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spk03: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the EVO Payments fourth quarter 2021 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Ed O'Hare, Senior Vice President, Investor Relations.
spk15: You may begin your conference.
spk01: Good morning and welcome to Evo Payments' fourth quarter and year-end earnings conference call. Our press release and supplementary slides are available on the Investor Relations portion of our website. Before we begin, I want to remind all listeners that Evo Payments is acting under the safe harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call Such as projections regarding future performance may be considered forward-looking statements within the meaning of the act. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Please refer to our press release for an explanation of the non-GAAP financial measures discussed in today's call along with the reconciliation of those measures to the nearest applicable GAAP measures. Today, we will discuss our fourth quarter results and our overall business performance. Joining me on the call is Jim Kelly, our Chief Executive Officer, Tom Panther, our Chief Financial Officer, Darren Wilson, President of the International Segment, and Brendan Tansel, President of the America Segment. I will now turn the call over to Jim.
spk13: Thank you, Ed. Good morning, everyone, and thank you for joining us today. EVA delivered strong financial results through 2021, despite the lingering impacts of the pandemic and the resulting constraints on economic activity. I would like to extend my thanks to our employees, partners, and customers for their hard work and collaboration, all of which made for a very successful year. We have included slides on our investor relations website that highlight our key accomplishments in 2021. The consistent execution of our growth strategies translated into a strong fourth quarter as we closed out the year. As you can see from our slides, the company demonstrated volume growth of 21% compared to the fourth quarter of 2020, and 16% compared to 2019. For the quarter, constant currency revenue grew 17%, adjusted EBITDA increased 15%, and margin of 38% was consistent with the prior year. As a reminder, in the fourth quarter of 2020, our previously announced salary reductions remained in place for most of the quarter. When normalizing for these reductions, adjusted EBITDA increased 20% and margin expanded 120 basis points. These financial results are solidly ahead of market expectations when you take into consideration the significant strengthening of the U.S. dollar during the quarter. Tom will discuss our fourth quarter and full-year financial performance and our 2022 guidance later on the call. I'm also extremely pleased with our achievements to expand our business during the year. We successfully executed our well-established bank alliance and tech-enabled growth strategies across both Europe and the Americas through a combination of organic sales, new and existing partnerships, and acquisitions resulting in expanded distribution and accretive M&A. I would like to highlight some of our significant business achievements this year, beginning with our bank alliances. You may recall that in June, together with our bank partner, BCI, we secured regulatory approval for our joint venture and formally launched our operations in Chile. This business is off to a solid start, which Brendan will elaborate on later in the call. In November, we signed a long-term extension of our exclusive marketing alliance agreement with the Bank of Ireland, to continue providing merchant acquiring services to the Republic of Ireland and Northern Ireland. This has been a high-growth market for Evo, and I'm confident that this growth trajectory will continue as we make additional in-market investments. Finally, in December, we announced a long-term strategic relationship with the National Bank of Greece, which will significantly increase our merchant portfolio size and expand our bank distribution channel to complement our existing European footprint. I'm very excited about this acquisition and the progress we're making in Greece, which Darren will discuss in detail later on the call. In our tech-enabled division, we demonstrated solid growth both domestically and internationally. We continue to sign new partners and enhance our products and capabilities through internal product development and strategic acquisitions. In 2021, across all our markets, we signed more than 150 tech-enabled partners and completed two gateway acquisitions as merchants continue to adopt software at the point of sale. Since we announced the acquisition of Anderson Zacks and Pagopasio last summer, both gateways are now fully integrated. We are successfully cross-selling these gateways into our existing customer base and signing new customers and partners through our direct sales teams. I'm also pleased with the progress we made this year to advance a number of corporate responsibility and governance initiatives. Specifically, we appointed two new board members, Stacy Pena Tu, and Nikki Harland, and recently launched our ESG website to provide the public with additional disclosures related to the company's many ESG priorities. We also continue to be active in our local communities across our markets, both through donations and partnerships with nonprofit organizations. We remain committed to advancing the interests of our shareholders, merchants, partners, employees, and our communities, and we look forward to building upon these programs going forward. 2021 was a successful year for the company, and I'm encouraged by the solid business and financial trends we are seeing through February. I look forward to another year of strong performance as favorable card adoption trends and the resumption of cross-border activity continue to provide healthy tailwinds across our markets. We are well positioned for accelerated revenue growth through our investments in international markets with low card penetration, such as Chile and Greece, and our expanding tech-enabled referral network. Lastly, our significant capital capacity and leverage of 2.2 times enables us to continue to invest in new products and technologies while executing our M&A growth strategy. I will now turn the call over to Darren to discuss our European business. Darren?
