Nuvei Corporation

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to New Bay Corporation's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I will now turn the conference call over to Anthony Gernstein, Vice President and Head of Investor Relations for a new way. Please go ahead, Mr. Gernstein.

Thank you, Operator, and good morning, everyone, and thank you for joining us. With me today are Philip Thayer, Chair and CEO, and David Schwartz, CFO. As a reminder, This conference call is being recorded and webcast and is copyrighted property of Nuve, and rebroadcast of this information in whole or in part without written consent of Nuve is prohibited. This morning, Nuve issued a press release announcing financial results for the three- and six-month period ended June 30, 2022. The release, as well as an accompanying presentation, is available in the investor relations section of the company's website, nuve.com, under Events and Presentations. During this call, we may make certain forward-looking statements within the meaning of the applicable securities laws. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the business or developments in Nuve's industry to differ materially from anticipated results, performance achievements, and developments expressed or implied by such forward-looking statements. Information about these factors, that could cause actual results to differ materially from anticipated results or performance can be found in Nuve's filing with the Canadian Securities Regulatory Authority and on the company's website. Our discussions today will include non-IFRS measures including adjusted EBITDA, adjusted net income, adjusted net income per share, and free cash flow. Management believes non-IFRS results are useful in order to enhance our understanding and our ongoing performance, but they are not a supplement to and should not be considered in isolation from a substitute for IFRS financial measures. Reconciliation of these measures to IFRS measures is available in our earnings release and MD&A. We'll open up the call for your questions after our prepared remarks. With that, I'll now turn the call over to Phil.

Thanks, Anthony, and thank you all for joining the call this morning. as we share our results for the quarter and highlight the progress we are making across the company. We had an operationally solid second quarter, driven by our disciplined investments, sustainable growth, which continue to enhance our already attractive financial profile, driven by strong revenue growth, exceptional cash generation, and unlevered balance sheet, which combined provides us with tremendous optionality. I want to stress that we are one of the few high-growth FinTechs with such an enviable financial profile, especially when it comes to free cash flow. Today, I'm going to review four topics. First, our results for the second quarter. Second, recent operational highlights related to our technology and go-to-market strategy. Third, details on the current trends and expectations for the rest of the year. And fourth, our forward-looking view of the business. Turning now to our financial results, we had a solid second quarter with total volume and adjusted EBITDA exceeding our outlook as we continue to execute on our strategic initiatives. Dave will go through the results in more detail, but at a high level, total volume increased 38% to $30.1 billion as we continue to grow with our customers and scale our platform. More impressively, Total volume grew 44% to $31.4 billion on a constant currency basis over the same period last year. Revenue increased 19% or 24% on a constant currency basis and grew 16% organically on a constant currency basis. Adjusted EBITDA increased 17% to $93 million with a margin of 44% and free cash flow was strong at $81 million in the quarter. Adjusted net income increased 16%, and adjusted net income for diluted share increased 15% to $0.51. As mentioned, we exceeded our outlook for both volume and adjusted EBITDA, while revenue of $211 million was below our outlook range previously provided of between $217 and $223 million. This was mainly as a result of changes in foreign currency exchange rates, which negatively impacted revenue by approximately 2 million as the U.S. dollar strengthened more than we anticipated. Higher volatility and lower volume than we anticipated in digital assets and cryptocurrencies, which negatively impacted revenue by approximately 4 million. As well as a change in volume mix from alternative payment methods for which revenue is presented on a gross basis to credit, which is presented net of interchange and payment network fees. which negatively impacted revenue by approximately $6 million. In total, these factors combined contributed approximately to $12 million of revenue headwind in this year's second quarter. Outside of these factors, many of which were largely unforeseen, our revenue would have been $223 million, or at the top end of the revenue range of the outlook we provided. Naturally, these headwinds also impact our adjusted EBITDA, free cash flow, and earnings per share. It is important to recognize that these headwinds are expected to temporarily impact organic growth in the second half of 2022, as we lap very strong activity in digital assets and cryptocurrencies in the second half of last year. We continue to support our customers with our