the Q&A functionality of Zoom. And when submitting the questions, please make sure to use your full name and the firm you represent. Please do not use the raise hand function since we won't be using this today.

I hope that household memo got loud and clear, but before we dive into the fireside chat and Q&A, we once more, and as you're used to from us, would like to share a short video that the team prepared highlighting the key developments of the second half of the year for you. Enjoy.

Welcome to Adyen's H2 2022 earnings call. We look forward to discussing our commercial, product, and team updates from the last period. There's no doubt that the past six months presented a range of global challenges for society and commerce alike. Despite the economy's volatility, Adyen's disciplined history placed us at a fortunate position at the start of H2 and enabled this half to serve as a key investment period. As planned, we were able to continue laying the groundwork for our next growth phase. Following this approach, we closed 2022 with a strong set of results. Looking at it by the numbers, in H2 we processed 421.7 billion euros on our single platform, which is an increase of 41% year-on-year. In line with previous cycles, more than 80% of these volumes came from customers who were already on our platform when the period began, and we again achieved less than 1% of volume churn. Net revenue amounted to 721.7 million euros, up 30% year-on-year. Adyen is moving with momentum. Each period, we report even broader global reach, and H2 proved to be no exception. Our point-of-sale volumes were 67.6 billion euros, up 62% year-on-year and comprising 16% of total processed volume. This figure underlines the continued appetite for advanced multi-channel experiences and the unique ability of our single platform to meet this need. In order to remain at the cutting edge of consumer journeys, in H2 we relentlessly sought new avenues for innovation. This resulted in the launch of several product iterations with an online checkout, the rolling out of our new terminals, and piloting our embedded financial services suite. While we're proud of these achievements, our sights remain on our long-term horizon. From this vantage, we see our significant runway ahead and a journey we're only at the outset of. The key to reaching our technical and commercial ambitions is maintaining our speed, To keep moving at this pace, H2 required accelerated headcount growth. By the end of 2022, our motivated team totaled 3,332 FTE, with 58% of our new hires sitting in tech roles spanning both established and young initiatives. Being diligent about both the quantity and quality of these hires further situated us to capitalize on the sizable opportunity at hand. Investments in the team were the primary driver of half-year EBITDA margin evolution, which landed at 52%. We remain confident in the long-term return on this investment period. Together, we are laying the bricks needed to reach Adyen's next level.

Well, I think that video does a great job in capturing the highlights for the past six months. Peter, Ingo, it's great to have you both here. Peter, perhaps to start with you, I think the video highlighted the growth that we saw on the platform, but even more so we've been investing in the team. Would you care to elaborate a bit on why it's so important for us to use this period as an investment period?

Yeah, I think for Atyen to reach its full potential, we need to grow a little bit larger in number of people. And during COVID, we were hiring, but we always kept the bar high. It's a very competitive market, so we knew something was going to give. And that was the number of people that we attracted because we would have liked to hire a little bit more. And now we move into a market where things are still competitive, but a little bit easier. And we now see the opportunity to get those very talented people on board. And so we're benefiting from that to grow towards the plan of working at the larger scale and to onboard those people. And what's I think interesting is it's often assumed that we use them just for one initiative, maybe embedded financial services or just for platform. But actually we use them to invest in all our products. So both Online, where we started, unified commerce, having a store and online working seamlessly together in platforms, helping the industry which is platforming, and then over and above that, the embedded financial services. But also we have new development hubs in Madrid, in Chicago. We're adding to the commercial organization, account management and sales. So you see that globally we invest in the company, so it's not very skewed towards one element. So that's how we bring the company to the next stage.

That's all very clear. And at this accelerated pace, how do we ensure that we successfully onboard all of these new joiners?

We benefit from being back in the office. Adyen is back in the office. Globally, we have a policy where we ask people to come in, and it's really working. So the offices are a very vibrant place, and that makes it easier to train people. So that's a very simple part. We have always been very good in training, I think. But even there, we stepped up. We have specific what we call academies. And we now broaden those academies for the different specialisms within the company. So that's easier to train people. We are hiring people with a little bit more experience. And sometimes even we have leaders which we call in flying leaders. So people have been leading in another organization. And why is now the time good to do that? In the past, we felt it could be dilutive to our culture. We have now such a size that we feel that actually those leaders can add something and can be good for the company. So we targeted to have more senior people. We also developed a special training for them called the flying leader training. So to land them successfully. But also, of course, it takes less work to train those advanced people. So that's why we feel comfortable that we can absorb this.

That's all very clear. And Ingo, on to you. If you look back at the past six months, perhaps through the financial lens, what are the highlights that you'd like to emphasize?

Yeah, we look back on a strong half year of results. If you look at our process volumes, they grew over 40%. Net revenues were up 30%. And also what was already highlighted in the video, we became more and more global. So further diversified both in geography as verticals. So that's a development that we're very happy with. EBITDA margin came in at 52%, lower than previous periods, but that's the outcome of our willful decision to invest in the business, like Peter just said, hiring more people, starting to travel again, bringing people back. So this is the outcome of our decision. And if we had to, we could get back to higher EBITDA levels very quickly, but this is our moment of investment.

