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spk02: 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.
spk04: 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.
spk06: 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.
spk14: In closing, we had a really active quarter and we're pleased with our results.
spk06: We're excited about the momentum in the business and the investments we're making. The opportunities are meaningful for the company. We continue to have an excellent profile amongst the high-growth technology peers, highlighted by our disciplined, highly profitable growth, focusing on the right verticals, continuously diversifying both regions and verticals, generating cash, and maintaining a solid balance sheet. As always, I want to thank all our team members for their tireless efforts in supporting our customers. You guys are rock stars. And with that, I'm going to turn the call over to Dave to discuss the financials and our financial outlook for the fourth quarter and full year.
spk03: Thanks, Phil, and good morning, everyone. We are pleased with our third quarter results, which exceeded the high end of the outlook across all four metrics, total volume, revenue, revenue at constant currency, and adjusted EBITDA. Total volume for the quarter was $28 billion, which was above the top of our previously provided outlook range of between $25 and $26 billion. Total volume, which is a key measure of our performance, increased year over year by 30%. On a constant currency basis, total volume increased by 38%. Revenue for the quarter increased 7% to $197 million, which was above our outlook range of between 185 and $195 million. This overachievement is despite the incremental headwinds from foreign currency. On a year-over-year basis, the unfavorable revenue impact from currency fluctuations was $11.5 million, which was $1.5 million greater than we expected. On a constant currency basis, revenue was $208.6 million, which was above our outlook range of $195 to $205 million. Revenue at constant currency growth was 13%, which was 600 basis points higher than reported revenue growth. As Phil mentioned, during the quarter, we saw revenue growth across all four regions, including EMEA, which was most impacted by fluctuating currency rates. In the third quarter, our take rate was 70 basis points compared to 85 basis points in last year's third quarter, primarily due to volume mix. On a sequential basis, this quarter's take rate is consistent with the second quarter take rate. As you know, our approach is to provide our customers with solutions they need to accelerate their growth irrespective of the resulting yield. we focus on driving incremental gross profit dollars by expanding our solution set and winning wallet share. In terms of gross profit for the quarter, we generated $159 million, which represents more than a $13 million increase or 9% growth compared to the prior year. Gross margin in the third quarter was 81% compared to 79% in the third quarter of 2021. Selling, General and administrative expenses increased by $43 million, or 41%, to $149 million as a result of organic growth as we continue to grow and invest in the business, as well as the acquisitions of Simplex, Paymentez, and Mizuma, which were all completed in the third quarter of last year. Share-based payments represented more than half of the SG&A increase, as it increased by almost $23 million to $34 million, due to awards to employees who joined as part of the acquisitions we completed last year, as well as other grants. Of the $34 million of share-based expense in the quarter, approximately 44% or $15 million relates to awards with an exercise price or share price performance condition in excess of $100. As a result of the high exercise price and share price performance threshold, a large proportion of the outstanding units are significantly out of the money. Approximately 4.7 million incentive units, representing 38% of the total units outstanding, have an exercise price or share price performance condition in excess of $100 or relate to awards with a non-market performance condition that were not achieved at the end of the third quarter. As a result, these 4.7 million units are not considered diluted in terms of diluted shares outstanding Employee compensation, other than share-based payments, increased by almost $13 million. The increase year-over-year reflects our investment in our global team, both from an organic and acquisition perspective, including those in direct sales and account management to drive future growth and execute on our strategy. Adjusted EBITDA in the quarter was $81 million, which was above the outlook range we previously provided of between $70 and $75 million. The overachievement on adjusted EBITDA in the quarter was due to higher revenue and lower SG&A costs as we continue to be disciplined in our investments and expenditures. Adjusted EBITDA margin was 41% in the quarter compared to 44% in the prior year period. I would also note that the foreign exchange and digital asset headwinds experienced during the quarter also impacted our adjusted EBITDA. On a constant currency basis, Adjusted EBITDA would have been approximately $5 million higher than reported. Net finance costs was $3.7 million compared to $4.6 million in last year's third quarter. The decrease was primarily due to higher finance income of $3.6 million from interest income earned on our