spk09: Thanks, Jim. For the quarter, Europe's constant currency revenue increased 29%, which is consistent with the segment's 29% volume growth in the quarter. These results were largely attributable to growth from our bank referral and tech-enabled channels across all markets, coupled with stronger DCC volume from the increase in cross-border activity in the quarter. As Jim previously mentioned, since our last call, we made several exciting announcements in Europe, including the renewal of our marketing alliance with Bank of Ireland and the formation of a long-term exclusive joint venture with the National Bank of Greece. In Ireland, we continue to execute on a strong stream of referrals from Bank of Ireland as we also expand our tech-enabled referral network and integrated payment solutions for our merchants. For example, in December, we signed Domino's Pizza as a result of our bank relationship and proprietary integrated payment offerings. In Greece, we're focused on our business integration plan, including identifying a general manager who will join us from MBG and readying our go-to-market strategy, which will enable us to launch operations upon receiving regulatory approval. We are working with MBG to secure this approval, which we continue to anticipate receiving in the second half of the year. MBG's merchant acquiring business performed as expected in the fourth quarter and in line with the financial information we provided in our December press release. I am excited about our upcoming expansion into Greece, which upon closing will represent approximately 15% of our European revenue, providing further diversification for the segment. Upon commencing operations in Greece, we expect this market to follow a similar trajectory as our other European markets. Our successful international growth strategy is anchored by exclusive long-term merchant referral relationships, with leading international financial institutions that provide meaningful distribution for our products and services, coupled with our extensive tech-enabled network that enhances our growth opportunities and diversifies our referral streams across our markets. This strategy has resulted in annual merchant portfolio growth of more than 10%, annual volume growth of approximately 20%, and more than 50 new tech-enabled partners yielding consistent mid-teens annual revenue growth for our European segment. Our strong financial performance and recent business expansion achievements demonstrate the success our strategy, including our ability to capitalize on certain macroeconomic tailwinds, such as increased card utilization and accelerated adoption of software at the point of sale. While government restrictions lingered in the fourth quarter due to Omicron surges, our markets continue to experience strong growth across most industry verticals. In the fourth quarter, we continue to work with our bank partners to board new merchants, especially in Poland and the Czech Republic, where we have enhanced our sales strategies to capitalize on the latest legislative support, which encourages digital payments adoption. These initiatives have enabled us to significantly increase our new customer signings resulting in notable market share gains in both markets relative to our existing footprint. Also in the quarter, we continue to invest in our tech-enabled channel to address the accelerated adoption of software at the point of sale across all segments. This strategy complements our bank referral network and further diversifies our industry vertical to drive enhanced growth for our business. In all of our European markets, we signed new ISVs and other tech-enabled partners, which enabled us to sign new tech-enabled merchants, including new customers in Spain and our mass transit win in Poland. I'm also very excited to announce that we launched our SoftPOS smartphone terminal application in the Czech Republic to enable contactless tap or PIN entry on a merchant's phone or tablet. This year, we plan to expand this offering to our European markets, beginning with Poland. As we move further into 2022, we look forward to additional investments in market-leading products and capabilities to support Australia's strategies and drive accelerated growth for European business. I'm encouraged by the recent lifting of many COVID-related restrictions across the segment and look forward to the continued return of cross-border activity, including DCC, which coupled with the launch of our Greece business will drive strong revenue growth. I will now turn the call over to Brendan, who will provide an update on our Americas segment. Brendan?
spk14: Thanks, Darren. For the quarter, the Americas constant currency revenue increased 10%, which reflects the segment's 13% volume growth in the quarter. These results were largely attributable to growth from our bank referral channels in Mexico and Chile and our tech-enabled channels across all markets. Beginning with Latin America, where we have long-term exclusive bank referral relationships that anchor our distribution, we continue to work closely with our financial institution partners as we decisively expand our tech-enabled sales strategies across this under-penetrated region. Our business in Chile demonstrated accelerated growth in the fourth quarter, with the merchant portfolio expanding over 50% compared to the third quarter. Since we launched operations last June, our portfolio has expanded to approximately 10,000 merchants, which is up from 3,000 customers at the time of our Pago Facil acquisition. We are making additional investments in the market to support the strong new merchant demand and have several key initiatives underway to accelerate our sales, customer support, product and technology capabilities. We have collaborated with the bank to build a robust pipeline of large corporate accounts, which should provide the business with scale relatively quickly. In Mexico, we once again delivered strong growth in the market, leveraging both our bank referral and tech-enabled sales channels throughout the quarter. Our merchant portfolio increased 6% compared to last year, and volumes grew 16%, which resulted in revenue increasing 15%. Our tech-enabled business also demonstrated strong revenue growth of 15%, consistent with the historical trends for this business. Starting to the US, our growth is driven by our expanding tech-enabled business, which experienced 15% revenue growth for the fourth quarter compared to the prior year. During the quarter, we continue to sign new referral partners, expand our existing relationships, and enhance our product and services suite. Beginning with our ISV business, We continue to bring new integrations to the market in conjunction with our strategy of enhancing existing referral relationships to maintain growth for this business. In our B2B business, we continue to execute our organic growth strategy by forming new integrated payments partnerships that allow us to sign new merchants through a growing referral network. Together, these efforts provide a strong momentum to continue growing our tech-enabled channel as we move into 2022. Finally, as we previously mentioned, over the last year we have significantly expanded the infrastructure of our B2B PayFabric gateway to also include B2C capabilities in the U.S. For years, PayFabric has been a market-leading B2B payments platform and today supports our largest U.S. corporate customers. As a result of our recent investments in PayFabric's retail capabilities, we are repositioning the U.S. e-commerce business around our robust proprietary technology. and transforming our go-to-market strategy to actively sign new referral partners with direct integrations to Evo. Our new sales approach is off to a solid start, and we have recently added new partners spanning a range of verticals. Our U.S. e-commerce business will therefore be comprised of two distinct channels. Our legacy indirect e-commerce business, which relies on third-party gateway referrals and subsequently has lower margins and higher attrition. and our new direct e-commerce business, the sales strategy of which is built around our in-house end-to-end payment solution and targets larger, higher-margin merchants. We believe that we can leverage PayFabric to build stronger referral relationships and attract higher-quality customers as we deploy a partner sales model similar to that of our ISV and B2B businesses. I am pleased with our fourth quarter in 2021 performance, which is reflective of our continued investments in our sales channels, our proprietary capabilities, and strategic acquisitions. In 2022, we look forward to additional growth from our tech-enabled channel across all markets, continued strong performance in Mexico, and the acceleration of our business in Chile as we work with BCI to grow market share. With that, I will turn the call over to Tom, who will cover the financials in more detail. Tom?
