Nuvei Corporation

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to New Way Corporation's second quarter 2023 earnings call. As a reminder, this conference call is being recorded. I'll now turn the conference call over to Chris Mimone, head of IR. Please go ahead, Mr. Mimone.

Thank you, Operator, and thanks to everyone for joining us this morning. With us 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. We broadcasted this information in whole or in part without written consent of Nuve is prohibited. Earlier this morning, Nuve issued a press release announcing financial results. The period ended June 30th, 2023. The release as well as an accompanying supplemental slide deck is available in the events section of our investor relations website, investors.nuve.com. During this call, we may make certain forward-looking statements within the meaning of the applicable securities laws. Such forward-looking statements involve risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the business or developments in New Bay'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 filings with the Canadian Securities Regulatory Authority and on the company's website. Our discussion today will include non-IFRS measures, including but not limited to adjusted EBITDA, adjusted net income, and adjusted net income per share. Management believes non-IFRS results are useful in order to enhance our understanding and 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 in MDNA. We'll open up the call to your questions after our prepared remarks. During that portion of the call, in order to get to as many people in queue within the allotted time, we ask that you limit yourself to one question and one follow-up. And with that, I'd like to now turn the call over to Phil.

Thank you, Chris, and thank you all for joining the call this morning. We have a lot to share with you today. As you have seen, Nuve had a solid quarter with total volume up 68% and revenue up 45%. Organic revenue growth, excluding digital assets and cryptocurrencies, was 20%. This growth underscores the continued strength and momentum in the business as we advance our strategic initiatives while reaching a number of significant milestones along the way. Furthermore, we have now both lapped and outgrown the digital assets and cryptocurrency headwinds of the past 12 months. With Paya largely integrated and now in the fold, my prepared remarks today include an additional one-time disclosure to expand on Nuve's evolution, our channels, and related go-to-market strategies, and current trends which shape our outlook for the remainder of the year, as well as our medium-term targets. As I think you'll appreciate, we have fundamentally changed the business and are favorably positioned for future growth. And given our strong and consistent financial performance, cash flow generation, and deleveraging, we will discuss some important announcements made today with respect to future capital allocation. Starting with our market position, Nuve is a global payments platform with category-leading modular technology growing rapidly with the addition of new end markets and use cases, geographies, and capabilities. We are one of the few single global platforms today. This year alone, we have accelerated our offering in Colombia, in Chile, Peru, Brazil, Singapore, Hong Kong, Australia, UAE, South Korea, France, and Japan, just to name a few. We are focused on being the technology partner of choice and are scaling the business with over 16 million daily interactions supported by more than 3,000 servers, 10 global data centers, and innovating with 36 releases year-to-date driving 2,500 new features, functionality, or enhancements. As you can see, we are constantly innovating. Importantly, with every passing day, we are increasing our product and technology gap versus the competition. The reality is that we have only four competitors who are able to serve their customers globally. This is not a segment where we can easily be disrupted by new entrants, nor can someone easily acquire their way into the space. Our right to win in this market is more compelling than ever. For those that have been tracking our progress, you know that we have spent a lot of effort building a world-class go-to-market playbook and have successfully made the Nuve brand famous for all the right reasons, integrity, transparency, and capability. We are considered a prominent voice in payments today, with large customers as well as known brands across a mix of discretionary and non-discretionary as well as cyclical and non-cyclical end-market use cases. As a brief update on Paya, the overall integration and achievement of our estimated 21 million cost synergy target is on plan, and we've begun to execute on our strategy to realize up to 100 million of incremental revenue by 2027. We are at a new and exciting juncture in our company's evolution. With Paya now in the fold and having lapped the full year's impact of digital assets and cryptocurrencies, we want to share some incremental insights into how we've organized our commercial organization reframe the market opportunity, explain why we're winning, and help you better understand the growth drivers and trajectory of the business. Today, we operate the commercial organization through three defined channels. Our core channel, which is global commerce, our emerging channel, which is comprised of B2B, government, and integrated payments, and our legacy channel, which is our SMB portfolio. Our core and emerging growth channels address a large and under-penetrated global tab which on a combined basis equates to more than 100 trillion for which we believe we have a unique modular platform to compete and win, providing ample white space with deep pools of opportunity globally. As I'll describe, the key tenants that have made us a category leader in our core global commerce channel, great technology, capabilities, global reach, and investment in our go-to-market function are 100% applicable to our emerging B2B government and integrated payments channel. By applying the same playbook that significantly accelerated our growth following the safe charge acquisition just a few years ago, we expect to accelerate the growth profile of our emerging channel. Now double clicking on the results for the quarter by channel, starting with our core channel, global commerce, which is our largest and fastest growing channel. Revenue grew 16%, 172 million and 35% excluding digital assets and cryptocurrencies and