larger cash balance, offset by an increase in finance costs of about $2.7 million, primarily related to higher interest rates on our outstanding debt. Income tax expense in the quarter was $5.4 million. This represents an effective tax rate of 29%, which was slightly above the Canadian statutory rate of 26.5%, mainly due to share-based payments that are non-deductible in most jurisdictions, partially offset by favorable impact of lower income tax rates in other jurisdictions. Net income for the quarter was $13 million, or $0.08 per share, compared to $28 million or 19 cents per share in the third quarter of last year. As I mentioned earlier, this year's third quarter included a $23 million increase in non-cash share-based payments, which on its own represented approximately 16 cents per share. Adjusted net income was $62.4 million or 43 cents per diluted share compared to $62.3 million or 42 cents per diluted share in the third quarter of 2021. Looking at our balance sheet and liquidity, our cash position and cash generation remain strong. Due to the operating leverage in our business and relatively low capital requirements, we have a strong financial profile. This is demonstrated in our adjusted EBITDA less capital expenditures, which was $68.5 million for the quarter. A unique financial profile gives us flexibility with respect to capital allocations. As a result, we continue to invest in the organic growth of our business while remaining strategic and disciplined in our capital allocation approach. At the end of the quarter, we had cash and cash equivalents of $754 million. We also had term debt of $499 million, resulting in a net cash position of $255 million, with access to an additional $385 million available under our revolving credit facility. I will now turn to our fourth quarter and full year 2022 outlook. Our financial outlook for the fourth quarter and full year 2022 is as follows, and I'll refer you to our forward-looking information disclosure in our press release and MD&A. For the fourth quarter, we expect total volume of between $33 and $35 billion, revenue of between $197 and $227 million, revenue at constant currency of between $210 and $234 million, and adjusted EBITDA of between $75 and $84 million. For the full year 2022, due to our third quarter performance, we are increasing certain components of our outlook and now expect total volume of between $120 and $122 billion, revenue of between $820 and $850 million, revenue at constant currency of between $861 and $885 million, and adjusted EBITDA of between $341 and $350 million. The outlook, specifically adjusted EBITDA, reflects our strategy to continue to invest in our business in key areas such as distribution, technology, and marketing. Our outlook also takes into consideration a cautious approach considering the current volatile and uncontrollable unique macro environment. With our strong balance sheet and task generation, we are well positioned to not only manage through the current environment, but also take advantage of opportunities as it relates to organic growth, acquisitions, and capital allocation.
spk15: With that, we will now open the line to take your questions.
spk13: Thank you. We will now begin the question and answer session.
spk02: To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up.
spk13: At this time, we will pause momentarily to assemble our roster. Our first question comes from Sanjay Sakrani with KBW.
spk02: Please go ahead.
spk10: Thanks. Good morning. Maybe, Dave, we could start off where you ended, just on the fourth quarter expectations. Just curious, if we look at it relative to what maybe the implied number was last quarter, what are the puts and takes here? I know you mentioned you're assuming a cautious outlook. That didn't seem as apparent in the numbers. in the third quarter. Maybe you could just talk about that and maybe the incremental headwinds maybe from FX or not and some of the other pluses or minuses. Thanks.
spk03: Sure. Good morning, Sanjay. Thanks for the question. So in terms of our fourth quarter outlook, it's, you know, certainly factoring in the macro environment is certainly something that we've been doing, you know, consistent with what we did last quarter. That's an important factor. When you think about some of the key components, we talked about the three Cs last time. Those still are relevant this quarter. So when you think about currency, from an FX perspective, we assumed current rates going forward, but those current rates that we are at today are different than what we saw when we last spoke to you back in August. So there's about a $5 million additional impact on revenue from an FX perspective. And then digital assets as well. You know, there's certainly some volatility there that we've seen over the past couple of quarters. That has about a $7 million impact on Q4 from a revenue perspective. And then the last C is caution. And, you know, I'd point you back to looking at, you know, our full year. We're still really proud of what we're coming in on a full year basis, which is, you know, revenue growth on a constant currency basis of about 20% at the midpoint, between 19% and 22%. So those are pretty much the puts and takes. We continue to invest. in the business as well. So from an EBITDA perspective, we continue to invest and grow for the future. So that's kind of the high level of how we see the rest of this year playing out.
