Adyen N.V.

Welcome to Adyen's H1 2023 earnings call. We look forward to discussing our key updates from the last period. We closed H1 with continued growth of 739.1 million euros in net revenue, up 21% year on year. Though we remain focused on building Adyen for the long term, this cycle presented shifting economic dynamics. As the macro landscape evolved, we saw North American digital businesses increasingly prioritize cost optimization. We know that growth is not always linear and continued progressing towards our sizeable opportunity while meeting our customers ever evolving needs. This included launching new products across all pillars from advanced authentication functionality that drives conversion to tap to pay on Android to productizing our payout solution. These innovations enabled us to help drive our customers' ambitions even in the current climate, and enabled our distinct momentum across our platforms and unified commerce offerings. To further our trajectory, H1 was also a period of continued investment in building our global team to accelerate growth across key initiatives and regions. The talent market provided a tailwind that helped us remain on track in adding 551 joiners this cycle. Along the way, we remained focused on effectively scaling our culture of speed and autonomy across our global team. Following this continued investment period, EBITDA margin landed at 43%. With the team nearly at its next phase of scale, we remain confident in the robustness of our business model and the long-term opportunity ahead of us. Together, we are working to realize it. We are now pleased to dive into this period in greater detail. We'll start with a fireside chat with our co-founder and co-CEO, Pieter van der Dus, and our CFO, Ethan Tandowski. We'll then open the floor for a Q&A during which you can send in your questions using the Q&A functionality at the bottom of your screen. Please note that the raised hand functionality will not be incorporated. We ask you to leave your full name and the firm you represent when submitting your questions. We will unmute you to ask them live at the end of this segment. Thank you for your cooperation.

Good morning, good afternoon, and good evening, and thank you for joining us today at iGen's 2023 H1 Earnings Call. I'm really glad to be joined today by our co-founder and co-CEO, Peter van der Does, and our CFO, Ethan Tendowski. Now, let's jump right into it, Peter. If you look back at the first half of this year, what are the things that really excited you, and perhaps also touch upon a few of the things that perhaps didn't grow according to our expectations?

What we are really pleased to see is that, let's start with platforms. Many of the business that we do, the companies that we do business with as consumers, the SMB, the smaller and mid-sized companies, they're on the platform. And what is happening that as SMBs move more to platforms, it's an essential part of the economy for us to be part of. And we see very high growth there. So that's important. It's an area where we have been investing. You see that we release a lot of products and that we have a lot of traction there. growing of a smaller base, obviously. Unified commerce, to merge what is happening in store with online, so that those shopper journeys work perfectly. We are very good at that and we see high growth there. If you look at online, where we started the company, we see lower growth than what we hoped for. And the reason for that is that we have seen increasing competitive pressure in North America. And that's, to my view, related to a higher interest rate environment. More companies are looking at the bottom line, and that's an environment in which they try to see if cheaper alternatives work. It's the part of the business that's easiest to switch, US online. We're still growing, right? So it's not that we're shrinking there, but it's growing at a lower pace than anticipated. Still, we feel that we should also in that part of our business keep investing because total cost of ownership is ultimately what defines the choice of payment partner. And we believe that we have still room to also further invest there and make the product even better. And that's the way to grow also in a digital part. We expanded the team. We also announced already last year that we'll grow this year with about the same number of people as we did last year. We're well on track there. And that's necessary because if you look at our long term opportunity, nothing changed. It's still out there. It's still huge. And we need to have the right team on board to grasp that opportunity and We are building towards that. It's a good market for us to hire people. So we get very talented people on board. We always have the bar very high. We keep it high and we're successfully executing there.

So despite some of the headwinds from the macro environment, definitely also tailwinds, especially when it comes to hiring. We see strong growth in unified commerce. We see strong growth in platforms, still strong growth in digital, albeit at a slightly lower pace than what we had hoped. Ethan, can you perhaps talk us through a bit of the financial results then connected to that?

Yeah, absolutely. So to start with, process volumes grew 23% with growth across each of the three pillars. So again, growing in digital, growing in unified commerce and growing on the platform side. Similarly, we grew net revenues at 21% in the first half of the year. And we continue to make the investments in the team that Peter referenced. We brought on an additional 550 people in investment phase that we've been in now for the last 18 months. We hired a majority of tech people. So around three quarters of the team of the new hires were in tech with the majority of the rest on the commercial side. And we grew faster outside of Amsterdam than in Amsterdam as we wanted to get closer to our customer base as well. Ultimately, the team is the biggest place that we can invest. And that led to EBITDA margins coming in at 43% for the half year. At the same time, what was a bit of a headwind with interest rates rising on the net revenue side, we saw that actually as a tailwind for our total net income. We increased our interest income given our conservative balance sheet. And for the half year, we were flat year over year from a net income perspective, even as we made all of those investments.

So to Peter's earlier point, saying the long-term opportunity remains unchanged, we continue to invest in that, and you see that reflected in our financial results this half year as well. Peter, coming to those investments and looking at that from a cultural perspective, we've always been very open, saying we have a great hand of cards, it's up to us to play it. We know that our headcount and our culture is key to us achieving that success. Can you talk a bit more about what we're ensuring to make sure that we continue to scale that culture at an accelerated hiring pace?