Yeah, I think investment for me really is the key word. It's fair to say that investment goes beyond only investing in the team. Can you highlight any other investment areas that we've seen? Yeah, absolutely.

Of course, we continue to invest in our product, but also in the underlying infrastructure. That's also why you see why CAPEX is higher than usual. The second half of this year, we ended up at 8% of our net revenues and the total year 7%. We made these additional investments to make sure that we would have all the capacity available. Also with the stricter situation in many supply chains, we want to make sure that we have this capacity available. Longer term, we believe that we will come back to the 5% guidance on CAPEX. So 23 onwards, we will below that level again.

Peter, back to you. What makes you confident in this investment approach?

Our customer base is very stable. You see churn in large merchants less than 1%. And our growth comes from more than 80% out of existing merchants. So merchants that give us more business, but also merchants which we onboarded last year or the years before, which are still rolling out with us. So the underlying economics are strong. If you look historically, we invested, for example, unified commerce in the US. It takes years for that to really scale. Currently, we're making the investment in other markets. Think Japan, think Mexico, where we have both online and store working together. We know those are powerful products, but we also know the results of that will come quite a bit later. It's the fact that we are very long term and you see that there's appreciation by our merchant base that we feel it would be risky not to use the opportunity that we currently have in the market.

At the same time, we're not blind to what's happening around us macroeconomically. Yet if I hear the both of you, for IGN it really seems like it's business as usual. We've got our eyes on the long term. Ingo, back to you, what do you attribute that to?

Indeed what you say, we take this long-term view, so make the investments that are necessary to get to the next levels of growth, because that's very important to us, make sure that we do the right things for our customers in a different commercial pillars. Of course, that comes at a cost. That's why you see why EBITDA levels are lower right now. But these are real investments. You could also argue that if we would stop doing this, we would get back at 65% margins very, very quickly. So these are not additional costs because we need to run our business today. So these are investments in the future. If we would stop investing in the future, we would quickly get to these higher profitability levels. So that's why we're very convinced that this is a good and valid strategy for us. It's indeed a bit opposite to what's happening in the market around us. But we have always built the company in a very disciplined way. And that's what we will continue to do so. So we're not hiring as fast as we can. We hire in a way that we get the right quality in with a bar high and keep that discipline.

That's clear. And Peter, I already see you nodding. Are there any closing remarks that you'd like to add to what Ingo just mentioned?

The investments which we make today are deliberate and they're for the long term so that we can, for a prolonged period, keep to our growth guidance. And that's what we're doing.

Perfect. Well, thank you both for your insights. We're now going to open it up for Q&A. If you haven't done so already, please use the Q&A functionality in Zoom to submit any questions that you have. Please again mention your full name and the firm you represent.

Hi, all, and welcome back after a quick break. With an already great fireside chat behind us, we're now moving into Q&A, and we've had our first questions come in. The first one that we'll be answering live is from Mohamed Mohamwala from Goldman Sachs. Mo, please go ahead and mute yourself to ask your questions.

Great. Thank you, Sana. Hi, Peter. Hi, Ngo. My question was really on the investments you're making. You're obviously in quite a unique position, as you said, despite what's going on around you, to be able to really step up the pace of investments. Can you help us understand how you think of the payback and how this impacts the existing business as well as perhaps the realization of the benefits from the new product areas. And should we think of this as simply sustaining Adyen's kind of already high growth rates or potentially being additive and accelerating that? Thank you.

Thanks for your questions, Mo. Peter, if we look at why we're investing and the timelines of when we're expecting payback on our investments, how do we think it will impact our business and our products? If you could take that one and then Inge, if you can take the second one on sustaining our growth rates or whether we'll be accelerating them.

so if you see how we're investing we are investing in things which will have a will have a return fairly quickly because for example in digital we are constantly investing and making checkouts easier are able to retract stored payment details so that has an immediate benefit if you invest in the sales organization if you sign up more merchants you need more account managers. So those things lead to a high quality of service, but also executing it well. There are other parts which I mentioned, for example, unified commerce. If you launch that in Japan, that's not going to make a material difference on the very short term. But we know those are the type of products that take more years to come to maturity. If you look at our investments in embedded financial services, it's great that it's live, because now we get direct merchant feedback and you can improve, but that's how you build something. That's not how you get the benefits yet. So that's an example of something which will ramp up slower.

Great, thank you. And Ingo, anything to add on how this will sustain or accelerate our growth rates?