spk10: I appreciate that. And you both mentioned capital management a decent amount. And I'm just curious if we could just maybe drill down a little bit deeper on that and talk through some of the opportunities that might be out there from an M&A standpoint and And it sounds like you might be more aggressive on the share buyback. Maybe we could just talk a little bit more about that. Phil, thanks.
spk06: Yes, certainly. Sanjay, thanks. Appreciate it. I think what I'd like to highlight is that we have ultimate flexibility because of our balance sheet and our cash flow generation. And that really allows us to drive and focus on building shareholder value, building solutions that expand our relationships with our customers, and just being really good from a capital allocation perspective. And that flexibility is something that we are unpacking as we start looking at opportunities, specifically with the dislocation valuations in the market today. So we are being opportunistic. I think we're also being patient. It's worthwhile highlighting that we are lapping one year since the last acquisition, which closed, I think, at the end of August. So again, we're being highly disciplined. In terms of market for us, the U.S. is an area that I would put on top of our list, but certainly LATAM and AFAC as well as we want to continue growing our businesses. What's unique about Nuve when you start thinking about M&A opportunities is that, you know, out of all of our modules, all of them have their own TAM and associated opportunities, which is fascinating. So as we are growing our issuing businesses, we're growing our open banking businesses, we're growing our acquiring business and orchestration business and our risk businesses and opportunities and products that we offer to our customers, it creates a pretty nice platform for unique capability expansion and and monetization with our customers. So we have a far greater list than many of our peers of areas that interest us, and certainly we're heads down executing on that.
spk15: Thank you.
spk13: Thanks, Sanjay. The next question comes from Scott Wurzer with Wolf Research.
spk02: Please go ahead.
spk08: Hey, good morning, guys, and thanks for taking my questions. Thanks for the disclosure on some of the growth metrics you saw in some of your key verticals. I was just wondering maybe if you can maybe give a little bit more color on how some of those verticals, whether it was online gaming or travel or financial services, how those verticals performed relative to your expectations. Thanks.
spk06: Thanks, Scott. We're seeing really good momentum across the board. When we talked about the verticals, there's ultimately the three components that really are playing for New Day. The first one actually is wallet share expansion with our customers as we add capabilities and as we add geographies. And the second right behind that is as we continue scaling new client wins. So the new client wins, we have a tremendous pipeline really across the board of all of our verticals, which are reflective of our go-to-market investments. We have taken a cautious approach on activation. Certainly that is something in the fourth quarter that we expect post-November clients that don't activate that will fall back into the first quarter. So we're very excited with the brands. We are winning marquee names across the board. So, for example, Virgin Atlantic Group and Travel, which is a marquee name. We have done significant expansions within Tain in Europe, within new countries, and now engaged in gaming with the top 10 providers across the board in U.S. Gaming. The same thing with social games with a win of Epic, which we're really excited about, and ultimately good momentum building across all of our verticals. What we have seen in our verticals from a same-store sales perspective is as we expected. The things that we found noteworthy was digital assets declined year-over-year about 70%, which I mentioned in the prepared remarks. We have seen a floor on that, which is interesting. But to give additional color on that, it's not just the digital asset volume that declined. It's also our appetite in terms of, one, expanding relationships in that vertical. We think today our exposure to digital assets is appropriate. We felt it a little bit high last year, and certainly that's something that we're going to unlock over the next few quarters. But in general, as we sit today, very little concentration by merchants, which we really think is a great attribute to Nuve from a profile perspective, and really good momentum across all of our key verticals.