trusted and robust on and off-ramp infrastructure, and we are very well positioned for an industry rebound. With respect to alternative payment methods, Our strategy has always been to provide our customers with all preferred payment options that are relevant to their customers. In this year's second quarter, we saw an increase in the usage of credit overall tournament payment methods, which, as I just explained, has a greater impact on our revenue than it does on adjusted EBITDA. Turning now to our operational highlights for the quarter, we continue to make meaningful progress executing our strategic growth initiatives, including growing with our customers, expanding our geographies, and driving technological innovation. I will highlight what we're seeing in some of our verticals. In travel, revenue increased 139%. And what's even more interesting is that on a same store sales basis alone, it increased 85%. While travel represents less than 3% of overall revenue, it clearly has a lot of momentum. which will be driven by existing customers as well as new customer wins, including Air Transat and WestJet in the second quarter, along with a deep and advanced pipeline. Looking at our online retail vertical, we showed amazing progress as it had revenue growth of 112% over last year's second quarter, and which is driven predominantly by new business. With investments in our global omni-channel solution and expanded go-to-market efforts, we are confident retail will continue to play an even greater role in our revenue mix in the future. Recent success, such as helping Ux and Net-a-Porter and Sheen to grow from region to region, or the recent win of Happy, which is utilizing our solution across multiple regions, is really just the beginning for Nuveg. Turning to online gaming, we also had an excellent quarter, especially when you consider this year's schedule versus last year's. As you may recall, the European Football League schedule was pushed into the summer in 2021 due to the pandemic, whereas this year it ended in May. This makes for a more difficult year-over-year comparison, but even with effectively one less month in this year's second quarter and the headwinds previously highlighted, online gaming's same-store sales revenue increased 2%. New business in online gaming is also progressing well, and helped drive an increase in online gaming revenue by 22% in the second quarter compared to the second quarter of 2021. In terms of our progress in North America, our online gaming revenue run rate is now approximately $25 million, and we're on pace to deliver on our target of $100 million of annual run rate revenue in the medium term. With respect to this year's third quarter and the remainder of the year, it is important to recognize that the 2022-2023 European Football League season started earlier this week and will finish later than usual due to this year's World Cup, which runs from November 21st through December 18th. Historically, we've seen a 10-15% revenue lift in our online gaming vertical related to the World Cup, depending, of course, on country qualifications. Overall, we continue to make progress and saw strength and momentum in many of our focus verticals, excluding digital assets and cryptocurrencies. Turning now to an update on our go-to-market strategy, we continue to invest in our direct commercial sales teams globally and are performing extremely well as reflected in new business growth. Specifically, we had more customer activations in the second quarter than in the first quarter and are on pace to approximately double new business revenue in our Global E-Commerce Direct channel from 2021. This, coupled with our deep pipeline, is providing us with additional confidence to outgrow both the FX and crypto-related headwinds. We have gone from being under-penetrated in our markets to now having a much more meaningful and visible presence. In this year's second quarter, we also expanded our teams in APAC and LATAM and opened our first sales office in China. Our objective remains to be local to our customers around the world and remain focused on continually expanding our sales force in every region to make sure we have global coverage. I'll highlight that our investments in our direct sales channel are yielding exceptional results as reflected in the 36% increase in revenue at constant currency in the second quarter within our globally accomplished direct business. An impressive outcome given that almost all of the headwinds we are experiencing in the quarter impacted this channel specifically. Moving on to other operational highlights, we also had an excellent quarter in terms of product and innovation delivery. We continue to believe that our modern, scalable technology stack is unique and offers clear most to our business when compared to our peers. Our ability to constantly innovate is driven by our talented team of more than 500 engineers relentlessly focused on supporting our customers as they execute on their own business initiatives. We remain at the forefront of innovation, never standing still by expanding our modules and solution stack quarter after quarter. With respect to specific advancements in product and capabilities, I'd like to highlight a few. In payouts, we enhanced and expanded our solution offering to now include instant SIPA payouts for all European countries. We also launched