spk12: Thanks, Brendan, and good morning, everyone. As noted in our previous comments, we delivered strong quarterly and full-year results. For the quarter, on a constant currency basis, revenue increased 17%, adjusted EBITDA increased 15%, and margin of 38% remained flat compared to the prior year. After normalizing for the salary reductions that remained in place for most of the fourth quarter of 2020, Adjusted EBITDA increased 20% and margin expanded 120 basis points. Further, compared to a normalized 2019, our fourth quarter revenue grew 10% and adjusted EBITDA increased 28%. These solid results reflect our strong volume growth in the quarter, which increased 21% compared to 2020 and 16% compared to 2019. despite the backdrop of the pandemic. This quarter's results outperformed market expectations as we were able to grow through the headwind of the significant strengthening of the U.S. dollar, which adversely impacted revenue by approximately $3 million, or three percentage points of revenue growth. For the year, constant currency revenue grew 11%, adjusted EBITDA increased 20%, and margin expanded 250 basis points to 36%. Recall that in the first quarter, many of our markets implemented significant restrictions as a result of the Delta variant, resulting in a 6% decline in revenue. However, as economic activity rebounded throughout the remainder of 2021, revenue grew 17% and EBITDA increased 24%. We were able to deliver these solid financial results by growing our merchant portfolio, generating record volumes, expanding our partner network, and actively managing our costs in CapEx. These results demonstrate our ability to consistently generate strong top and bottom line growth. We remain optimistic that as the impact of the pandemic abates, these trends will accelerate as we leverage our recent investments and capitalize on the continued cash-to-card tailwinds that have persisted coming out of the pandemic. With respect to segment performance, in Europe, our year-over-year constant currency revenue increased 29%, and adjusted segment profit increased 26%. Sequential revenue spreads decreased slightly, primarily due to the seasonal decline in DCC revenue. However, we continue to see strong year-over-year growth in cross-border activity and DCC revenue, which doubled during the quarter compared to 2020, but remains approximately 10% below 2019 levels. In the Americas, year-over-year constant currency revenue increased 10% and adjusted segment profit increased 14%. Our international markets now comprise over 60% of our revenues, and when we add Greece to our portfolio later this year, international revenues will comprise approximately 65% of our business. Adjusted corporate expenses for the quarter were $7.3 million, which increased 37% from the prior year, primarily due to the normalization of expenses in relation to the temporary cost reductions we implemented in 2020. Adjusted net income for the quarter increased 31% to $28 million compared to last year, and adjusted net income per share for the quarter was 29 cents, which increased six cents or 26% compared to a year ago. At the end of the quarter, dilutive shares totaled 95 million, an increase of 1.3 million weighted average shares compared to the prior year. In the fourth quarter, capital expenditures were $7.5 million versus $7.8 million in Q4 2020. Of this amount, approximately 60% was for terminals as we continued to board additional merchants. We are actively managing our terminal inventory and the broad-based supply chain issues to meet merchant demand. As a reminder, we either rent terminals over multi-year contracts or sell them to our merchants and generate accretive returns relative to the capital used to acquire the terminals. Free cash flow for the third quarter increased 24% to $38 million compared to the prior year, resulting in a free cash flow conversion of 77% driven by our strong earnings and lower interest expense. During the quarter, we refinanced our senior credit facilities, lowering our credit spread 100 basis points and extending our maturity to 2026. In addition, Our pay fixed interest rate swap of 20 basis points remains in place through the end of the year, which mitigates the near-term impact of rising interest rates. Our capital position remains extremely strong, with over $200 million of available cash and $200 million of capacity under our revolver. The generation of free cash flow and the active management of our balance sheet resulted in us lowering our leverage from 2.9 times a year ago to 2.2 times at the end of this year. Turning to our outlook, we are encouraged by the recent government decisions in Europe to remove pandemic-related restrictions, which will translate into increased consumer spending and cross-border activity. The overall economic outlook in our markets calls for solid growth despite the recent inflationary pressure. We anticipate this economic backdrop, coupled with our enhanced distribution capabilities, will allow us to continue to grow volumes and expand our merchant portfolio in 2022. Further, we expect a slight improvement in spreads as DCC revenue returns to 2019 levels and volumes from our SME merchant portfolio increase. With respect to expenses, we took decisive actions to reduce our cost structure at the onset of the pandemic, including the termination or furloughing of approximately 500 employees. And by the end of 2020, we had realigned our cost structure and reduced our expenses by approximately 10%. These actions enabled us to introduce additional resources in targeted high growth areas of our business over the course of 2021, while also expanding our margin 250 basis points. As we move into 2022, Our continued active management of the business is allowing us to address the recent inflationary conditions, especially as it relates to wages, and make additional human capital investments while also continuing to grow the company. By the end of this year, we anticipate our total employee base will approximate pre-pandemic levels. For 2022, we anticipate full-year revenue growth of 11% to 13%. EBITDA growth of 13 to 15 percent and 80 to 90 basis points of margin expansion. As for the first quarter, we expect to see the typical mid-single digit seasonal decline in revenue from Q4 to Q1 and expect EBITDA margins to be flat compared to the first quarter of last year. Our guidance excludes the incremental earnings from our recent acquisition of the NBG merchant acquiring portfolio and assumes FX rates remain consistent with the fourth quarter. With that, I'll turn the call back over to Jim. Jim?
spk13: Thank you, Tom. I will now turn the call over to the operator to begin the question and answer session. Operator?
spk03: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from the line of Bob Napoli from William Blair. Your line is open.
spk06: Thank you, and good morning, and nice job, reporter. On the outlook, just, Tom, when do you expect to close the acquisition in Greece? And I think you had laid out that was $30 million of revenue and about $12 million of EBITDA on an annualized basis. Is that still the thoughts there? So just in guidance on... maybe on grease acquisition and maybe on chili as well.
spk12: All right, Bob, good morning. So, yeah, are you there? Yes, I'm here. I was catching some feedback. So on the outlook that we provided, that, as I mentioned in my prepared remarks, that's without grease included in there. You know, the timing remains uncertain. We still think it's second half of this year. We're working hard with the bank partner. Darren can provide some commentary on that here in just a second when I complete my comments. But we're working with the regulator, and as you know, when you work with the regulator and it requires some level of approval, it's out of our control. With respect to their business, their business continued to perform well in the fourth quarter. Nothing would change relative to the information that we prepared and disseminated to the market in December. We still see that business on a pro forma basis. Full year is kind of a $30 million top line, $12 million our share of the EBITDA when you think about the relative ownership percentage. You also asked about Chile. The launch into that market continues to go well. Brenda can also provide some comments in terms of what's going on within the market there. We feel like we got off to a good start in 2021. I saw it contributed a little bit of revenue and EBITDA like we had anticipated. But more importantly, we're seeing good growth in the merchant portfolio. And as you know, it's that growth in the merchant portfolio that fuels the more accelerated growth that we anticipate in 2022. So, Darren, do you want to add any comments on Greece?