spk08: Great, thanks. That's very helpful. And then just to follow up here on free cash flow, I mean, I think the conversion ratio for free cash flow margin was maybe a little bit light of what we were expecting. So just wondering, I mean, it seems like CapEx is running a little bit elevated. David, I don't know if you can give a little bit of color on what's sort of driving that and how we should think about it going forward. Thanks.
spk03: Yeah. Hey, yeah, for the most part, I mean, our CapEx is still pretty low and our cash conversion is still pretty high. It is a little bit lower. We did in the last couple of quarters have some investments in some new offices. We mentioned in the prepared remarks as well. So that's part of it. But, you know, you will see some fluctuations, but there's nothing significant from an investment perspective on the CapEx side that we need to make or have been making. It's really just supporting a bit of the growth. And so some of that is one time in nature. So nothing I'd specifically call out there.
spk15: Got it. Great. Thanks, guys.
spk13: Our next question comes from Jason Kupferberg with Bank of America.
spk02: Please go ahead.
spk00: Hey, guys. This is Cassian for Jason. Congrats on the quarter. I just wanted to ask kind of a clarification question. So I know you guys said that, you know, the crypto piece of the business is relatively stabilized in September and October. You know, would you say that same characterization holds for the rest of the business in terms of, you know, the kind of trends that you're seeing in October?
spk06: Yeah, good morning and thank you. What we have actually seen, and I mentioned that in the prepared remarks, we've seen really good momentum year-to-date, including October across the board in our business. From a crypto perspective, we haven't seen continuous declines, and that has stabilized in September and October, and we've taken that view in terms of what we expect in the fourth quarter. But in general, if you really unpack the business, you're talking about 38% common currency volume growth, You could appreciate the momentum that we're having in all our core channels as we're outgrowing massive headwinds around FX and crypto. So our business is really performing, and we're excited at where we sit.
spk00: Okay, got it. Thanks. And then, you know, a follow-up, and I guess I know it's too early to talk about 2023, but kind of have to ask a little bit about it at least. So not, you know... I know you guys reiterated the median term guidance of the 30% plus. Is there any way you can help us, you know, think through some of the pieces that would take that down, right? So if the current FX headwinds hold, what could be the impact on 2023, you know? And then if the crypto pieces kind of hold steady to where we are now, you know, what that could mean? And any other, you know, puts and takes that we should think about, you know, as we're modeling out 2023? Thanks. Yeah, certainly.
spk06: Certainly. And I would look at the building blocks for 2023 as consistent as they've always been historically. You know, the first building block is growth with our own customers. And 80% of our growth comes from our current customer journey. And that has two tentacles to it. The first is geographies as we continue building and open new markets and allowing us to expand wallet share with them in new geographies. And the second is capabilities as we're building additional capabilities that allow us to kind of enhance the experience for our customers. So that is kind of the existing customer base. And right behind that is new client wins. And new client wins naturally is what we see in year, which what we've done in 2022, which we have the full benefit for next year. So those three combined is what we expect in terms of the midterm growth targets of around 30%. I think something to point out today is we are seeing approximately 20% constant currency growth this year. With a total collapse of the digital asset market, which was around 13% of our revenue, certainly we expect to unlock that over the next few quarters. And we don't expect digital assets to be that level of concentration in our future. So we feel quite strongly about how 2023 will perform. Pipeline, client activations, new geographies, and our execution.
spk15: Thank you. I appreciate it.
spk13: Our next question comes from Todd Copeland with CIDC. Please go ahead.
spk11: Good morning, everyone. I wanted to ask about seasonality into the fourth quarter. In the past, you had talked about the gaming business, specifically gaming in North America around some of the sports betting and the World Cup. And I'm wondering if your expectations for that have been adjusted in the current macro environment. Just give us an update on those trends. Thanks a lot.
spk06: Thank you, Todd. If you look at historical seasonality, obviously the COVID year had a distortion just because certain leagues were delayed and how they were slipping from Q3, from one quarter to the other. This year is more of a normal year with the exception, naturally, of the World Cup in the fourth quarter, which we believe will be a pretty significant uptick in our gaming vertical. But in general, what you end up seeing is you see momentum from Q1 to Q2, typically Q3 is slightly down from Q2 and Q4 an uptick, and we expect the same this year.