Yeah, absolutely. I think if you look at how we see these investments, it will extend our runway. So, of course, we have this guidance on how we want to grow our revenues longer term. That's what we want to continue. And these investments make this possible. Of course, longer term, we also want to go beyond payments, so we're still heavily investing in payments, but also developing first products that go beyond this. And this is because merchants ask for it. So we want to make sure that we do this to make sure that we are in line with our merchant demand. And yeah, with a single platform, that's relatively easy to do.

not in itself as an acceleration it is a sustaining growth path that we're on great thank you mo i think that should answer your question so we're going to open the line for the next next questions which are from adam wood at morgan stanley adam please go ahead and unmute yourself to ask your questions

Hi, perfect. Thanks for taking the question. Peter, good to see you back, and congratulations on the added role. I've got two, please. The first one is just could you help us understand the order of magnitude impact on the 2023 numbers on EBITDA? I mean, the model that we were working on suggests that EBITDA margins fall back below 50% this year, but obviously that depends a lot on the wages per employee that we assume. Could we even be looking at a situation where margins return back to the 2015, 2017 level, when again, I think was a period you were investing quite heavily when margins went as low as the low mid 40s EBITDA. That's the first one. And then secondly, a lot of people have been asking about the interest on the cash on the balance sheet. There's obviously a pretty big cash balance in the business now. Could you talk a little bit about your ability to earn interest on that balance? And is that different between the cash that is your cash and the cash that is part of the merchant float, please? Thank you.

Thanks for your questions, Adam. Ingo, I hear EBITDA margins. I hear balance sheet. I think this one's for you.

Yeah, thanks. So thanks, Adam. So if you look at our investments, we want to continue our investments in 2023. So in 2022, we hired around 1,200 people. That's also the number of people that we want to add to the team this year. That's sort of the maximum. that we want to hire we of course keep the bar high also with the full impact of the people that we have hired in the second half of this year or in 2022 that could lead to some further margin pressure so 2023 is certainly not a year where margins will expand again that's more something that we will expect to see longer term in the course of 24 when we think we are at this next level and we will hire less people. Indeed, I think your reference to early years, I think it's very similar and not so much maybe on the margin levels, but the perspective that we take. So the perspective that we take right now is very similar to the 15 and 16, 17 years when we invested heavily in acquiring licenses, point of sale development, and that really started to pay back in the years 18, 19, 20. And we want to take that same approach, indeed, so have lower margins on the short term to be in a way better position on the long run. Then on our balance sheet and interest rates, yes, we are, I think, in a lucky situation that we're now in a positive interest environment with no debt that leads to income instead of the fact that we need to pay for the balances that we hold. But we don't want to make this like a separate business model, like our business model is really focused on the fees that we earn with our merchants, so not so much on the interest rates that we make with the central banks. But of course, it's a good side effect. and it will certainly partly pay back our investments that we're currently making.

Great. Thank you. So, Adam, as you hear, we remain in investment mode. We're building for the long term. We're building what our customers need. I think we've answered your questions. That means that we're ready for the next in line, which is James Goodman from Barclays. James, please go ahead and unmute yourself to ask your questions.

Great, much appreciated. Thank you for taking mine. Just firstly, coming back to the commentary around the macro backdrop and the growth outlook, I think you've been pretty clear that these investments are helping to sustain your medium-term growth. If we look at the second half this year, which was already a challenging e-commerce environment, I think on a constant FX basis, your net revenue was within but at the lower end of your medium-term guidance. I just wonder if you could comment in terms of what you're seeing right now and the outlook for 23, whether that's a prudent level of growth to think about, given some of the discretionary spend pressures and higher energy bills and things that we're seeing in the market? That's the first question. The second is just actually to directly follow up on the interest income element and just really to gauge a little bit the materiality of this. I mean, it was 25 million, I think, already in the second half. Presumably, that was mainly I think you're earning it both with central banks and commercial banks in both Europe and the US. Is there any reason this couldn't be 200 million plus of interest income on an annualized basis and really a full offset to some of the incremental investments that you've been discussing in the opening remarks? Thank you.

Thanks for those, James. Ingo, if you could take the first question on how the overall macro backdrop impacts our growth outlook. I think James specifically asked for what we also see happening in the e-commerce environment versus on our platform. And then the second question I think is another good one for you to take on is how material we think interest income can become for us.

Yeah, sure. So I think if you look at our expectations for 2023, our main focus will be land and expand. So the fact that there is a macroeconomic backdrop is not necessarily an issue for us because we are so much focused on the land and expand. So working with our existing merchants and getting a bigger share of wallets. Of course, if the organic growth of merchants is lower, that also has always a bit of impact on us. So we're not completely immune for this type of development. But we strongly believe also in the guidance that we have given. So if we would have different growth expectations, also for 2023, we would have signaled this. So we are firm believers in our growth strategy. But in the end, it's very difficult to exactly measure which part is linked to the macroeconomic circumstances. And then on interest rates, like indeed, of course, the interest that we earn is really dependent on how the interest rates will develop this year. There's, of course, still a bit of uncertainty around. But with rising interest rates, that income will certainly further increase. I think it is, of course, relatively easy to model how much we potentially could make. We've decided to not disclose or guide separately on interest income. But I think it's good to assume that for most of the balances that we hold, we will get interest on it. And it will indeed be one of our sources for funding the investments that we currently make.

Great. Thank you. That's another complete set of answers. Now, next up is Justin at Credit Suisse. Justin, please go ahead and unmute yourself to ask your question.