spk09: Hi, Bob. Thanks for the question. So, yeah, Greece progressing well. The banks already submitted all their paperwork in terms of the spin-off or spin-out of the business to get it registered with the regulator. I'm there next week meeting the regulator personally as well. When you look at the benchmarks in the market, as you know, Greece's four systemic banks have done transactions last year. The first one took just shy of a year to get registered. The second one's about eight months. So the regulator now has got a pretty strong pro forma for how these transactions work. So hence, the second half of this year, we're very confident in close.
spk06: Thank you. And then just one. Omicron, the effect on your business in the fourth quarter? I mean, you know, COVID broadly, obviously your business has been more hit by more aggressive closings of economies in Europe. Where is that, you know, how much does that affect your business and how is it trended? And, you know, are you seeing significant openings in your European markets in particular?
spk12: Sure. I'll hit it at a high level, Bob, and then let Darren comment about Omicron and what's going on in Europe, particularly here in 2022, some encouraging signs. You know, clearly it affected our business, but when you look at our volume numbers, we were encouraged to see those 20% kind of growth rates quarter over quarter. Some of that had to do with, you know, a year ago we were dealing with Delta, so it was kind of one variant versus the other. But it definitely did not seem to have the same effect as Delta. We saw that not just in our volumes, but we saw that in terms of how governments reacted. We saw that in terms of hospitalization levels, et cetera. So it definitely had a lessening effect, but it had some level of effect. And I think that gives us some dry powder as we think about 2022. I would also say one of the theses that we've been putting forth, others have been putting forth over the course of the whole pandemic is the cash to card conversion. We see that sticking and something that's going to continue to provide frankly, all of our markets, some level of tailwind, because we think the move towards digital payments is something that consumer behavior has adapted to.
spk09: Thanks, Tom. In Europe specifically, exactly as Tom says, good volume, trends. Also, we're seeing all markets open up in terms of the restrictions. The UK is leading the way for once, speaking as an Englishman. In terms of lifting of all restrictions, actually starting to charge for tests, no self-isolation, et cetera. But I'm back traveling through Europe every week now, and the restrictions are very light. So good trends, good early indications this year on continued processing volumes.
spk06: Great. Good to hear. Thank you.
spk03: Your next question comes from the line of Ashwin Shervakar from Citi. Your line is open.
spk08: Thank you. Good morning, folks. Good quarter. Congratulations. Thank you, Ashwin. I guess my first question is with regards to the pipeline of bank partnership opportunities, as we started seeing some openings, and had BCI come through and increase in quick order, what should we expect in terms of, say, the next 12 to 18 months? Where are you looking? And from the bank partner perspective, any commentary with regards to has valuation changed and so on?
spk13: I'm going to let Brendan, since we're all together here, I'll have Brendan cover his markets and then Darren as well for Europe.
spk14: Good morning, Ashwin. So in Latin America, it's the markets that I've been sort of harping on for the last couple of years. We continue to be actively looking at Colombia, Peru, Argentina to some extent. And then Ecuador, I would say, would be the other one that would be attractive. And that's a combination of size, stability of economy, currency and the underlying FX volatility, and then sort of general market dynamics. But in each of those markets, there are some headwinds to getting something done, which would be there's a central processor that's generally owned by banks, and unraveling that involves some degree of complexity. That said, the temperature in each of those markets is one of a regulator that wants to see the markets open, wants to see more competition, wants to see cash fade in favor of card. And, you know, that was the same dynamic that we faced in Chile and Mexico as well, and obviously, you know, that worked out to our benefit. So, yeah, I feel quite confident. As Darren said, you know, we are – I am back on the road. I made two trips to South America in January alone. So we're out and we're meeting with folks, and, you know, I think – the market dynamics are such that change is inevitable and it's a question of when.
spk13: And just to add to that, I think the fact that we're up running successfully in Chile, we've been in Mexico now for five years, gives us a lot of credibility where we have processing and customers on the continent. And although it's a big market, big area, it's also a small market. Everybody knows each other and the greatest validation of the next opportunity to partner with the bank is the last bank that you did business with, and they're happy with the performance that we lived up to our commitments that we said during the honeymoon phase after the deal was signed and closed. Did we show up with all the things that Darren and Brendan have done to successfully launch in both of those regions to uncover Europe? Sure. Thanks, Eshwin. Thanks, Brendan and Jim.
spk09: Yeah, similar to Brendan and Jim's comments previously, A lot of healthy activity kind of post the pandemic in many of the markets in Europe. Your question was about banks, but there's a tech-enabled pipeline there too, which is really where the trajectory of payments is obviously going as we outline our prepared comments. So looking at markets that still have high growth potential like Greece with high concentration of cash, so the cash-to-card conversion gives good tailwinds. So Good trends there in new markets. So in markets we're not currently in, and there are also potentially tuck-in opportunities in markets we're already in, as I said, with tech-enabled acquisitions. So I feel pretty confident, as Brendan does, with a healthy pipeline over the next 12 to 18 months, as you asked, Ashrin.
spk08: Great. One quick question on cadence through the course of the year, given that 2022, we'll continue to have some wonky comps because of Omicron a little bit, but also Delta and early in the year. I don't recall you had too much of a stimulus comp, but I just want to clarify on that.
spk12: Ashwin, it's Tom. Nothing really material with respect to stimulus. I think you're right. There are going to be some lumpy comps as we move into 2022 and compared to 2021, particularly Q1 of last year. Q1 of last year was soft because that's when Delta in particular was moving through our markets. Europe in particular was hit pretty hard by Delta. That's why we provided the comment about the sequential trends between Q4 and Q1. We think that's probably a better relative position for you to think about how 2022 takes shape And then I think from there, the Q2, 3, and 4 trends are probably pretty consistent with the seasonal trends that we see in our business. Q2 starting to ramp up as we head into the spring, and then the summer and the travel season, cross-border returning, the benefit of DCC, et cetera, and then the typical strong fourth quarter with the holidays. But less related to stimulus and more just related to the ebbs and flows of market conditions in 2021. Understood. Thank you, guys.