spk11: Okay. And we saw some sports books calling out elevated activity and vetting around the World Series and the NFL season. Is your U.S. business material enough for you to see that trend as well? Comment on that, please.
spk06: Yes and no. I would say that our U.S. business momentum is really strong as clients are activating and integrating the So I think it's going to be more of a 2023, 2024 opportunities. We do building blocks. Last quarter, Todd, we mentioned run rate of about 25 million from effectively zero. So really good uptick. And that has obviously continued to progress. So we're very excited about what we see in the US. But in our industry, it's typically sign, integrate, test, make sure that we do A-B testing, make sure that we drive the best possible authorization rate, et cetera, with operators. And then we continue scaling wallet share expansion. So We're in that last stage right now. We think next year will be a pivot for us in U.S. gaming.
spk11: Great. Last question for me. On M&A, you've talked about how your deal pipeline has been very active. I think you've said in the past you looked at 70 deals this year. Could you just update us on the activity there and what you think about current state of valuation expectations? Thanks a lot.
spk06: Thanks, Todd. We constantly look at opportunities. I think our M&A pipeline is rich and has quite a lot of depth to it. I think the takeaway here is that we have enormous discipline in making sure that what we buy is truly accretive for our shareholders, drives value for our customers, and expands our geographic reach, which is our area of focus. So we're going to continue down that line. I can't tell you anything pops up at me that's worth kind of unpacking further. From an evaluation perspective, I think it fits into two buckets. So we're typically looking at larger opportunities within regions, specifically as the further away they are, we need more infrastructure versus small tuck-ins. And they, in terms of valuation, depends on where they are within their journey in terms of how much cash they have on the balance sheet, are they profitable or not, and can they wait it out. We haven't seen the private market necessarily adjust to the public market, but then again, It's still early days. We haven't gotten further than that with respect to the valuations and opportunities that we're exploring. So it's TBD to see how valuations will continue shifting towards opportunities that we're reviewing.
spk15: Great. Thanks a lot, Bill.
spk13: The next question comes from Paul Treiber with RBC Capital Markets.
spk02: Please go ahead.
spk05: Good morning. You announced some really great new customer wins on this call. Can you just elaborate on the nature of these wins, you know, in terms of, like, is it focused on specific geographies or APMs or use cases? And then, you know, what do you see as the fundamental underlying driver of New Bay, you know, seeing perhaps a larger brand name wins than in the past?
spk14: Thanks, Paul. Great questions. I think wins...
spk06: And I'll lump them both together. It's directly related to our go-to-market efforts. We always felt that we had the best technology. We compete toe-to-toe with a lot of the larger players out there with our flexible and modular solution stack that go well beyond acquiring. that truly create differentiated revenue drivers for our customers as they continue executing on their global expansion strategy. So one of the things that Nuve is doing as a public company is making these investments to make sure that we're local and present, meaning that we're engaged speaking to them and making sure that they know about Nuve and evaluate Nuve within their own technology stack requirements. And that is what's been driving a lot of the engagements that we're seeing. I mean, marquee names that we're winning in each of the verticals that we're focused on. So why they choose us really just depends on where they're at within their own journey, both from an initial onboarding perspective, but also cross-sell and up-sell. So, you know, a great example is one of our social game clients has been a large client for many years and now selected us for picks in Brazil. So you have multiple tentacles for continued adding new countries and adding new geographies within our existing base as we continue expanding our solution stacks. And the second is that we are truly out there now. And as clients are thinking about where to take their payments that drive their future, NuVay is part of the mix. So very excited at where we started. And by the way, it's just the beginning of that journey. Our go-to-market efforts, our continuous investments for us, it's going to be a focus for the next three to five years. But we're really pleased with the initial momentum.