Visa Direct in Canada and added local payout options in Brazil, Canada, Chile, Colombia, Malaysia, Mexico, Peru, and Romania. Our continuous roadmap offers our customers more choices and more options to drive greater connectivity and efficiency with their customers. And remember, the more payout solutions we offer, the more relevant our paying solutions become. Next, we launched Nuve's Simple Connect SDK, which dramatically simplifies integration to our platform. We believe our SDK solution is ahead of our emerging peers, as it's the easiest to integrate, allows for more than just cart payment options, and offers customers a full array of customized capabilities and flexibility. With the simpler integration, we're expanding our TAM to penetrate Tier 2 and Tier 3 global customers, and we'll focus on developing our technology partnerships globally. Another product launch that we're excited about and creates meaningful opportunities for us ahead is our omni-channel solution. As recently announced, we started with our first customer supporting their in-store payments across 40 locations in North America and their global e-commerce presence. Via single integration, our customers can now use Nuve for multi-channel, multi-geography integrations supporting single tokens, simplified reporting, and reconciliation to streamline their global operations. Omnichannel is an important part of our growth platform and integral part of our growth strategy. It is going to allow us to accelerate penetration into new verticals, expand current client relationships, and be far more competitive in RFPs. And it is relevant to all our verticals, and we're just getting started here. We believe Omnichannel is a true game changer and potentially transformational to our business development efforts. In terms of our geographies, we're actively pushing to expand local acquiring capabilities with over 20 licenses and scheme applications in high priority markets. We have also enabled car brands, including Discover, Diners, UnionPay International, and now actively working towards enabling JCB to round out our vast acquiring capabilities. In summary, each product solution expands our TAM and offers us a platform of growth with our customers as we remain focused on relentlessly helping them execute on their own initiatives. To put into perspective, we typically see on average 25 to 30% of the wallet share of our customers. So the more capabilities and solutions we can provide to our customers, the better our position to capture greater wallet share. Turning now to market trends, We continue to see momentum in the business, excluding the FX and crypto-related headwinds, which we believe we're going to lap over the next few quarters. As you can see from our constant currency volume growth of 44% in this year's second quarter and the performance of our global e-commerce channel, there's been no visible change in consumer spending. However, considering the macro environment, it is challenging to predict how, when, and if trends will change And we have decided to err on the side of caution with respect to the second half of 2022. As such, we are amending our outlook for the year to take into consideration our second quarter results, continued headwinds from FX, a prolonged crypto winter, and to be cautious, we have included an additional buffer. I'll emphasize that we're heads down and laser focused on executing our strategic initiatives and are very confident about the direction in which we're headed. We are maintaining our medium and long-term targets, and we aspire to first achieve a billion of annual revenue. As you heard today, we continue to invest in a disciplined manner and are making the right investments in people, technology, and geographies, positioning us for the long term. We have built a resilient and durable business model. Our strong financial profile, including diverse revenue growth, exceptional cash generation, and strong balance sheet with low leverage provides us with a lot of flexibility. We maintain a disciplined approach towards capital allocation for continued growth and have multiple alternatives at our disposal to drive shareholder value. As for M&A, we do see many opportunities with the market dislocation, but remain disciplined to maximize shareholder value, which has served us very well in the past. I'd like to welcome are two new recently appointed board members, Marin Lowe, Regional Vice President of Latin America of MEDA, and Tim Dent, former Chief Financial Officer and Chief Compliance Officer of DraftKings. Both Marin and Tim are outstanding additions to our board. They are proven leaders who bring extensive knowledge, skills, and experience, which are highly relevant to our fast-growing verticals and geographies. They further strengthen our corporate governance by increasing the number of independent directors and advance our diversity targets where women will represent 30% of the board by the end of 2023. As chair of Nuve, I look forward to working with and learning from them. And finally, to our employees, I want to thank you for your relentless hard work. You guys are amazing. I also want to welcome the more than 100 new team members who joined the company in the second quarter. We're excited to have you. With that, I'm going to turn the call over to Dave to discuss the financials and our outlook for 2022.