I think what's really nice to see is that we are on the list of senior people that before didn't think that Adyen is a logical step in their career and that means that to fill internal senior positions we can do that with talent raised within Adyen but we can also do that with people that had a career outside of Adyen and it gives a healthy mix and when you're smaller you cannot really do that because that would change your culture too much our culture is so strongly ingrained in the company that we now have that opportunity to bring those people on board to benefit from all their experience. So it's something new and we're very pleased and we see it working out. So we have quite a significant number also of what we call fly-in leaders. So all in all, if you see what we onboarded this half year, I think this is a team that can really grasp the opportunity that we have. And remember, this is the last year that we will add so many people to the team. So the team is getting close to the size that we want to do this execution with.

That's great to see that we can then also onboard the people that also believe in that long-term opportunity that will help us get us there. Thank you both for your insights. I'm now going to hand it over to my colleague, Sana Minema, who will lead our Q&A. We ask you to put in any questions you may have into the Q&A functionality of Zoom. We won't be using the raised hand function. Please leave your full name and the firm you represent. We will then invite you by name and ask you to unmute yourself and ask your question.

Thank you, Steven. And indeed, the floor is open for Q&A. Let me see what question we'll answer first. Our first question is going to be from Mohamed Moawalla from Goldman Sachs. Mo, please go ahead and ask your question.

Great. Thank you. Hi, Sané. Peter. Thanks for taking my questions. Firstly, I just wanted to ask around the strategy you have to perhaps turn some of the headwinds in North America to drive kind of an acceleration. And could we see that some of the pricing pressure potentially weighing on growth further? Or do you feel some of the stuff you talked about on platforms or new products can start to come into the mix to drive an improvement? And then secondly, I think for the first time, Adyen's kind of top line growth has fallen outside of your midterm target range. And I know that you had said in the past that you'd hope to kind of be within that range as you navigate challenges. So I'm just curious to understand when you expect to kind of return to those levels and perhaps what are the underlying kind of assumptions at the lower end and the upper end of that range to the extent you can comment on that. Thank you.

Thanks for your question, Mo. Peter, could you take the first part of Mo's question about our strategy in the US and then Ethan, could you follow up with the second part?

So if you look at our strategy in the US, it is to roll out all products, so platform, unified commerce and also digital. Our strategy is to invest in the product. We think that cost of ownership is very important and we think that is the lowest with our products. We could I mean, we run a single platform, we run at the lowest cost, so we could join a price fight. We don't think that's the right strategy. Then if you if you look at if your question is so what's happening next? the next half year that's not really the window that we look at we are building for a longer for a way longer window and um then there's nothing where i would say this is not a sound strategy to keep on adding to the product that's what brought us here and you see we diversify indeed as you ask is that the product diversification yes if you it's important to play in the platform economy and it's important that we play a unified commerce so I think that's a healthy way of looking at it and how we progress from here.

Yeah, and if you look at the way that we've defined our financial objectives, we've defined them over the medium term on a net revenue basis. And the reason we have is because as a management team, we feel like that's the best time horizon to take decisions to ultimately capitalize on the opportunity that we have ahead. If you look at the hiring we're doing now, revenues and costs in the short term, they're disconnected. But it's really important that we make these investments now today to make sure that we have the best chance to realize the opportunity that we have ahead of us. And that's why we continue to reiterate our financial objectives and confirm the medium-term guidance that we've shared before.

Thank you, Peter. Thank you, Ethan. Mo, I think we've also answered your question. Let me see who's up next. Next up, we have Adam Woods from Morgan Stanley. Adam, we're listening.

Hi, good afternoon, and thanks for taking my question as well. Maybe just to hone in again on the mid-term guidance of mid-20s to low-30s, could you maybe just help us a little bit with the assumptions that you're making that give you the confidence that you can get back there? You mentioned sales capacity in the release this morning. How much of it is down to that? And secondly, when we think about competition, how much of it is the investments that you're making now improve and add to the differentiation that you have versus peers in the U.S. market that means that you can keep the pricing you have but go back to taking the share of growth that you had before? And maybe specifically, is there enough value-added payments market in the U.S., which is more commoditized than Europe, that that performance differentiation can be enough versus peers that have good enough products and actually price below you today? Thank you.

Thanks for your questions, Adam. Ethan, if you could take the first part about, if I recall entirely correct, how we'll reaccelerate in the midterm and what the impact of our expanded sales capacity will be. And Peter, if you can then also speak to how we build for solving for complexity in the US, how that adds to our competitive advantage.

Yeah. So in general, I'd say that complexity we've seen be on the rise year after year across each of the markets we're in, whether that's additional payment methods in each of the markets, whether that's more products being rolled out by the schemes that we can help leverage, things like data only, which we announced this half year, which basically helps us collect more data to get to higher authorization levels, for example. These are all things which are increasing the complexity over time, which give us the feeling that functionality will allow us to capitalize on the opportunity. That's why we think that the opportunity is sizable, but also that our place in that opportunity is unchanged from where it has been. And that's also why we feel confident across each digital unified commerce and platforms that we can grow at a high rate and that we can get to the levels that we've discussed in our medium-term guidance.