spk05: And just related to new customer momentum, you know, last quarter, I think last quarter, you launched the Simply Connect, which is an SDK. And it seems like you're going more directly to developers and self-service, perhaps, than what you've done in the past. What's been the early uptake of that? And then, you know, in terms of self-service in general, you know, how much does that tie into your branding campaigns?
spk06: I think they're both uniquely tied to it. So we now offer four distinct integration methodologies, some that are really simple, right? If they want to use our cashier or Simply Connect, that gives them the flexibility of using our services with low code all the way down to full API integration. So we really have the level of requirement that is appropriate for the business from an integration perspective and allows us to go up and down market. So typically tier one merchants will have more complicated needs, smaller merchants will have less complicated needs, And all of these continue to expand our TAMs. So as an enterprise-focused platform for large institutions that operate globally, we typically had long, complex integration requirements, and now we've been able to bring that down. And ultimately, what that drives for is from signing to time to revenue is really what we're focused on to make it easy for clients to onboard and makes it also easier for us to execute on partnerships across the development community. With that, it's just started. But you know, from UATP to other, Arcadia that we announced and other partnerships, it's really driven by the flexibility of how people could integrate consumer-based solutions.
spk15: Okay, thank you. I'll pass it on. Thanks, Paul.
spk13: The next question comes from Bob Napoli with William Blake. Please go ahead.
spk12: Good morning, Phil, David. Good to talk to you. Nice to see the rebound, you know, the results. I know it's too early to talk about 2023, but just broadly reiterating your guidance, and this is maybe a play on, what is your visibility? How do you feel about being generally within your medium-term targets around those ranges? What looks most promising, I guess, if you would, as you go into next year, and what areas are most challenging? Verticals, if you would.
spk06: Good morning, Bob. Always great to hear your voice. I think this is true for every CEO across North America. It's difficult to forecast next year, right? We're in an unprecedented macro environment. We feel really good with our business. If you think about 2023, we will unlap crypto. That will be a headwind for the first few quarters as we continue driving momentum. So I would probably suggest that the medium-term targets are probably more appropriate for the second half of 2023 forward. But when we end up looking at the underlying performance of our business, we're really bullish. We love the new clients that we're onboarding. We love the momentum that we're seeing across. We think the engagements that Nuve is having today are exceptional. And we're just heads down, plugging away, Bob. This is not a sprint, right? To help our customers is not like, what do you do next quarter? And unfortunately, sometimes we lose the narrative because you're always thinking about quarter to quarter. But we're really thinking about the momentum over the next four years. and to match what we've done over the last four years. So we think there's a lot to come. It's not just about 2023, but 2023 we're pretty bullish about, but it's really about the next four or five years that keeps us really, really excited.
spk12: Thank you. And then some of the newer products or efforts that you have, like open banking, card issuing, fraud, I think some of those. What areas, what new investment areas are going to really be able to move the needle over the next few years for you?
spk06: I think it's all encompassing, right? Omni, we think, is a meaningful market opportunity for us within most of our verticals. Card issuing for Anos, for Loyalty, we have some pilots that we're going to launch in the first half of next year. Our marketplace solutions, we just launched Nuve for platforms and we're continuously making investments there. Our fraud services, as we have been doing some A-B testing in Mexico of all markets and seeing a really nice uptick from from fraud and you know in fraud it's it's easy to turn away all sales and get no fraud it's really about maximizing the authorization so we really like what we have coming and one thing i would highlight bob is that as a tech company there is no conclusion of products and that's really important to highlight guys because you're constantly enabling them and expanding them so from account updater having the flexibility of doing batch updates or real-time updates or from the issuing of consolidating authorization paths so that there is no breakage fee, that you get 100% of the value on the card that you're able to drive through. All of these little things from a product roadmap make differences to our customers, and they all have the intent of helping them authorize more, help them sell more, help them grow their businesses and simplify their technology stack. Great.
spk15: Thank you. Thanks, Paul.
spk13: The next question comes from John Davis with Raymond James.
spk02: Please go ahead.