Awesome. Thank you so much. Congrats, Ingo, and good to speak to you guys. So just a couple for me here. Juan, I noted an Oracle partnership in the platform side. I think you may have had a relationship there in the past. Obviously, this is a massive provider of POS, point of sale software, across North America and Europe. Maybe you could talk a little bit more about that relationship and that win. If it was incremental. And the other question is kind of ancillary relating to embedded financial services. So now that that's live, have you seen a change in the way conversations are going with platforms? Meaning, you know, are you seeing kind of more productive conversations? Are there a lot of platforms that are saying, hey, now that you guys have this more complete suite of offerings, we're more likely to work with you? And any examples of that that you can provide outside of the Moneybird one you gave in the shareholder letter. Thank you very much.

Thanks for your questions, Justin. Indeed, a lot happening in the platform space. So Justin's questions, the first one on our Oracle partnership, whether that's a win or an expansion of the relationship. And the second one on how our conversations around EFPR are evolving. I think two great questions. Thank you for those. Ingo, if you can take them.

Sure. Yeah, I think if you look at the Oracle partnership, that's a partnership that we're very pleased with. Indeed, they have a huge reach and they also bring us to customers that would be more difficult for us to sign up directly. I think it is also a way to further grow our embedded payment solution. And of course, longer term, that's also very important for building out EFP, so embedded financial products. So the embedded payments is an entry point for longer term, the other financial products. Oracle is an important partnership. Of course, we look at other partnerships. It's a very clear trend in this industry that software service providers look for different ways to embed payments into their offering. And that's why the platform vertical for us is so important. Then switching to embedded financial products, now it's live, what are we going to do? The initial feedback is very positive, but it's also still in pilot phase. So yes, there are more platforms coming to us that already were considering us for embedded payments to say like, okay, if you can do more, you're even more interesting or logical choice for us. So it absolutely fits very well with also our strategy to be their long-term partner. But like we also indicated earlier, it's going to take a bit of time to really roll out embedded financial products and get revenues from it. First focus is getting the embedded payments right. And that's like the majority of the conversations that we have now with platforms.

Great, thank you. So Justin, as you hear, there's much more in store in the years to come. I hope we've answered your questions because it's time for the next questions already from Frederic Boulan at Bank of America. Fred, please go ahead and unmute yourself to ask your questions.

Hi, thank you, Sunny. Thank you, everybody. If I can follow up on the previous question from James on your revenue growth outlook. So if we look at 22, second half, and we had FX supporting, we had eBay still contributing. If you can discuss the building blocks that give you confidence about delivering within the guidance range for 23 in the macro that gets a bit tougher, in particular, any development on POS or other areas where, you know, we could get a bit more comfort on growth picking up. And then secondly, on the management side, if you can maybe spend a moment on the changes happening, in particular the departure of Clément and Zachy, and the outlook for the rest of the management team. Thank you.

Thanks for your questions, Fred. Ingo, if you can take Fred's first question on our growth outlook for the upcoming year against the macro backdrop and also what gives us confidence for the year to come. And then, Peter, if you can take Fred's second question.

yeah sure i think if you look at the building blocks for our growth this year it's at one hand regional so if you look at our attraction in north america right now that's very significant and we want to further grow this and the same for what we see in unified commerce space so a lot of retailers also after pandemic are reconsidering their payment strategy they see that payments is very strategic to them they also with our data perspective we can help them to get better insights in their consumers and so that's an area where we expect a lot of growth from and of course these are deals that we potentially already have signed in 2022 in line with our land and expense strategy we expect to see more revenues from this in 2023 so that's also why we are so convinced that we will make this outlook. It's also based on the account management plans that we have in place. So for each account that we manage, we have detailed visibility on the growth that we want to make, and that also supports our growth for this year.

Great, thank you. And Pieter, could you address Fred's second question?

Yeah, there's some changes in the management board. I'm very positive about it. I, of course, don't like to see Cameron go, our COO, but I think from a West Coast, U.S. perspective to spend almost a decade with a company shows strong commitment. And when we asked him for the board, my assumption was that it would probably be for a term. So there's not a big surprise in there. It gave us the opportunity for Ethan to become CFO. And often you see that people already have the role which they are being granted. And so we were happy to give Ethan that opportunity. Ingo takes over a large part of Kamran's role, which is product and operations. what we do with account management that goes to roland prince who has been with us very much from the beginning and so bring that commercial together is an elegant way to solve it and because now we make those changes there's also an opportunity to adjust the board to how ingo and i have been working together and we have been very much operating together and to now formalize that i think that that's uh that's the right thing to do to ensure that we are all working in a way which we can work together going forward of course uh with coming back to the office a little bit more difficult than I expected. It would have been nice to have had it in place already, but there's nothing which I know is coming up that I would be out of the office.