I actually feel like that was already a pretty complete answer, but I want to see whether Peter has anything to add before we move on to the next question.

I agree, of course, with what Ethan says. If there is any place where you could say which is the most prone to a price competition, the easiest market then would be US online because you can switch volumes, you can try something. So I think that that's quite separate. It's a pocket in terms of its huge market, but it's a pocket in terms of unified commerce. It excludes unified commerce. It excludes platforms. And therefore, it's an isolated phenomena that we see there.

Thank you, and thank you Adam for your question. Next up is James Goodman from Barclays. James, please unmute yourself.

hi there thanks for taking my my questions i'll go for two please um just firstly you talk about the 2024 operating leverage coming back into the business i think you've spoken before about hiring this year less than the 1200 of last year and and fewer people again in 24. could you give us um as specific an update as you can in terms of the hiring plans for the business because the magnitude of operating leverage um in 24 will clearly depend upon um the revenue growth, but also the rate of hiring. The other question I had really was just around the churn rate in the business. So you talk about 1% churn by volume, but I think I've understood that correctly as being customers that have actually left the platform. Clearly what we're talking about today is a number of your customers who've switched some portion of their volume away to a competitor for reasons of price. So maybe if we were to look at churn on a like-for-like

volume basis you could you could help us a little bit with how significant that is um as a proportion of your business maybe versus the last half period thank you thank you for your questions james peter if you could take james first question on our hiring plans for the upcoming year um and after and ethan if you could take james's second question on volume churn

So if you see what we're hiring, it's flying leaders, as we call them, so leaders from outside. Almost 75% of what we hire is engineers to build the functionality, to increase the delta, always increase the delta between us and what the market has to offer. And then the pocket below would be commercial people. And we spoke a little bit about that before. We under-hired a bit in the US on the commercial side. So you also see that it's a contributing factor. You also see that back in the numbers. So that's what we do for the hiring. Then at the end of the year, we feel that we are at size. It's an investment that we make. We don't do acquisitions. So this is the way how we grow the company. And then after that, we'll grow at a much lower pace.

Thank you, Peter. And James, a second question on volume churn. Could you take it, Ethan?

Yeah, sure. And James, yeah, you are right. We haven't seen any of our significant customers leave the platform in the first half of 2023, given that it is less than 1%. Of course, we've highlighted that growth was slower in North America on the digital side. One thing I would reference is that overall, we have grown with our digital customers to the rate of 23% year over year on a volume basis. To identify exactly which volume shifted where is difficult for us because we're gaining wallet share with our customers at the same time. Our customers are also growing at different rates, so to identify which parts went where is tricky for us. But on an overall basis, we were able to grow our digital volumes by 23%. Thank you.

James, I hope we've answered your question. Next up is Fred Boulan from Bank of America. Fred, please go ahead and unmute yourself.

Can you hear me?

Yes, we can.

Perfect. Thank you very much for taking the question. Maybe a clarification on the previous commentary on phasing, so on the revenue side. So you seem to be saying H2 is not really the horizon you're looking at. But when we look at some of the building blocks and the new initiative you have around capital issuing, the push on the in-store, Aria, can you maybe help us a little bit on how we go back to the kind of mid-term revenue ambition versus the kind of 20-ish percent we are right now? In particular, is there any service you think will start to contribute meaningfully in the next one or two years? I mean, that would be quite useful to understand that a little bit. And then second, if you can clarify a bit more on competition. As you explained, you've defended pricing, but had some impact on volumes. Can you explain this or share with us a little bit the specific actions you think on competitors? And do you think this is structural or more kind of a tactical action that you're seeing from your main peers in the US?

Thank you, Fred, for asking your questions. Ethan, could you take Fred's first part on our mid-term revenue ambitions? And then Peter, could you take the second part of Fred's questions on how we're further building to differentiate ourselves?

sure so i think that the best way to to look at our future growth is to chunk it out by pillar so if we start in digital right digital is where we we've been the longest in the end we still have a very small market share of the global ecom traffic in the around the world we still feel there's a big opportunity because functionality we really do believe is what's going to drive market share gains also in the digital space yes there's now more competition more pressure in in north america But there's a huge opportunity there and elsewhere in the world for us to grow. So we still really expect to be able to grow in digital over the coming years. Next to that, of course, we have unified commerce, where we are seeing really good traction, especially on the point of sale side. Point of sale in total grew in the high 40% on the volume basis this half year. We see big opportunity there. Complexity is rising. That continues. So we think we can grow substantially on the unified commerce side. And then, of course, platforms. If you look at platform volume ex eBay, of course, it's the smallest, but it's also growing the fastest at 82% on a volume basis this half year. The embedded payments opportunity within platforms by itself is really, really massive. So we think that as SMBs get picked up by these platforms and start to get their payment services by them, that we're the right partner to help those large platforms get to their customers. And we want to ride that wave. We think we can. At the same time, of course, there's a wider set of services and wider set of offering that these platforms are looking to embed. It will take us time. We see good traction and we hear good customer feedback on our new products, like on issuing. We talked about Olo, for example, which is one of the customers that we've signed on the platform side who starts with payments. But of course, we've signed to work on our entire embedded financial product suite. We've announced other customers like Buildertrend or Finapay, so really nice traction there. On the embedded financial product side, it will take us some time. Like anything, it needs time to grow, but we're really excited about the traction we're getting there.

