Nuvei Corporation

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Nuvec Corporation's third quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. As a reminder, this conference call is being recorded. I'll now turn the conference call over to Anthony Gerstein, Vice President and Head of Administrative Relations for Nuwe. Please go ahead, Mr. Gerstein.

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 in this copyrighted property of New Bay, and rebroadcast of this information in whole or in part without written consent of New Bay is prohibited. This morning, New Bay issued a press release announcing financial results for the three-month and nine-month period ended September 30th, 2022. The release, as well as an accompanying presentation, is available in the investor relations section of the company's website, newbay.com, under events and presentations. During this call, we may make certain forward-looking statements within the meaning of the applicable securities law. 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 New Day'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 the base 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, 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 event MD&A. We'll open up the call for your questions after our prepared remarks. And with that, I'd like to now turn the call over to Phil. Thank you, Anthony, and good morning, everyone.

I am pleased with our results for the quarter as we execute our strategic initiatives and with continued momentum in the business, we are increasing portions of our outlook for the full year 2022. Before we dive into the details and as we celebrate two years of being a publicly listed company, I thought it worthwhile to highlight our performance and evolution over the last four years to help you appreciate from where we've come from, where we are today, and why we are so excited about our future. First, in terms of volume, we tripled from $14 billion in 2018 to $43 billion in 2020, and we expect to triple once again to an estimated $121 billion in 2022 based on the midpoint of our four-year outlook. In terms of profitability, we started with adjusted EBITDA of $51 million in 2018, which we more than tripled to $163 million in 2020, and now expect to more than double the $345 million again based on the midpoint of our outlook for this year. This is even more compelling when you consider that we continue to make large investments to scale the business and support our long-term growth while always focusing on profitability and cash flow generation. And as an organization, we've grown from 386 colleagues in 2018 to 869 in 2020, to 1,636 at the end of this year's third quarter. And our business and product offering has also dramatically changed over the last four years, starting as a small North American, small business-focused organization and transforming into a leading global omni-channel payment technology platform, powering enterprise clients with a comprehensive and modern modular solution offering enabling them to execute on their own global expansion initiatives. While I'm very proud of our progress and momentum over the last four years, which has been truly exceptional, we're even more excited about the next four years. We continue to execute, to innovate, and grow with the same passion and focus you have seen over the last four years. The best is truly yet to come. Before turning to our financial performance for this quarter, I think it's important to talk about consumer discretionary spending and how it relates to move in. While I completely understand the difficulty for investors given the backdrop of the macro environment, in our view, there's so much opportunity from wallet share expansion, new client wins, and new geographies driven by our innovative technology that has the potential to offset any slowing consumer discretionary spending. Turning now to our financial performance for the third quarter. Overall, the quarter developed ahead of plan on all metrics. Total volume increased 30% to $28 billion. or 38% on a constant currency basis over the same period last year. Revenue increased 7% to $197.1 million and 13% on a constant currency basis. Adjusted EBITDA increased to $81 million with a margin of 41%, and this includes approximately $5 million of foreign exchange headwind. Free cash flow was strong, $68.5 million for the quarter. Adjusted net income was $62.4 million and adjusted net income per share at $0.43. Expanding further on our results, we beat on all our outlook metrics, including total volume, revenue, constant currency revenue, and adjusted EBITDA. Due to higher volumes and wallet expansion from existing customers, as is reflected in our constant currency volume growth for 38%, new client wins, which I'll dive into momentarily, our continued investment in technology and product offering, and our geographic expansion, namely LATAM and APAC, which, though small for us today, are really seeing some good momentum, especially as we continue to simplify global commerce for existing customers. Highlighting several observations of interest in the quarter, the U.S. dollar continued to strengthen, driving an additional $1.5 million unfavorable FX headwind compared to our outlook for the quarter and impacted revenue by $11.5 million compared to last year's third quarter. Digital assets continued to decline through the quarter, but we did, however, start to see some degree of stabilization in September and October. Nevertheless, for the third quarter, same-store sales and digital assets were down almost 70% year over year. With respect to the performance of several other of our verticals in the third quarter, online gaming revenue grew by 21%, online retail grew by 141%, social gaming revenue increased 16%, and travel revenue increased 86%. In summary, it's very important to recognize is that our performance outgrew both FX and digital asset headwinds. As you can appreciate, our underlying business is performing really well. Turning now to an update on our go-to-market efforts, we continue to focus on enhancing our go-to-market investments across all regions, ensuring we're local and accessible to our customers while remaining present around the world. Year-to-date, we increased our go-to-market spend to $27 million, up from $10 million for the same period last year. We've expanded our sales force in every region, and results are very encouraging. Naturally, these are long-term investments, and we have more to do but remain disciplined in managing profitability and EBITDA margins. With a deep and growing pipeline, we've gone from being underpenetrated in our markets to now having a much more meaningful and visible presence. Breaking it down by region, in North America, revenue grew 9% in this year's third quarter, And while it may appear low, it is important to recognize that our e-commerce business is outgoing a large and declining small business channel in the region. In this year's third quarter, our e-commerce direct channel in North America represented 31% of revenue and grew 40% compared to last year's third quarter, while small business represented 42% of revenue and declined approximately 1% for the same period. With an estimated TAM for e-commerce of $12 trillion, North America clearly represents a large opportunity for us, but it's still very early days. Looking at EMEA, with revenue growth of 4% on the quarter, it is important to recognize that Europe's performance has been negatively impacted by foreign exchange fluctuations, as well as volatility in digital assets, since a