Great. Thanks for that update. I think, Fred, we've also answered your questions here. So that means we're going to move on to the next question, which is from Sandeep Deshpande at JPMorgan. Sandeep, if you could please unmute yourself and ask your question.

hi thank you for letting me on and congratulations on a good report uh two questions from me if i may uh just back again to the question on margin um uh would you then say ingo that that 23 would be the bottom of your margin and then in 24 your margin will improve from here as your hiring slows into 24. uh the second question i have is for Peter, which is to do with the growth trajectory of the business. I mean, clearly, I mean, you've seen very strong growth in POS and in the United States. What is the next leg of this growth? I mean, clearly, for instance, in the US, getting your license and et cetera helped you grow very fast in the US over the last few years. Is it about continuing to expand within the existing acquired customer base or is it now the push to get with these new employees to get new customers is going to increase?

thanks for your question sandeep i think they were already uh directed by sandeep in the in the right direction so uh i guess i'll say thank you for that you know if you can take the first question on how our margins will develop in an upcoming year and years years after and then peter the second question for you on uh how are how we're expecting to further grow in the us and beyond

Yeah, so if you look at our margin expectations for 23, we expect that margins will indeed be impacted by the people that we hire this year. So we have as an internal goal 1,200 people that we want to add to the team. And then in 24, the number of people that we hire will slow down. So in absolute terms, lower than the 1,200. That's our current expectation. That should lead that if you think about the number of people that we hire in 23, that also, of course, has some impact on the cost in 24. But in the course of 24, we expect the margins will start to expand again. And then we think that we are at a level where our ultimate scalable business model will be visible again, where we grow on the longer term to the 65% EBITDA margin. And I think that's a very important point to highlight. We strongly believe that our revenue can grow way faster than our cost. Most of our cost is cost of the team. The people that we hire currently are additional investments to have a longer growth path. But if we wouldn't hire them right now, we would get to higher margins instantly. And I think that's the investment that we're making. And that's why we expect from 24 onwards or in the course of 24 onwards, where margins will expand again.

Great, thank you. And I think from current investments over to North America, a place or a region where we continue to invest, but also have been investing for a very long time already. Peter, what's our growth trajectory and aimed growth trajectory there moving forward?

First, how does that commercial engine for us work? And that is, we have growth from existing merchants, which is like the majority, more than 80%, but we're constantly adding new merchants to that so that that doesn't stall, but that keeps going. So that's what we're doing. And if you look at addressable market, we are not limited by addressable market. So yes, that's what we'll keep on doing in the US with more people, with more track records, being recognized as an important domestic player as well. So at a certain point it becomes easier than your first sale where you're a little bit being seen as an unusual choice. It's now much more an accepted choice. But in the meantime, we're planting the same seeds in other markets. So I mentioned Japan, I mentioned Mexico. So there also that engine starts to work. So if you say what's the more important, it's important to keep it flowing. We constantly grow with existing and we constantly add. And that's what we have been doing now for more than a decade. And that's what we continue to do. And then it's about outperformance of the products, investing in engineers and almost 60% of what we hired are engineers. that build the product constantly improving. And that's why merchants choose first. It's not from a decision in the past that they tied their hands. No, it's like, this is the product I like and I put more volume to. And that's what we'll do for the years to come.

I think a very clear strategy that's brought us where we are today and will continue to drive our growth in the future. Thank you, Sandeep, for your questions. Next up is Michael Brees from UBS. Michael, please go ahead and unmute yourself to ask your questions.

Yes, thank you. I think most of them have been asked, but I guess just coming back on the interest income, could you give any sensitivity perhaps around a one percentage point move on US or Eurozone rates, how that would affect that income stream? And in terms of the hiring, in the second half, it looked like the average employee cost went up quite a lot sequentially and year on year. And I guess, is there anything odd about seasonality, or does that speak to something around the sort of salary inflation you saw, or the calibre and seniority of talent that you brought on board? And perhaps, has attrition come down notably, if you could address that? Thank you.

Yeah, thanks for your questions. I think it's becoming a theme of the call. But Ingo, could you address Michael's first question on interest income and then also pick up employee costs and maybe together you can speak to attrition and seniority of our team.

Yeah, if you think about the sensitivity to interest, the balances that we hold on a daily basis, of course, the velocity of those balances is super high. So what we receive from all the different payment methods around the world is paying out basically the next day. That velocity is high. But for most of the balances that we hold, we are in a position to get interest on it. So I think that gives a sense for if you want to model it, like if you look at our balance sheet, how much is eligible for getting interest. And then I think thinking about how volumes will grow over time and also how balances then will grow over time. I think it's the best way to model the sensitivity to interest rates. We're not going to specifically guide on it also because we're not actively going to steer on it. We focus on making sure that we continue to build our fee business with our merchants. And this is a very nice side effect of it that helps us to fund our growth.

Great, thank you. And then there is a question that I think you can best address together, which I think will kick off with the cost of employee expense and then also some parts on how the team has developed also from a seniority perspective and what attrition looked like.