Thank you. Peter, the second part of Fred's question, how do we continue to build to further differentiate ourselves from our competition?

What you see if the competition cannot follow is price pressure because you can always play with price. Of course, we also use now this window to explain to our merchants like how we help them in being cost efficient with auth rates, with payment methods which are cost efficient, helping them to optimize their business. But it doesn't change our view on the long-term strategy. You need to have a company with our single platform with the highest return on the hours of an engineer because it's worldwide available. We have this opportunity to create that best platform. And half a year of increased competition in the US in one of our segments is not going to change that.

Thank you, Peter. I think we've answered both of your questions. Next up is Justin from Credit Suisse. Oh, I think... Were you still saying something or can we move on to the next question? I think we can move on to the next question. Next up is Justin from Credit Suisse. Justin, please ask your question.

Peter, Ethan, Sana, can you hear me?

Yes. Yes, we can.

All right, thank you so much. Appreciate the time. Got a couple of questions as well, if you don't mind. So the first one was to dive into the pricing environment a little more. Sounds like from your comments that this is a temporary state, if you will, within the environment within the US, I guess, could you detail that a little further? Are you saying that competitors are taking unprofitable pricing actions now, which are unsustainable, implying that that will flip at some point? And when do you expect this will flip? Is it tied to inflation or other macro economic factors? That's the first question. Second question, I want to talk a little bit about value added services. So can you speak to the differentiation of the payout services, which you call it out in the shareholder letter? You talked about getting early connection into FedNow. Do you believe your payout solution is differentiated? And do the real-time capabilities further enhance that differentiation? Do any others have a similar capability? Thank you.

Thanks for your questions, Justin. Peter, could you take Justin's first question on pricing environments? And Ethan, could you take the second one on payouts?

On the pricing, we have seen in the years past us, we have seen competitors pricing low and sometimes that works. We have also seen that sometimes the business comes back. Your question is very short term, as in, do you think that will come back? Is this very briefly? I think for us, the key question is, Do we think that with a better platform, the cost of ownership of payments is the lowest for the merchant? We do believe that. So that means investing, in the team and making sure that we release functionality. And if you look at what we have been releasing the last half year, I think that's quite impressive. So that's how we look at this rather than joining that battle. We could really well, because with that single platform, we have a very, very low cost per transaction. But I don't think that's a strategic way to go, because it's better to have the resources to build a really good quality platform.

Thank you, Pieter. And speaking of the functionalities that we released this have, Ethan, could you speak a bit to payouts?

Yeah, sure. So, of course, payouts for us is a big part of our platform offering. It's not only receiving money in, but also paying out to the other side of the platform. It's also for us important that we can also offer this to our other customers, so digital customers and unified commerce customers. What's unique about what we have to offer is the combination especially between being able to do what we call the pay-in or the acquiring side of the business and also to do the payouts. We can leverage our banking license. I think this is one of the great places where our banking license really helps us. We have the license here in Europe. We also have the branch license in the U.S. And that also makes connecting to other businesses payment rails easier. So you mentioned FedNow. We have been certified. That's a big benefit of getting that U.S. branch license is that we can look at these type of new innovations that are happening in different markets at different times, in this case in the U.S., and we can see how we can best help our customers with it. But we have it all in our own control because we have the licensing framework, we have the global setup that allows us to do it, and that can solve a lot of complexity for our customers

uh the same way we do it on the pay inside thank you justin i think we've answered your questions next up is hanes leitner from jeffries hanes please ask your question hanes are you ready to mute yourself and ask your question If not, we're going to move on to Alexandre from BNP Paribas, and Hannes will try to get back to you later. Alexandre, please go ahead and unmute yourself and ask your question.

Good afternoon. Can you hear me okay? Yes.

Yes, we can.

Thank you very much for letting me on. Really housekeeping question from me. I think in your volume disclosure, you suggest that there's a bit of a step down in the volumes you're processing with eBay. So I was just wondering what's going on with that account. Thank you very much.

Thank you, Alexandre. Ethan, could you take that question?

Yeah, sure. So, of course, we've been growing in our relationship with eBay over past years. We've been very explicit about that. We have ramped up the biggest part of their volumes, and they are in the optimization phase of certain payment methods. I think what's important for us and how we look at it is that Over the years, our concentration with key customers has declined. So we've been able to build up our volumes across a wide base of customers. And each passing period, that continues to be the case. And so I think that's also important to call out here.

Thank you. Alexander, I think we've answered your question here. Next up is Sandeep from JP Morgan. Sandeep, please go ahead.