spk15: Thanks, Ashwin.
spk03: Your next question comes from the line of Karthik Mehta from North Coast Research. Your line is open.
spk07: Thanks. Thanks. Hey, Tom, I know you talked a little bit about inflation, but I'm wondering maybe some positive impact it could have on the business because the average ticket size goes up. So, you know, if you look at inflation as a whole, maybe some of the costs you're being impacted by versus some of the benefits, you know, how do you think inflation plays out, positive or negative for the year for the company?
spk12: Yeah, I think it depends on the degree, frankly, Cardick, because you're right. When you think about inflation and the mix of our business that's volume-based and therefore would benefit from inflationary increases, in Europe we're, give or take, kind of a 90% volume-based fee business. In the U.S., closer to 65%, 70%. So there is a modest inflationary pressure. that doesn't cause the consumer to move to the sideline and not spend at all can actually provide, as you said, a little bit of lift in volumes and revenue per transaction. If the inflationary becomes uncomfortable to the consumer where they aren't spending money on discretionary goods, then obviously then it kind of totally shuts down the volume and you don't get the benefit of that tailwind. I think our expectation is that it's a manageable level of inflation, that it's been a number of years since we've had any kind of inflation in the economy. Consumer balance sheets come out of the pandemic generally in good shape, ready access to credit. So we don't see the consumer running to the sideline, and we would anticipate some level of lift rather than downdraft.
spk07: Hey, Jim, just a bigger picture question for you. I know Darren and Brendan talked about some opportunities in different countries in Latin America and Europe, but as you look at the company as it gets bigger, do you think there is a bigger opportunity from an acquisition and growth standpoint on the B2B business, or do you think there's still a lot of runway left for the traditional merchant acquiring business?
spk13: Thanks, Karthik. If you're localizing to the U.S., I think there's always opportunities. It's a big market. It's just for the potential. There's $24 trillion of untapped potential on card. B2B is just a primary focus of the company, as well as e-commerce. In Brendan's comments, we talked about launching our B2C platform, which is extension of our Payfabric platform. So I think e-commerce continues to be a growth focus for us in all our markets. B2B doesn't really exist at the same rate outside the U.S., but it's going to be a core focus. You'll continue to hear more and more about that, and we are just as active looking for additional investment opportunities domestically on B2B as we are in the other markets. But I think the interesting thing corollary to all this is that we're not localized in any one market around acquisitions. It's what does the market potential have for us and then how do we take advantage of this when it's a new market entering through an acquisition and historically they've been through a bank and then as Darren said earlier, followed on with tech enabled. That goes on at the same time. So we're not biasing the cash available to the company one direction or the other. It's really more what are the opportunities and do these opportunities fit the strategy that we've deployed now here for 12 years as we've expanded internationally. And I don't think that's changing. If anything, it's only going to accelerate as we open up the markets and people start traveling and banks look around and say, What did I miss during the last two years and who can help me accelerate my ability to support my customers? And I think that's only going to heat up over the next 12 months.
spk07: Perfect. Thank you very much. Appreciate it. Thanks. Thanks, Hardik.
spk15: Your next question comes from a line of Tianxing Huang from JPMorgan Chase. Your line is open. Jensen Huang from JPMorgan Chase. Your line is open.
spk10: Hi, I hope you can hear me. Hey, Jensen. Hey, guys. Hey, Jim. Hey, Darren. Hey, Tim. I just want to ask on the margin price, if you don't mind. I know there's a lot of puts and takes on margin for everybody this year. You're standing up some new business. You've got employees coming back on. High contribution margin from some of the high-yielding stuff coming back, too. So, Anything unusual or call-outs to remind us of as the year plays out on the margin front?
spk12: No, Tenjin, I think we've kind of moved through those transition periods within the business. Obviously, in 2020, we had a lot of noise with the actions we took from an expense standpoint. In 21, we added close to 200 people in the business, particularly in the second half of the year, as we saw hiring efforts, you know, gain traction. And so I think we exit 21 and enter 22 with margin feeling back to normal again, yet significantly higher than where we were two years ago. Obviously, we've been able to get the margin up 250 basis points alone in 2021. I think now, as you noted in our guidance, we see kind of margin improvement at a more measured pace in that 80 to 90 basis points range as we grow scale and leverage the fixed costs that we have in the business. I think that would just create some inherent margin improvement, but no real noise for you to have to model through. Carter, if you remember when we went public, I'm sorry, I forgot.
spk13: Sorry, Tingen. When we went public, I think our guidance was like 50 to 75, and now it's 70 to 90 basis points. So we're in the same range, a little bit higher. The improvements that we made, I think there was some skepticism early on whether those would sustain after 2020. And as we've demonstrated through 21 and now in our guidance through 22, that is now part of the company. I think that was a learning of ours. Post-IPO, we got a lot of feedback on margin relative to our larger competitors. And we were able to, maybe one of the small positives of COVID, we were able to take advantage of the time to reorient some of our expenses and eliminate those that we didn't need or in-source ones that we could leverage our existing capabilities. So now it's really a function of just getting bigger. And companies like Greece and other markets that we go into as Chile starts to grow, that's going to continue to press that line up over time.
spk10: Yeah, no, I just wanted to make sure because you are structurally higher than pre-pandemic with a higher contribution margin. So that's great. No, that's great. So my quick follow-up, maybe if you don't mind for Darren, just I know you mentioned some wins like Domino's. I know there's a lot of Omni activity out there. I don't think you guys get enough credit for some of the work you've done there. So just quickly on Domino's, is there a big pipeline for wins like that? And I'm just curious how those wins – are coming about, who you're competing with, has it changed, and same thing with yield dynamics there. Thank you.