Yeah, this year is the year that we deliberately chose to bring in leaders because we felt that we are now of such a size that we benefit from it. On the balance of do you risk culture, we feel we are now that's so well embedded that it's actually an opportunity to get other leaders in. So that indeed changes the package. What we also see is that we're hiring outside of Europe. If you hire outside of Europe, then usually the packages are different. So that raises salaries. We are hiring engineers, and they're usually also on the different packets. So those are, I think, the underlying trends.

Yeah, I have nothing to add from the trends on the cost. That's the perfect summary.

Great. Thank you. And I think we've already answered the full question. So then it's time to move on to the next. Hannes Leitner from Jefferies, please go ahead and unmute yourself to ask your question.

Yes, thanks for letting me on. There was a couple of questions, but they're rather more driven around license landscape. Could you remind us a little bit around your current license landscape? Where do you see the key focus areas? And then also talk about the acquiring license in the US. I think after the branch license, you are potentially eligible to apply for one. And then also what would be the incremental benefits from that? And then maybe on the second question around unified commerce, one key discussion here is around profitability between the channels could you remind us there especially also around the implementation is there extra costs incurred by you to for example implement the terminals in store or do you have third parties you work with or is it the merchants directly thank you

Thanks for your questions, Hannes. Ingo, if you could take Hannes' first question on our licensing landscape, what our key focus areas are, how we're progressing when it comes to our US acquiring license, what it means for our business, and then also the second one on profitability between our unified commerce channels.

Sure. If you look at our license landscape, let's first take it from a regulatory perspective. So we always try to optimize our regulatory approach in each region. That's why we have a banking license in Europe, why we have a branch license in the US. And in each market, we always ask ourselves, like, what's the best next step to provide our services on the long term? If there are any updates to be given, we, of course, will. But it's, of course, also the question, like, what is the right timing for it? then a second way to look at licenses of course are acquiring licenses globally we used to have a couple of rent-a-bin licenses in the past for us that's mostly now transitioned out given the fact that we have significant acquiring volume this is not necessarily a real cost benefit because having those licenses ourselves also incurs certain cost Of course, in combination with the regulatory license, it improves the quality of service because we have direct control over all the flows. They are no longer dependent upon third parties. And that's, I think, a very important improvement in how we can help our biggest merchants globally. If you're live in the U.S., we are a real domestic player now. And that's, of course, if you're a big merchant, the quality that you're looking for.

Great, thank you. And then Hannes also asked a second question on unified commerce. And if I recall correctly, he was asking whether there is a difference between online and offline channel when it comes to profitability and whether there are any extra additional costs that incur when we implement terminals for our customers.

I think typically the way how we price for unified commerce type of deals is more volume based. Also because longer term we strongly have the vision that the difference between online and in-store will disappear. So you don't want to have strange situations that based on the choice of a consumer you get two different costs for the retailer. So we try to make it as easy as it is to price that. If you think about rolling out, the cost of terminals, of course, is an additional component. We're not subsidizing these terminals for our retailers, so we charge for it. And for the whole supply chain or logistics behind it, we work with third parties to make sure that Those terminals are shipped to the stores. The installation of those terminals is relatively straightforward. Some companies do it themselves. Some have the help of third parties to do this. But our aim, of course, is to make it as easy as possible. And for instance, one of the things that we have changed compared to the traditional industry, where if you had updates on terminals, you had to send a service engineer. We have all made that completely remotely so we can remotely update terminals and it's basically internet plug and play.

Great, thank you. I think that makes that we've answered both of Hannah's questions. Next up on the line is George Levin. George, please go ahead and mute yourself to ask your questions.

Hi, good afternoon. Two questions. It seems like the increase in headcount is more than what you had discussed earlier in 2022. Are you hiring more people than you had originally planned? Or are you hiring faster than you had originally planned to hire? And if yes, why? And then just again on the interest income, It looks to us the implied rate you earned on the cash in 2H22 is a lot lower than the prevailing short rates in Europe and the U.S., and we're trying to understand why. Can you park your deposits at central banks and earn the rates paid by central banks, or do you largely park the deposits at commercial banks and earn the rates paid by commercial banks, or is it some other mechanism altogether? Thank you.

Thanks for your questions, Josh. Peter, if you could take the first question on our pace of hiring and why we're maintaining that pace. And then Ingo, I think once more the interest rate question will come your way.

I think we run the risk of actually we run the risk of under investing. And now that we can find those talented people, those are the people that we need. But we're not managing the company towards let's hire those people, which in these discussions almost sounds like, oh, it would be great to have 1,200 people. No, we have work for 1,200 fantastic people. Can we find them? Then we will. And that's about the number where we think we should get to. But we're hiring to build products and not the other way around.

Yeah, I think adding the fantastic to it is a great nuance. I think it's a good one for everyone to take into account that that's in the end what the 1,200 people from this year were. For the second question on the interest income, Ingo, I'm going to defer to you again.

Yeah, sure. So if you look at the interest rates, they only start to move in the period. So it's only part of the period that we have seen those increases. Most of our balances is at the ECB. And I think the ECB has been slightly slower, for instance, in raising their rates than the US. Also, part of our funds are held by commercial banks. And they typically have a bit of a lag between if the central bank raises interest before they have implemented it. So these are effects where there's a bit of a lagging situation in those interest income.