Yeah, hi. Can you hear me? Yep. Yeah, so my question is coming back to this competitive environment in the US. When the marginal cost of an additional payment for Adyen is essentially zero, I'm trying to understand why in the current environment Adyen cannot be flexible on pricing. Given that you have a tech advantage, when the environment improves, you can adjust the pricing. Or is this not a possible scenario in the current technology to be able to be adjusting pricing depending on the environment that you are facing? And the second question I have is to revert before but i just want to understand to revert back to the growth that you've talked about the 25 to 35 percent in the midterm are new products a key driver of that or do you think that the existing business will take you back to that sort of growth and if the if it is going to be driven by new products can we talk about the timing of when things like issuing or lending or some other products that you are coming out with will begin to drive your revenue. Thank you.

Thank you for your question, Sandeep. Peter, could you take Sandeep's question on competition in the US and pricing, and Ethan, the impact of our more or newer products on our mid-term guidance?

Yeah, I think that if you look at the model that Adyen runs, it's a model where because we have a single platform which is available worldwide, we can run it very efficiently because that one FTE engineer, what that person does is available worldwide. So that means that we are in an environment where the highest functionality and the best product therefore is linked to relatively very low cost. And it comes at a certain disadvantage because it takes time to build that way. You don't do acquisitions, you only run a single platform. So it all needs to be built on that platform. So that is the challenge that we took on. that does give you indeed makes your pricing strategy rather than that you are bound to a high cost price. But I see it as a luxury and it's strategic room. But I think having money to invest and being able to deliver the best product is ultimately the model that will win. And because it's such a global model in a single platform, that's very, very powerful. So I would find it unfortunate to use that power, which we do have. But I agree with you, should we want to, we can at a certain point decide like, okay, it's on. We do that for that certain market segment. It's not our strategy today because we feel that what we bring is really efficient for a merchant to run.

Thank you, Pieter. Ethan, could you speak to Sandeep's second question on how our newer product initiatives will contribute to our mid-term guidance?

Yeah, if we talk about our embedded financial products specifically, we've always said that will take time, that will continue to take time. It's not the one dependency we have on our business being successful. We see a lot of avenues for growth. We're really excited about those. We're also excited about EFP, but it's not what the company is living or dying from. We have plenty of opportunities for growth. And we're excited about those too. So it's not dependent on that by itself.

Thank you. Sandeep, thanks for asking your questions. Next up is George Levin. George, please go ahead and ask your question.

Hi, good afternoon. Just one question for me. On your call back in February, you were really confident that Audium would deliver on the medium-term revenue growth guidance of, say, 25% to 32% this year. What's changed since the February call? Would it be fair to say that you were caught off guard by the pricing dynamic and pricing competition in the U.S., or is something else?

Ethan, could you take George's question?

Yeah, sure. And I think that's what we've tried to be most transparent about is that in the US, especially on the digital side, there have been shifting priorities of many of our customers. And that is something that means that our growth was slower than what we expected. In the other areas, we have been able to grow in the way that we've wanted to. So it is really specific to that market and to the shifting priorities there that has changed those expectations.

Thanks, Ethan, and thank you, Josh, for asking your questions. Next up is Pawan Daswani. Please go ahead and ask your question.

Hello, can you hear me?

Yes, we can.

Great, thanks so much for taking my questions. Another couple on competition, if I may. Firstly, you have talked about the pressure on volumes in North America as customers shifted volumes to lower price platforms. What actions are you taking to kind of bridge these volumes back to Ardian? If it is price, what can you do to really become the lowest cost provider again? or is it more than more than just price and then secondly could you maybe touch on competition in europe whether you're seeing or expect to see similar pressures there thank you for your questions uh let's switch it up and ethan could you take this question on competition this time

Yeah, sure. So I think in general, the best way to think about each market is about the complexity that exists in it. Right. So in the US comes from a place where the complexity was relatively low, especially if you were domestically focused, really, really large markets, relatively small number of payment methods. What we've seen is that there's been more and more payment methods over time. That helps increase conversion, but it also can help reduce costs depending on your business model. There's other features that have been rolled out, like data only, which I mentioned earlier, which help you also increase conversion. So there's a number of ways that you can look at the total cost of ownership in any given market. We feel with these additional payment methods, You look at open banking, for example, as another example, but also about the efficiency that comes with streamlining your back office functions that we can provide with helping you to get one set of reporting, one set of reconciliation. All of that stuff helps and helps to lower the total cost of ownership of payments, of which in the US we play a small part. So that's why we still think that functionality here plays the biggest role. On the European side, there's always been a lot of complexity. There's so many different countries, there's different currencies, there's different payment methods by market. So also, here in Europe, we've just seen that the complexity kind of has always been there. It's also increasing, but it's a different level of complexity. So you also see slightly different dynamics in the market. So again, to Peter's point earlier, I would say that US specifically is more of an isolated market by itself, where we do still see functionality as driving our market share gains, but of which there is a bit of a different level of complexity.

Thank you. I think we have answered your questions. Up next is Lisa Ellis from Moffat Nathanson. Lisa, go ahead and ask your question, please.