significant portion of our digital asset portfolio originates from European operators. With an estimated TAM of $9.3 trillion, there's so much more opportunity for us to grow in the NEA, especially as we continue to diversify across our corporate verticals. Turning now to LATAM, which, though growing from a smaller base, saw revenue increase 28% in this year's third quarter as we've reached an inflection point and our business in the region is accelerating rapidly. Our investments in both technology and distribution are allowing us to strengthen engagements with both current and new clients exploring the region. We continue to invest in our infrastructure and licensing with multiple applications across all key markets. With an estimated TAM of one and a half trillion, we believe LATAM is an attractive avenue for continued growth. In APAC, revenue grew 47% in the quarter as we're scaling in Singapore and Hong Kong and starting to see real momentum attraction in the region. We're also in the process of launching our third market in the region, Australia, which is an important market for Nuve's future. Since activating our own licenses, we've been focused on scaling and go-to-market efforts in APAC, including recently opening a sales office in China. With an estimated TAM of $28 trillion, we continue expanding across the region with new markets like Australia and others to come, which provides us with significant opportunities going forward. Bringing it all together, we are making the right investments to remain local and available to our customers as they expand around the world, and we're heads down executing on a very large and growing TAM When considering regions, it's important to highlight that customer relationships can be born in a certain region or processed in another. It is for this reason that building out our global go-to-market efforts are so critical to our growth and driving very compelling opportunities globally. This quarter in particular saw meaningful uptick in new business wins and wallet share expansion across regions and verticals, including the Virgin Atlantic Group, Turkish Airlines, Sheen, Intane, Kaizen, 888, Laudomatica, Panier Bleu, Arcadia, Epic Games, Rappi, Coda Payments, Mary Kay Cosmetics, amongst many, many others. As you can appreciate, our investments in go-to-market are yielding marquee brand wins and driving a solid foundation for long-term growth. Moving on now to our specific advancements in technology and product capabilities in the quarter, I'd like to highlight several achievements. As a technology-first company, we're always innovating and continuously releasing enhancements to help our customers execute on their own growth initiatives. With respect to our platform this year, we've made architecture enhancements and infrastructure investments to allow us to support and exceed 2,000 transactions per second, a multiple of what we're seeing today, giving us ample opportunity for continued growth and scale. We've also enhanced our infrastructure to accommodate local data protection residency rules further enabling Nuvei to expand in more countries around the world. Additionally, our infrastructure investments now allows us to offer segregated environments for large clients should this be a requirement. In terms of acquiring payouts, we are scaling and normalizing our offering in Hong Kong and Singapore with the addition of Visa Direct payouts and other functionality since launching self-processing last quarter. We're actively working on Australia. an important market for our verticals, and Columbia, as we continue to target launching three to five new markets per year. Turning to alternative payment methods, we continue to place efforts to make sure that our customers accept every form of local alternative payment method that is applicable to their business model, now increasing our portfolio to 586 different APMs at the end of the quarter. We enhanced our payment orchestration platform, introducing our self-service routing manager, allowing our customers to choose the routing of transactions amongst different acquirers based on their preferences using our data analytics. We recently launched Nube for Platforms, exaltering our marketplace offering with our fully customizable solution, supporting complete functionality of our modular platform via single integration. In addition, we had so many other product rollouts in the quarter, including launching Account Updater in Europe, supporting MasterCard tokenization, enabling Visa account funding transaction support, enabling a partnership with Visa and Canada for buy now, pay later. We enhance our risk services and reporting offerings amongst many others. But the takeaway here is that as a company, we are never standing still. We're constantly evolving and enhancing our solution stack to advance our competitive positioning. It's worth mentioning that each new product solution expands our tab and offers us a platform to grow with our customers as we remain focused on relentlessly helping them execute on their own growth initiatives. Turning now to our financial profile and capital allocation strategy. We are in an enviable position with our balance sheet and the attractive cash generation nature of our business. This provides us with flexibility and leverage capacity. Our preference and primary focus for the time being is to preserve capital for M&A. As a reminder, We are highly disciplined with our M&A methodology and continue to look for strategic opportunities reflecting appropriate valuations to expand our capabilities, scale, and our geographies. We are particularly interested in North America, APAC, and LATAM as priority geographies to expand our reach, drive greater value to our customers, and naturally to our shareholders. However, we will also consider becoming more active with our stock buybacks as we have been earlier in the year, given the current market dislocation and, in our view, our depressed valuation. With respect to other more recent corporate developments, I want to welcome Vicky Bindra, who joins Nuve in a newly created position of Chief Operating and Product Officer. In this role, Vicky brings years of global payment industry experience, having held senior leadership positions, including at MasterCard, where he was the president of APAC in Middle East and Africa, at Visa, where he led product solutions globally, and most recently at FIS, where he served as Chief Product Officer, responsible for the strategic product function, identifying and creating competitive products and propositions for its customers. Because NuVe's own growth strategy starts with beautiful products driving real-world solutions that accelerate our customers' businesses, Vicky is a perfect addition to our team, especially as he knows our markets, understands our differentiated product offerings, and the needs of our global customers. I look forward to working with him. I would also like to take the opportunity to welcome our 66 new colleagues who joined us in the third quarter. We are delighted to have you part of the New Wave family. Turning now to our expectations for the fourth quarter, we see three things. Continued strong momentum in the business, additional FX headwind of $5 million, and approximately $7 million of headwinds in digital assets beyond our prior expectations. But because of the continued momentum in the business year-to-date through October, we We are increasing certain metrics of our previous outlook as well as reaffirming the guidance of the full year 2022 and reiterating our medium and long-term targets.