Thank you, Josh. Thanks for sending in your questions. We're going to move on to the next on the line, which is Jeff Cantwell. Jeff, please go ahead and mute yourself to ask your questions.

Hey, thanks. Can you hear me?

Yes, we can. Thank you.

Okay, great. Thanks for taking my question. Thanks for squeezing me in. I just want to follow up a little bit on what you're talking about with your new hires. And so when you say that your new hires have a longer growth path, Can you explain what you mean by that? Why is that the case? Just trying to think about whether this is product development, for example, land and expand, maybe movement into new geographies and so forth. And then when we think about how to model that, what does that mean for the volumes and take rate, for example? Because given the magnitude of the hires, the size you're talking about on these expense lines, It would seem that, you know, your thinking implies to sort of add more than a couple of PPG to your revenue growth. So I was hoping you could help us understand more about this.

Yeah. Thanks, Jeff. Peter, could you speak to how our new hires will extend their growth path and what it will mean for the business moving forward?

Yeah, feel free to chip in when you think necessary. As Ingo mentioned, it's very easy to limit on investments and it will bring the operational leverage very high in this company. But the question which we try to solve here is what investment level is right to have those products which we know will later on deliver. And we are building things which we know already for a few years are needed by merchants. And how that works is not always so straightforward. When we were just launching with terminals in store payments, we thought, oh, wow, this is really going to help for companies which have in-store payments. And then it turns out that you sign up merchants for pure online who say, we might want to do it in the future, so we'd rather work with you. Then we can know we can extend it. Why do I mention this as an example? If you now look at platforms and you don't use embedded services, if you can choose between providers, which provider would you take? The one where if you want in the future, new card issuing embedded services or the one who doesn't do that and if you also look in our case all in one platform so no new contracts it's just flipping of switches to get things up and running that's very attractive so the hard relationship that you're asking for is sometimes a little bit less less strict but on the other hand we have been in this market for a long time we've been speaking to merchants for a long time so this is not just a gaslight guess as in let's make up a feature no we're building to what we know is needed and will be used and uh if you then ask me so why do you say that then lengthens your growth by your your your runway And because we know these are the products, you never know 100% for sure, but we think these are the products that will be used. So quite confident in that.

I think the comparison to be made is, for instance, if you look at the U.S., it has taken years to get real traction in domestic U.S. market. Of course, we already were quite successful early days with U.S. merchants going international. But now to have domestic traction, that took years to get there. If you translate that to other markets that are very significant, Japan, it will really take time to get or to be in that similar situation. You need to build a team. We built a team from the ground up. So we don't do any type of acquisitions. So time is the thing that we need to overcome. It just is having that patience, building it right. It's also on the product side, of course, building everything ourselves. It just takes more time. And that's why we strongly believe that the investments now will put us on a longer growth path and why we think this is the right thing to do.

Great. Thank you. I think, Jeff, we have answered your questions there. So we're going to move on to the next on the line, which is Alexandre. Alexandre, please go ahead and unmute yourself to ask your questions.

Good afternoon. Thank you very much for squeezing me in. I've got a couple of questions, if I may. The first one is again on this big investment phase of yours in 2022 and 2023. Could you please give us a broad sense of how much of this effort goes into embedded finance products as opposed to all your other initiatives? And my second question relates very much to inventories that I think went up quite dramatically in H2. I think it relates mostly to point of sales terminal. So I'm curious if that's in anticipation of growth in unified commerce, if it's trying to get ahead of potential supply chain disruptions. Just wondering what's going on there. Thank you very much.

Thanks for your questions. Peter, could you speak to Alexander's first question on where all of our new colleagues are, what initiatives they're working across? And I'm not sure whether it was me, but I've had some difficulty understanding or hearing your second question. But I'm looking at Ingo whether he heard and else we might ask you to unmute again if he didn't hear. But I thought it was either Unified Commerce or CapEx, but that's a broad range. So let's start with Peter.

Yeah, so the question is it embedded financial services where you need to where you feel the need to hire people and the answer is no, it's we investing in all initiatives. So that means that we build the teams out globally. We invest in all the different. initiatives that we have, which means making sure that our online merchants get new functionality and we retrieve payment data, we make it more smooth, we look at risk and make sure that we have less false positives. So that's constant investment. We invest indeed in unified commerce, we invest in platforms and off platforms, embedded finance services. is a part, but we are also discussing now taking unified commerce life in other regions. We set up development hubs and to develop that muscle that we can also have engineers in other regions is important. So it's not so biased and especially if you look at 2013 when we had a lot of engineers on getting point of sale life. This is different. This is scaling the company to bring it to its potential.

Great. Thank you, Pieter. Ingo?