Oh, terrific. Thanks for taking my question. Just two from me. The first one, a question on unified commerce volumes. I know they were strong year on year, up 36%, but they did downtick sequentially. Is that just seasonality or are there other dynamics going on there and sort of what's the best way to think about the trajectory of growth in unified commerce? And then the second one is just related to the labor costs. It looked like you're seeing higher costs to attract the talent that you're looking for outside of Europe. And so it would be helpful to get a little bit of color on how you see margins recovering over time if labor costs are going to be structurally higher as you expand globally. Thank you.

Thank you, Lisa. Ethan, if you could take Lisa's first question on developments within unified commerce volumes. And Peter, if you could take her for a second question.

Yeah, sure. So there definitely is a bit of a seasonal nature on the point of sale side. We've grown in the high 40% this year, year over year. But there definitely is a seasonal component to it. We typically see that the percentage of our total volume that's at the point of sale is higher in the second half than in the first half. we're very excited about our point of sale growth not only because it comes in unified commerce but also because we see it coming on the platform side and that's one of the ways we can really help these platforms differentiate is when they have both an in-store component of their business and an online we can make a big difference helping them as well and we're seeing even faster growth on the platform side within point of sale as well so uh yeah we're seeing a good growth that we're positive about on that side

Thank you. And Peter, Lisa's second question was on increased labor costs and how that perhaps also related to hiring outside of Europe.

Yeah, we are a global company and we're hiring where our merchants are. So we're also hiring more in markets which are often more expensive than the Netherlands. We also are hiring in more, we have senior leaders which we want to mix with internal talents and they also come at a different salary. So indeed it's true that that creates a higher cost, but I think it's a very healthy development to be attractive to those individuals and that they will really help us to scale.

Thank you, Peter. Next up is Harshita Rawat. Harshita, please ask your questions.

Hi, good afternoon. Thank you for taking my question. My first one is just given the volatility in the results, have you thought about giving in terms of quarterly volume metrics to investors so that they have some visibility into the business trends? And then my second question is, can you talk about the take rates or volume to revenue conversion? It felt like that came in better versus what investors were expecting. Is that because of North America e-commerce this week and that's like lower?

pricing overall any insights would be appreciated thank you two great cfo questions ethan could you take the first one on uh perhaps providing quarterly results insights on our volumes and a second one on take rates

Yeah, sure. So when we as a management team look at the opportunity that we have, it's really a medium to long term opportunity. To make investments today, they won't pay off in the short term. They'll pay off in the medium to long term. In the business we're in, enterprise, payments business, it takes time for things to grow and to mature and also to bring on people who can make the impact that we need them to make. So we're always very focused on that medium to long term opportunity. And that's also why we've tried to say, let's keep as much of that long term perspective externally so that we stay focused on that opportunity as a team as much as possible on the inside. That's why we've taken the approach of sharing half yearly numbers. We try to be open and transparent when we're in this investment phase, for instance, that we would be hiring at a similar rate to what we did last year. Well, we've hired 550 people or so. been able to execute across that plan. But we really want to be sure that as a company, we're focused on that opportunity and that we take decisions today which help us get there in the long run. On the second question, which is around take rates, in the end for us, take rates isn't something we manage on. It's something that's driven by our merchant mix. One of the trends that we saw over past half years is that our full stack percentage was decreasing. as airline volumes was coming back. We've seen less of an impact of that, for example, in the first half of this year, where our full-stack percentage was relatively stable. Other than that, it just comes down to merchant mix, and in this half year, it was relatively stable.

Thank you. Let's see who we have up next. Next up is Sanjay Sakrani from KBW. Sanjay, please ask your question.

Thank you. I guess first question for Ethan, just following up on some of the commentary you provided on this call, is it fair to think that the second half EBITDA margins might be under a little bit more pressure relative to the first half, given the additional hiring you expect? Or can the revenue growth actually come in? better than expected than what we saw in the first half. And then maybe a second question for Peter, just thinking about that 65% long-term EBITDA margin expectation, given what you're seeing in the competitive dynamics of the market, I mean, is that still a valid level of margin expectation or does something else have to come in and contribute to get to those levels again? And how soon can we get there? Thank you.

Thank you, Sanjay. I think my job is done. Ethan, can you take the first question and Pieter the second?

Sure. So, of course, it's difficult for us to guide on the second half, given that the financial objectives we share are over the medium to long term. What we have shared is that we plan to grow the team in a similar way as last year. Through half of the year, we did about half of that. We did about 550. Last year, we grew just under 1200 people. So we plan to continue to grow the team at a similar rate to what we did this half year on more on an absolute basis than a relative one. Of course, hiring takes some time for it to impact EBITDA. Wages trail for about 12 months until they're fully in any given year. So we'll continue to hire into the second half and then really plan to slow hiring to ensure that the business grows faster than the team starting in 2024.

Thank you. And Peter Sanjay's second question on our long-term 65% objective.

if you look at how we build everything on that single platform so how high the return is on everything we do that means that you build an enormous operational leverage so if we roll out the company you get to very high EBITDA numbers currently you see something else because we deliberately invest if you don't acquire companies you need to invest otherwise you don't get to do the proper size to capture that I don't see anything changed. We're releasing, we're onboarding, and this is a company where cost is very much under our control, but we feel that this is the best way to get there. So for me, nothing changed if there is half a year headwind in the U.S. domestic online market.