spk09: Thanks, Sinjin. Appreciate the feedback as well. Yeah, good strong pipeline. I think, for example, Domino's was in Ireland. As we announced, we've renewed the Bank of Ireland contract, and we've got really excellent engagement with the bank and the corporate channel. in terms of unlocking many of their larger businesses. Similarly, throughout all of our markets, though, in Europe, we've got really good engagement with our bank partners. Greece, again, has great opportunity in the corporate space. So we've got the capabilities under the Omnichannel, exactly as you say, for all those corporates. So it's a big, big focus, especially Through the tech-enabled channels, that's really where the corporates are playing in terms of integrated-type solutions. And given the acquisitions we made last year as well in terms of Anderson Sachs and leveraging ClearOne in Spain, the corporate pipeline is very healthy.
spk13: Just to add to that, in Ireland in particular, that renewal was, I think, a big win. It just reestablishes our reputation to stay – banks stay with us – even when you're up to a renewal period of time. And I think the other coming out of Ireland is that business, which was traditionally more bank branch referral, terminal-based merchants, that has moved very aggressively since COVID into an ISV e-commerce market. And fortunately, we are well-positioned to take advantage of that. The interest in Zach's acquisition we did last year is going to be additive, even though it's based in the UK, will be additive to meeting the ISV needs in the Irish market.
spk15: Great. Thank you. All right.
spk13: Good luck tonight. Good luck with the game tonight.
spk10: Thank you, Jim. We'll be watching. All right.
spk03: Your next question comes from the line of Andrew Jeffrey from Chura Securities. Your line is open.
spk05: Hi, good morning. I appreciate you taking the questions. Thanks, Andrew. Brendan, I'm intrigued by the comments about the repositioning of the U.S. e-comm business. Can you elaborate a little bit on what you think your competitive advantage is? I mean, that's a space that, by all accounts, has gotten a lot more crowded, I think, especially toward the enterprise end of the continuum. So I wonder how you think about the competitive positioning and what the opportunities are there.
spk14: Yeah, we've tried to position ourselves as a fully integrated solution whereby our inside sales team works with partners and collaboratively sells a payments offering that will inure to the benefit of the partner in the form of revenue. And that sort of collaborative, integrated approach, intimately co-branded, all of that kind of stuff, we don't see a lot of that in the market. On the technical side, what we've done with PayFabric, if you looked at the APIs, the documentation that we hand to a partner as part of the integration process, and the timeline required to integrate, I feel very confident that's best in class. I had a call with the technical team a couple days ago, and I said 1 to 10, look at the comp set, where do you think we are? And I was told 9.5. And these aren't great inflators, and I sort of take that as fact. But you know, if you look at the four or five partners that we've signed up thus far and the pipeline of merchant referrals that they have behind those partner agreements and the approach that we're taking in working through their back book and then the immediate, you know, opportunity directly in front of us of accounts that they've signed up in the last 30 days that are now acquiring opportunities for us. What we've heard from the partners is that integrated sales approach is difficult to find in the market. And again, we're leading with this is a revenue opportunity for you And if you're not realizing it, that's a mistake. And so, you know, we're playing with sales. We're playing with the integrated sales approach. And then, you know, as I just referenced, we're leading with the quality of the technology as well.
spk05: And do you think that you're going to see material traction in that business this year such that it could blend up North American organic revenue growth? Because you've already got pretty good, I'd say, above-trend growth, I would think, in your B2B segment.
spk14: Yeah, no question. I mean, it's a layer cake. What we're doing is we're signing partners and then closing merchants referred from those partners. And as the partner base grows, the referrals will naturally grow and the cake will get taller. And if you think about our legacy e-commerce business which was largely indirect via third-party gateways, that was far lower quality merchants. It experienced higher attrition. It was smaller size. And therefore, the revenue per customer was lower. But take, for example, one company that services the veterinary space. They have a pipeline of 650 merchants that they're making immediately available to us. Upon signing the agreement, they had 50 merchants that they had signed in the last 30 days that are an immediate opportunity for us to go close. So that's 700 merchants. And 700 merchants in my world is clearly material. And that's just one of the four. Another one we signed a lawn services business where the average merchant there is doing $500 to $1 million per volume, again, that's a good-sized account. I think we're talking relatively attractive spreads there. So, yes, over time, I feel very confident that revenue is going to compound, and we'll see some acceleration out of the e-com business.
spk13: Just to echo something that the indirect businesses we described in the comments and Brenda just mentioned, that has not been a growth business for us for some time. We exited... back in 2013-14, kind of the core focus of that business, which was just didn't align with the company's strategy. And the acquisition of Notice, which gave us PayFabric, and then building out the capabilities of PayFabric on the B2B side and the success there, it was really the team at B2B who suggested making it B2C. And that was a couple of years ago, and it took some time, obviously, to pivot. But we know e-commerce is not going away. We're not chasing the shopping cart business. We're really an extension of the ISC business that we do successfully today out of our Tampa office. This is just more of a virtual one, and again, a lesson out of e-commerce. I mean, out of COVID, e-commerce was front and center. So I don't think it's material this year, just like Chile is not going to be overly material in the first year, but in the second and third and fourth year, as Ireland is a good example, that Ireland is a significant part of our business today, and we're extending now for another seven years. So we're optimistic. We have a great team leading the effort, and we'll continue to report on our progress.
spk05: Helpful. Thank you.
spk15: Sure. Next question.
spk03: Your next question comes from the line of Ramsey LSL from Barclays. Your line is open.
spk04: Hi, thanks for taking my question this morning. Could you help us think through the contribution from Chile in your full year guidance? We're just trying to figure out kind of how to size it, get a little bit tighter view of how to size it.
spk12: Yeah. Hey, Ramsey, it's Tom. So let me kind of level set it. We think about 2021 as just kind of a jumping off point, as I mentioned earlier when responding to Bob's question. Chile contributed a couple million dollars top line and basically kind of break even-ish bottom line. But we've got really good sales momentum. The merchant portfolio that we acquired from Pago Facil has continued to grow. You'll recall that's our gateway down there. And then the BCI relationship has really gained traction here in the second half of the year. We've seen the merchant portfolio get up to almost 10,000 merchants as we ended the year. We've seen continued good sales momentum and would expect that to accelerate as we just get more rhythms, more at-bats with the BCI team and, frankly, onboard some of the merchants that are in the pipeline. So a long-winded way to get to your answer, and that is kind of contribution. Within our overall guidance, we see Chile contributing close to kind of a $10 million-ish kind of top-line number and having pretty attractive margins. Call it 35%, 40% kind of margins. Obviously, we're going to continue to invest in that business, and therefore, we'll add infrastructure as we gain scale. But it's factored into our guidance, and it's a modest contributor to the overall increase in revenue that we anticipate year over year.