Yeah, let me start with the second question. And if I'm not completely answering it, we'll give you a second try. I think the way we look at unified commerce and the way how we've built our terminal business, of course, we had some limitations in the supply chain earlier. And we were also dependent upon a single provider or a single vendor. And that's why we already some years ago decided, okay, we need to go for multi-vendor strategy and preferably also develop or design terminals ourselves to make sure that we cater for the needs of our merchants. So we've built terminals that are in line with those needs. We have them available. So that's not a restriction any longer to grow unified commerce. So from that perspective, the situation where there were some limitations, that's over. It is really about making sure that we have the right rollout plans with our customers and making sure that terminals then get to stores. So far, we feel in a very good position to further roll out with our customers.

Great, thank you. I think we can move on to the next questions. Next up on the line is Antonin Baudry from HSBC. Antonin, please go ahead and unmute yourself to ask your questions.

Yes, thank you very much, Sunny. And hi, Peter. Hi, Ingo. My question is about evolutions of the competitive landscape. We saw that Stripe, one of your competitors, signed partnership with Amazon in Europe and the US. So this is a contract that you could have typically won, especially as you already partner with Amazon in some geographies. So do you see a change in the competitive landscape? Do you see more pressure from some of your competitors to penetrate this enterprise segment, especially with some pressure on prices? Thank you.

Thanks for that question. Ingo, if you could speak to the overall competitive landscape and Antonelle also ask about our relationship with Amazon.

Yeah, I think in general, the competitive landscape is not really changing. Of course, there is, if you look at in general, large players, they typically work with multiple providers. There's always deals that we would like to have. At the same time, we focus on the deals that we have won and deliver the best quality on it. So in that sense, not a lot has changed. Also going forward, I think if you look at new players, like most of the industry is still with the traditional banks. If you look at the opportunity that we have in unified commerce, most of that is to win from traditional banks. If you look at online players, a lot is to win from the incumbent players that still have significant volumes. And that's what we focus on.

Clear. Thank you. I think we have answered your questions there. Next up on the line is Sebastian Stabowicz from Kepler Cheveux. Sebastian, please go ahead and unmute yourself to ask your questions.

Yeah. Hey, everyone, and thank you for taking the question. On Unified Curb Earth again, the volumes are ramping up quite rapidly and you are now moving to new markets japan and mexico could you could you please help understand what is the competitive landscape in this new geography do you see new competitors in mexico and japan and on the capital allocation strategy You have a bit more than 2 billion euros in hand in terms of net cash position at the end of 2022. Could you remind us a little bit the capital allocation strategy? What do you plan to do with your cash going forward? Thank you.

Thanks for your questions. Peter, if you could take the first one on a competitive landscape at global scale on unified commerce. And then Ingo, the second question on capital allocation will come your way.

If you see how much experience we build up in unified commerce over the last years, if we bring it to a new market, we are very far ahead. The challenge in a new market is that you are not established as a brand yet and banks and merchants have relationships which you don't switch overnight. We know that, so that takes time. But it's not that there are other companies providing that. It also works as they do it. It's just way more operationally efficient to work with us. And there are sales that's lost by not doing it. And at a certain point, there's a tipping point that merchants say, I'm going to switch now. But that doesn't happen the day it becomes available at the market. At least for some, but not as quickly as you would dream.

It's a long-term effort for sure. Ingo, a second question on our capital allocation strategy. Would you take that one?

Yeah, sure. Yeah, so we need to have a significant cash position that helps us to grow the business. We're still in investment mode. It helps to have a significant cash balance in discussions with regulators. It helps us with discussions with merchants. We have an A-minus rating with S&P. So it also says a lot about our financial stability. In the end, that's ultimately what we're selling. We're selling trust to our customers. And having this financial stability helps us a lot. That's why we continue with this strategy for now. And we will revisit at a later stage.

Great. Thank you. I think it's time for us to move on to the next question, which is Lisa Ellis from Moffat Nathanson. Lisa, please go ahead on the mute yourself to ask your questions.

Good morning. Thanks for having me on. I'm delighted to be joining. I had one related to the deceleration in processed volume growth that we see from 1H to 2H, excluding the impact of eBay and their Was most of this deceleration driven by a slowdown or moderation in e-com spending, or are you seeing some other dynamics out there in the market, such as a slowdown in customer decision-making or the slowdown in customer rollouts of your implementations or an increase in competitive environment? Just can you unpack a little bit that deceleration and volume? Thank you.

Thank you, Lisa. And so this is our final question. So the final question of the day, I think I'm going to send it over to Ingo. And then afterwards, we're going to wrap it up.

Yes, so if you think about the volume growth on our platform, for an important part is the volume growth dependent on rollouts of new merchants. For instance, for point of sale, there's not a lot of rollouts in the second half of the year, specifically not in Q4. So that's a trend that we see. I think other trends are not really visible. So we are still very much convinced that we can continue the growth on our platform. That's also why we keep reiterating our guidance on revenues. So there are no big underlying trends that I can highlight.

Thank you. And with that, it was our final question. It was a pleasure having you. It was a pleasure being here with Peter and Ingo today. It was also on behalf of Steven, the rest of the team. We'd like to thank you for dialing in today, sending in your questions. Thank you.