Thank you, Peter. Next up is Nushin Nayati from Deutsche Bank. Nushin, please ask your question.

Hi, thanks for taking my question. I guess I'm wondering about the volume that is coming from your top 10 clients, if you can share that KPI with us. So for half year, so we can compare it to the full year 2022. I think because the churn rate is rather on whether if your clients are still processing any sort of volumes, which you are not, we would like to see how much of your total volume is shifting, not exactly where or how or so, but just to have some sort of idea over there. And then if you look at the take rate, it has been a stable and I guess giving the strategy of you that you gain more share of wallet from your existing customer or let's say larger clients, most of us assumed a decreasing trend here. Does this mean that you didn't increase the share of wallet as much as you did last year with your larger clients or there were other factors involved here?

Thank you. Thank you for your questions, Nushin. Ethan, could you take Nushin's questions? First one is whether we can provide insights and volumes from our top 10 clients. And the second one is on take rates.

Yeah, so in general we see that our concentration is decreasing with our customers. So as the years go on, as the periods go on, we see that we have a wider base of customers. We're growing with a wider set of those customers as well. So over time we've seen that concentration decreased. This period is no different. In terms of take rate, it is indeed stable. It's indeed related to merchant mix. And in some periods, it comes down to growth with certain customer groups and other periods with other customer groups. One of the big reasons that take rate was declining in the past was that the average transaction value was going up and the full stack percentage was going down. It was largely due to travel coming back. which is at lower take rates, given that we only do the processing for them. So that happened at a much lesser extent this half year. That was one of the key reasons why it stayed stable.

Thank you, Ethan. Next up is Tamiq from Berenberg. Tamiq, we're listening to your question.

Hi, thank you for taking my question. So a follow up on the pricing pressure from the North American market, please. Is the pricing pressure started with competitors going aggressively or is actually the merchants revising their cost base? And my second question is, Peter, you talk about your cost of ownership in the core and said your cost of ownership is the lowest. So I'm a bit surprised if that's not the way the merchants look at, because if they focus on cost ownership, isn't Ardian the best choice for them instead of looking at purely on pricing? Thank you.

Thank you for your questions, Dami. Ethan, if you could take Dami's first question and Peter the second one was directed at you.

Yeah, sure. So, of course, on the first side, it's a bit of both, both on the merchants shifting priorities, moving much more of their focus from top line growth to bottom line growth. Of course, if that is the priority, that also creates an opportunity for others. And there's always been a discussion around, yeah, do we provide the best functionality or do we go the route of providing the commoditized payments get to the lowest cost? That hasn't really changed that much. Of course, the aggressiveness of the approach can change in a moment where customers are shifting priorities is a logical moment to do it. But in the end, I think it starts with the shifting priorities of customers and also what gives us the confidence that we can grow with them and that we can provide them the best solution.

Thank you. And Tommy's second question was on whether we can shine a bit more light on how we look at cost of ownership.

It's very close to Ethan's answer. In this environment where many companies look at the bottom line, they give it a shot and they try to work with a provider. And it's something that we've seen also in the years behind us, but we also saw volumes coming back then. So it's not really new, but we've never seen it so concentrated as we do see it now, therefore you see the impact now. But that's... I forgot where I was going.

We were discussing the overall cost of ownership.

Total cost of ownership. It's more difficult to measure because it's indirect things. It's things of customer support. It's things of your finance department. It's related to... The auth rates, so how many transactions are successful, it's to returning customers, how pleasant is it to shop, so that's not that easy to measure. So hence, this is an environment in which merchants are more willing to experiment with volumes which they can shift back and forward. I think that the cost of ownership without Yen is lowest. That's what we often hear back from our merchants. But hey, in this environment to try something, why not? I can understand that merchants do that.

Yeah, I think you see that complexity comes in many forms and it's a real multifaceted approach. Thank you for your question. We're going to see whether we can connect with Hannes again. Hannes Leitner, please go ahead and ask your question.

Yes. Can you hear me now? Yes. Yes, great. So I actually wanted to just like clearly circle back to Peter's comments around that it's just temporary, the loss in digital customer volumes in North America. What drives your confidence on it? You alluded a little bit around the historic that those volumes came back. Can you maybe talk about the process? How did you convince them to come back? Is it really just like a wait and see? Or do you build a task force and you really go into the process? would be the first question and then the second question is a little bit around the long term thing thinking about that medium-term ambition uh you haven't changed that uh e-commerce now is growing at the slower pace than pre-pandemic maybe you can talk about those building blocks between vertically segments where you see growth and then maybe also in terms of product and then just the last one is on margins and margin progression from here you had h2 margins um already underperforming, and then it dropped now to 43%. Should we think that this is now fairly stable with the expanded hiring, but the business keeps on growing, looking then into 2024 as well? Thank you.

Thank you, Hannes. Peter, if you could start on Hannes' question, and of course, Ethan, feel free to chip in too. It feels like a real mix.