spk14: I just quickly want to add one thing to Tom's comments, and I obviously agree with everything Tom just said. we have probably experienced more success in the large corporate segment earlier on than I anticipated. And these merchants are big, chunky accounts. The margin has been, you know, and pricing in the market was always somewhat uncertain because of the TransBank dynamic. Again, TransBank was the monopoly provider heretofore, and Visa MasterCard didn't have their hands in interchange rates. And all of that is changing, obviously. So we are obviously in the market. Visa MasterCard have pushed out interchange rates, and there's a sort of broader repricing exercise that's ongoing. But the large corporate segment has a fair amount of momentum. The bank, as Tom said, is very, very engaged. And our sales team down there has done a very nice job aligning our product set to ensure that we can board as many of those large corporates as quickly as possible.
spk04: That's super helpful. Can I also ask you to kind of go around the globe and give us an update on the non-US ISV business? I'm presuming it's obviously most evolved in Europe, but maybe you could give us a status report on penetration of ISV in Europe versus some of the other markets, for example, Latin America that you're in now.
spk09: Thanks, Randy. Yep, you're right. I'll cover Europe and back to Brendan on Latin America. So absolutely, we're seeing traction in all markets across Europe, really good progress there. throughout the GMs in each country is really focused on it. So traction in Germany, really partner-oriented business. The market really doesn't work as a traditional bank referral model. While we still have good, strong relationships with Deutsche Bank, it is very much a partner business, and the team have done an excellent job in pivoting more strongly towards tech-enabled businesses. In, if you wanted a quick walk around, Poland similarly, very strong referrals from the bank, but the country, similar to Czech Republic, is going through taxation initiatives to encourage merchants to take cards, digital payments. So we launched the SoftPos in Czech Republic, which is where you can tap your card to a merchant's phone. tap or pin on their phone. You've seen similar announcements in the market about that soft pause initiative. That in the integrated and partnership model is a great opportunity and we'll be rolling that out across Europe this year. Spain we own, we've owned Clear One now for a few years and the traction we get through ISVs is very significant. In the UK, we don't have a bank partner, so about half our business comes through ISVs and growing rapidly, so significant opportunities there. So each country is performing extremely well. And then the e-commerce gateway that we've rolled out across Europe again for unattended ISV relationships. That's where the traction is really growing, as Jim said earlier, in terms of through COVID, e-commerce, digital growth, is the growth agenda. So we're seeing great progress in e-commerce ISV. Over to you, Brendan.
spk14: So Chile is obviously too early to comment with respect to the ISV business. In Mexico, on the tech-enabled side, the bigger piece of the business today is e-commerce. It's roughly 15% of the business, but it's growing kind of 30-ish percent. And the gateway that we bought in Chile last year, this Pago Facil gateway, is in the process of being launched into the Mexican market. I anticipate that will be done in the next couple of weeks. And on the ISV side, it's just very, very early days. So it is not material to the business today. It is a big point of emphasis for me and the Mexican leadership team. And we have calls on it regularly and have, I think, a robust pipeline of opportunities. I think we have the right team and technology in place But as it relates to earnings contribution today, it's a story for tomorrow, not today. Out of our Canadian business, we do have a very vibrant partnership with one large ISV. That ISV is contributing more than 500 accounts a month, which in ISV world is extraordinary. That partnership has been in place for a number of years now. The senior leadership team out of Canada and that company out of the U.K., maintain a really healthy relationship and we continue to renew it economics that allow us to make a healthy margin and then finally with respect to the Tampa business here domestically you know we don't talk about it as much as perhaps we should but but that business actually just had its best month on record in a very long time we've done some enhancements to our sales team we made some more investments on the on the business development side And on the inside sales team, and we're now out, I think, maintaining a more robust dialogue with the dealer network. As you will recall, the Legacy Sterling business got to market by dealing with resellers or dealers that in turn sell software solutions. And we have, I think, done a better job of penetrating what had previously been a more dormant portfolio of resellers. So specifically in the U.S., I'm as optimistic about our ISV business as I have been in a number of years, and I think Darren had one more comment he wanted to make.
spk09: Thanks, Brendan. Yeah, I just forgot one market in terms of update. You asked me to walk around Europe, so Ireland I missed. We talked about the Bank of Ireland renewal, but the team there have done a phenomenal job. We've got more than 40 ISV partners, really signed over the last 18 to 24 months, so very strong complementary distribution channel in Ireland in addition with the bank.
spk15: Thank you. That was excellent detail. Really appreciate it. Your next question comes from the line of Brian Keene from Deutsche Bank.
spk03: Your line is open.
spk11: Hi, guys. How are you doing? Just wanted to get the details on DCC. As we think about cross-border coming back, You know, what would be some of the positive, the obvious positive impacts to the model and just thinking about what's in guidance for this year? Yeah, hey, Brian, it's Tom.