spk01: Hey, good morning, guys. I just wanted to quickly touch on the margins. David, just, you know, obviously quite a bit better than your guidance in the third quarter, but full year still kind of largely unchanged. Is just timing, you know, or did you kind of tighten the belt a little bit given kind of the currency headwinds in the third quarter? Just a little bit of help on margins 3Q, 4Q would be helpful.
spk03: Yeah, good morning, John. So look, from a margin perspective, part of it relates to, of course, in the quarter, the beat we had on revenue. So that's part of it. And obviously, it's a business that has operating leverage. And then as we look forward into Q4, we continue to take a cautious approach and we continue to invest in the business. I mean, our margins are, we think, quite strong. And we do see so much white space ahead of us from every region and in the various verticals we play in. And so investing back in the business, it kind of comes back to our capital allocation discussion, too. Investing back in the business is something that's really important to us, and we think it's the right thing to do. So that kind of is kind of how to think about the Q4 margin as well as we look forward.
spk01: Okay. And then just to clarify, Phil Collins, called out first half next year, you're still lapping crypto. So I would assume kind of margins follow the similar cadence where second half margins will be better than first half next year. But just any color there as we kind of contemplate models for 23.
spk03: Yeah, I mean, we'll lapp crypto really after the first quarter, digital assets after the first quarter. So that will be very helpful from a revenue growth perspective. In terms of margins, you know, we haven't, we'll obviously kind of give you more information as we come into next quarter in terms of what next year looks like. But do we still see good opportunity, like I said, in terms of just investing back in the business and capturing some of that market share and white space that's out there? So we'll continue to invest and continue to grow the business. But that said, we've been very disciplined. And you can see some of that reflected in this quarter's margin. We've been very disciplined in how we're investing this And it's always been in our nature to be that way, to make sure that we see a return before we just throw money at certain projects. So we'll continue to take that same approach as we look forward into the next year and into the future. But we're really excited about the white space. And so that's really going to help us grow into next year.
spk15: Okay. Appreciate it. Thanks, guys.
spk13: Our next question comes from Andrew Ball with SMDC.
spk02: Please go ahead.
spk09: Hey, good morning, guys, and thanks for taking the question. Phil, I just wanted to ask a higher-level question. In the context of macro deteriorating and potential recession, you mentioned a healthy pipeline, but just trying to get a sense, even historically, are there more opportunities that surface amid economic uncertainty, or is there a pullback in deal activity as far as not necessarily what you can win, but how many opportunities are there to go get when the macro kind of softens?
spk06: Hey, Andrew. Nice to hear from you. I'm assuming you're talking about M&A because, honestly, the pipeline in this type of macro from a new customer perspective actually opens up as well. So the reality is I think we need to lap the 52-week high across the board from our public peers for reality to set in. So I would say from a public perspective, that is that journey. And from a private perspective, it will address and it will adjust. Some have happened faster, some depending on their needs. But we think next year will be a pretty fundamental year for M&A.
spk09: I actually was speaking on the merchant side. Are more merchants willing to look for more efficient solutions for their payment needs in times of uncertainty, or how do you kind of see those dynamics playing out, being from a demand environment for next-gen payment solutions?
spk06: Yeah, great question. So we've actually seen two things. Yes, we've seen merchants look at their overall holistic payment solutions to how to drive better authorization rates and how to simplify their stack. That's one. We've also seen time to implement actually extend, right? As merchants themselves are kind of working through their own business, they're not necessarily as fast as converting and activating that we've seen historically. We've taken that into consideration for this year. But You know, engagements across the board have been very, very strong for Nuve, and those have increased. So from a pipeline perspective, active discussions at over 80% have never been higher.
spk15: That's great to hear. Thanks.
spk13: This concludes our question and answer session.
spk02: I would like to turn the conference back over to Anthony Gerstein for any closing remarks.
spk04: Thanks, everyone, for participating today. As you know, we're around and available, and just feel free to reach out.
spk14: But thanks for your time today, and we look forward to speaking with you shortly. Thanks. Thanks, everybody.
spk13: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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