Those are good questions. What's important for Adyen is to have a merchant base which fits us. And our merchant base is the merchant base which looks for functionality. And if you say, how do you know for sure that all volume will come back from those merchants? I look at it differently. I say, what's the addressable market? And do we have a compelling offering? And I say, yes, I think we'll grow in this market. So that's how we look at that.

And maybe on the building blocks for growth, you mentioned e-commerce growth overall. In the end, of course, it is important how our customers grow, but typically our growth has come from gaining wallet share from those customers. We onboard new customers in any given year, and then over time, as we show our service levels, we grow wallet share with them. So there is a component to our growth which is based on the kind of organic growth rate. but there's also a big part of our growth which comes from starting small with the customer proving your performance showing that your functionality creates differentiation for them and then growing wallet share over time and that's a trend that we see across each of the pillars that we have so whether that's a digital customer where it's maybe easiest to start or it's unified commerce where you may start with the country or even a couple of stores and show your performance and grow or on the platform side, where platforms are really just getting started embedding payments. And we really think that's the direction that especially SMB payments will go. And then on top of that, of course, we have the embedded financial product offering, which will take time for sure, but also is exciting and is an additional place where we can help platform customers especially grow with their own customer base. then lastly on on margin progression um so i think the key point for us here is that we've tried to give a bit of information around how fast we want to grow the team and what we said at the end of last year was we tried to grow the team in a similar absolute basis to last year uh well we've in the first half grown at a pretty similar rate so uh 550 people It's close to the half of the 1,200 or so that we hired last year. We plan to grow in a pretty similar way also in the second half year. Of course, we need to find the right people. We need to be sure that the roles that we have open are the right ones that will make the difference for us. But we are planning to hire in the second half year at a similar rate. And then, of course, into the next year, we plan to slow that down by quite a bit. And I've said it before on the call, but there will be some trailing impact to when people join the company and when their costs are fully in the number. But we expect to get quite quickly back to the operating leverage that we feel is really inherent to the model, given that single tech stack.

Thank you, Hannes. I hope that we answered your questions well. Next up is Alex Margref from KeyBank Capital. Alex, please go ahead.

Yes, thank you for taking my question and for all the commentary on pricing and competition. Just maybe one more to add there. I wanted to ask just at what point you started to observe some of these pressures, whether it be from kind of merchant optimization or competitive pressures on pricing, you know, competitors being more aggressive on pricing. When did you first observe that and has that continued through today?

Thanks, Alex. Ethan, could you take Alex's question?

Yeah, sure. So I think the thought of is it worth paying a premium for payments? That's not new, right? We've always been selling a functionality play on the payment side. If you say payments is strategic, which we've seen in more and more verticals over the years that they prioritize payments within their business. then you prioritize functionality. But there's always been low-cost providers on the payment side, especially in large domestic markets, where the market size by itself is big, like in the US. There's always been pricing pressures there. Of course, in a macro environment like this, where there is more of a focus, especially with these digital players in the US, on the bottom line, that increases the focus on a lower-cost provider, and maybe they're more willing to take a chance than in other periods. But that discussion, that discussion between commoditized payments and true functionality, differentiated functionality, that's not new. Only the intensity has changed. And yeah, that's changed throughout the first half.

Thank you, Ethan. Also, thank you for your question, Alex. Next up is Darren Peller from Wolf Research. Darren Peller will also be the last question. So after that, we'll wrap up our earnings call. Darren, we're listening.

Hey, guys, thank you. You know, I'd love to just hear your latest thoughts on auth rates, geographic reach, integration capabilities. You've always had a great differentiators there, but it seems like it's gotten a little more competitive on that front. Pricing is obviously more challenging as others are utilizing other ways to monetize like wallets and others. You could just touch on reminding us the top areas your new customers are seeing Adyen as a differentiated partner, other than obviously price. And then just as a quick add on unified commerce growth was sound. I'd just love to understand a bit more of your competitive differentiation there as well. Is it just bundling with e-commerce? And it's certainly not pricing. So help us understand what you're doing there as well. Thanks, guys.

Thank you for your questions, Darren. Ethan, if you could take Darren's question, the first one, on how we differentiate via auth rates, and the second one within unified commerce.

Yeah, so I think what differentiates our product is different by pillar. I think the first question is more focused on the digital side, given the discussion around authorates. We still feel that we have a differentiated offering there. So authorates is still certainly something that we focus on. We still focus on making sure that we have geographic coverage. We've expanded to new markets in past years. Japan is one we're excited about. We've grown in other places like Mexico as well. So we've added new countries over time as well. And we still have a really, really strong geographic coverage that helps especially enterprise digital customers to run an efficient payment setup. Of course, the way you integrate is a big part of that, especially if you have geographic complexity. But it's about having that coverage and also providing the best offering in any given market. And in any given market also means you need to have the right local payment methods that helps you optimize for conversion, that potentially also helps you with cost. And we see that the proliferation of these payment methods is increasing. So it's an area we're still investing heavily in.

Thank you, Ethan. Darren, with those answers, we've also wrapped up our earnings call. I want to thank you all for sending in your questions, taking the time to dial in. This was our H1 call. Thank you.