spk12: So we do expect cross-border activity to return. You know, as Darren said, we see the restrictions coming off and the consumer eager to get back to traveling again. I think that will help us in lots of different ways, just more international card volume, but also DCC specifically. We have DCC returning to 2019 levels. For our company, think of DCC as kind of mid single digit revenue contribution. So it's not huge, but it's certainly something that's meaningful to us, particularly on the increment. And we would see DCC growing in that you know, 10 to $15 million range relative to what it contributed in 2021. So I think it's something that, you know, it's hard to predict because it's ultimately consumer behavior and consumer decisions. Our hit rates have continued to be, you know, on par with what we've seen before. So we haven't seen, you know, any kind of material change. We will see some seasonal effects with respect to DCC. Obviously, that's related to cross-quarter activity. DCC in the fourth quarter of 2021 was particularly strong. It doubled relative to last year. Again, probably more of a commentary about 2020 than 2021, but we did see strong DCC volume return. Seasonally, Q1 is typically pretty low, but just to give you a data point as to why we're confident in 22 returning to 19 levels, that Q4 number of 2021 was pretty close to the Q4 number of 2019. So we think 2020 is an anomaly, and in 2022, we'll grow off of that 2021 base. The other thing I'll comment on, specific to your question, but I think it is something that is worth noting, just related to FX. Obviously, give or take, 60% of our business is international. The peso, the zloty, and the euro are the currencies that we're most sensitive to. With some of the hawkish comments from the Fed, you've seen a strengthening of the dollar. That did create a, call it $3 million, 3% growth rate kind of headwind for us in Q4. Obviously, there's a lot of geopolitical pressures out there. There continues to be the inflationary discussion that we were talking about earlier on the call. Our expectation is that FX rates remain fairly consistent with where we entered 2022. I think that's kind of generally where economic consensus is on FX rates. But that is a variable that we will have to deal with. It obviously comes to us. It's nothing that we can control. But I wanted to mention that somewhat related to your DCC question because it does kind of speak to kind of the international composition of our business.
spk11: No, that's really helpful. And the other follow-up, just trying to get my arms around merchant count and thinking about the growth rate you guys had this year versus what you're expecting for organic merchant growth in 22. Yeah, so it, you know,
spk12: We've seen good growth on the merchant count side, particularly in the markets that you would expect. Poland has seen strong merchant count. UK, Ireland, obviously in Chile, it's really off of a base of practically zero. So we've got extremely strong growth there. As Brendan said, within the tech-enabled components of our US business, we've seen good mid-count growth there as well. We see merchant count as something that's going to grow steadily, but the ingredients that go into kind of our overall performance is portfolio growth, volume per merchant. We've mentioned before some of the DCC and chili components. So I think merchant count is something that we'll continue to see nice, steady growth, but it's only one factor that goes into our overall revenue outlook. Great. Thanks for the color. Thanks.
spk03: Your next question comes from a line of George Mahalos from Cowan. Your line is open.
spk02: Hey, thanks for taking my questions, guys. I guess for the first one, Brendan, if you could elaborate a little bit on the e-commerce opportunity with PayFabric, and I guess more specifically sort of like the target merchant that you're going after perhaps in terms of size and ultimately if this thing ramps I'm assuming the benchmark should just sort of be e-com growth in the U.S. going forward, so very sort of healthy double-digit growth as opposed to the sort of flattish e-com growth that you were seeing in e-com pre-pandemic. Is that sort of the right way to think about it?
spk14: Yeah, I really think about our e-commerce business exactly as I articulated earlier. I think of it as two completely distinct businesses. The first is an indirect business, largely through Authorize.net. of which we have almost no control. Success or failure is completely predicated on the activity of Visa in that particular month, the health of their merchant referrals. The quality of those referrals varies pretty widely from month to month. We see pretty wide-ranging approval rates out of the underwriting team, and that's no indictment of the underwriting team. It's a reflection of the quality of the referrals. As Jim mentioned, we got out of a big line of business there a number of years ago Since that time, the business has experienced slightly negative growth rates through the present. I have no reason to expect that that will change. That business is naturally, because it was built up over a number of years, much more material than the second piece of the business, which is the direct business. The direct business is entirely within our control. We've got a team of business development professionals signing up partnerships. We've got a team of inside sales folks that are closing merchant referrals from those partners. And I think, you know, the number that I gave you earlier out of one partner, and I, you know, intended that to be anecdotal, but in the aggregate, reflective of my expectations, is those merchants are doing between $500,000 and a million bucks of volume per annum. And, you know, I think that to me is a reasonable, you know, expectation. You know, in terms of specific segments that we are particularly interested in, we've had five wins thus far, so five partner agreements that we're excited about. The focus has been healthcare, veterinary, and then field services. Field services to us means lawn care in some instances. It means home improvement providers. But we've got a pretty robust pipeline of partner opportunities in those three segments specifically. And right now we're trying to hunt a bit with a rifle more than a shotgun. just because we're trying to identify segments where our product meets the needs of the partners nearly immediately.
spk09: George, I know your question didn't cover Europe, but I'll throw Europe in just as an alternative color to Brendan's update. So Europe, for the two models that Brendan talked to, Europe's model is direct only. So that's all markets. selling in-house, Evo Payments Gateway, European Gateway, to all sizes of merchants. So from the larger merchants, one we updated previously was the National Lottery in Ireland. So the National Lottery, as it says, a large corporate there on e-commerce traffic, through to SME-sized businesses as well. So it's the full market range of merchants. So in terms of Target merchant size, it really is the full range. We also enable through direct selling. So through the ISV partnerships we've established where they're referral partners, they'll be referring merchants to us who will be selling direct through inside sales, as Brendan says, e-commerce solutions. So that's the model for Europe.
spk02: Okay, that's great, Colin. Darren, a quick follow-up. You sound encouraged on all geographies. throughout Europe. But I'm curious, is there any one specific one outperforming expectations? Anyone perhaps coming in perhaps a touch softer than what you're looking at is really just across the board strength right now?
spk09: Pretty much across the board. As I said earlier, all markets are easing restrictions. Poland announced that all restrictions are lifted from the 1st of March. UK has done the same. So we're seeing consistent trends and bounce backs across Europe. the whole of Europe. I think the opportunities are where the markets or regulators or governments are implementing taxation recovery systems or processes. So I already touched on Czech Republic, Poland, really encouraging merchants to take digital payments and kind of eradicate the cash or black economy so they can track transactions sales and therefore gain higher tax receipts. So I think those are giving us a stronger impetus, but really, yeah, I'm seeing encouraging trends, as Tom touched on, that we saw through Q4 with DCC as well, strong trends in all markets.
spk02: Great. Congrats on the results, guys.
spk03: Thank you. And there are no further questions at this time. Mr. Jim Kelly, CEO, I turn the call back over to you for some closing remarks.
spk13: Okay. Thank you, Operator. And thanks, everyone, for your continued interest in Evo.
spk03: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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