represented 56% of total revenue in the second quarter. We are very pleased with these results as we continue to take market share and outgrow our peers. To reiterate, we have now both lapped and outgrown the digital assets and cryptocurrency headwinds of the past 12 months. With the introduction of our unified commerce as one of our many product enhancements, which offers card present solutions, single token, and unified reporting, we've expanded the scope of this channel beyond global e-commerce to global commerce, as we believe that our unified offering now opens entirely new tabs previously unavailable to Nuvei. In terms of new client wins, as you may have seen from the myriad of press releases, we had an exceptional number of wins across all regions, including the signing of one of the fastest growing global online marketplaces with more than 800 million users. This new enterprise customer partnered with Nuvei to expand globally and support its rapid growth in Europe and the US and comes on the heels of our win with global marketplace Sheen just a few months ago. We partnered with cart.com an incredible opportunity to integrate payments, fulfillment, shopping cart, and marketing capabilities into a single offering with Nouvea becoming its exclusive payments partner. In online car rentals, we partnered with Rentcars, the largest online car rental platform in the Americas, and a global leader in the segment for whom we will be providing our full set of capabilities across LATAM. In mobility, we welcome InDrive, international ride-hailing service with more than 175 million downloads operating in 47 countries, and which partnered with Nuve to improve their checkout experience and loyalty programs. Incidentally, InDrive was the second most downloaded mobility app globally in 2022. On the travel side, we won several major airlines and now servicing four of the top 20 global airlines. And as part of our efforts to continue innovating and supporting new experiences within the payment ecosystem, we've partnered with a top five car manufacturer to pilot in-car payments in APAC with ample opportunity for wallet share expansion. We also saw significant wallet share expansion opportunities with existing customers. Our engagement levels with existing customers remain strong across all region and capabilities. We are now firmly at the table with Fortune 500, Fortune 1000, and Internet top growth stars globally. And while just a sample of what we have listed above is not live yet, they're in various stages of activation. We feel really good about our growth sectors across the four regions of operations today. When considering the mix of growth in this channel, approximately 80% of our growth comes from existing customers, where we expand wallet share by cross-selling new capabilities or geographies, while new customers represents approximately 20%. One thing we've learned more recently is that implementation timelines aren't equal across all end markets around the world. This is something that is relatively new for us and something we will strive to communicate better to our shareholders. The fact is that it takes more time to activate large global customers and our prior expectations for the timing of implementation was too aggressive. Nevertheless, we have approximately 100 million in annualized revenue in various stages and are highly confident we will activate these customers over the next few quarters. Turning now to our emerging channel, which includes B2B, government, and integrated payments. We believe this is the next frontier to monetize Nuve's unique capabilities with our deep ERP integrations and proprietary software, which we expect to accelerate by enabling a commercial playbook. Emerging channel revenue grew 13% on a performa basis to $54 million and represented 18% of the total revenue in the second quarter. Starting with B2B, there's strong momentum in B2B payments given the enormous white space driven by the ongoing shift away from inefficient check-based payments towards the conversion and accelerating adoption of electronic payments, which drives greater automation and efficiencies for businesses. For perspective, it is estimated that B2B represents a $25 trillion TAM globally. Today, our proprietary accounts receivable automation module that sits on top of the ERP and in between our payment engine is designed specifically for the nuance and complex use cases for B2B transactions and acts as a billing engine, providing our customers enhanced tools to collect receivables more quickly streamline back office processes, and reconcile order cash data within their core ERP accounting platforms. With deep integrations into our ERP partners, we facilitate the customer experience while helping our ERP partners create stickier offerings and increase their software win rates in the market. As you can appreciate, leveraging Nuve's many existing competencies with our seamless global reach, our vast local payment acceptance options, our instant and automated payout capabilities, and our embedded finance with specific focus on factoring in addition to AR automation, drive a comprehensive suite of solutions to enable our B2B customers to grow efficiently. Historically, we have focused our commercial efforts primarily within the Sage, Acumatica, and ECI ERP ecosystems. This quarter, we greatly expanded our TAN by adding two other global ERP leaders, Infor and SAP, to our list of partners. And we plan on adding Microsoft Dynamics, the largest ERP player in the world, later this year. We have now expanded our ERP engagements beyond the US to all reaches of the globe. Combined, we estimate these expansions will increase our ability to reach more than 3 million ERP customers globally. With respect to the performance in this year's second quarter, new account onboards were up 27% versus the previous year's same period, which we believe lays the foundation to expand our growth in 2024. In government, we helped 2,000 agencies, public utilities, and municipalities in 30 states create streamlined engagements with their citizens. Our government offering is powered by our recently enhanced Proprietary Applications Utility Connect and Citizens Portal, which seamlessly bolts on top of the agency's ERP software and offers an instant digital experience to enhance citizens' engagements that streamlines and reports applicable usage, account invoicing, autopay capabilities, and simplified workflow, thus eliminating the cost and hassle with late and paper-based payments. Here, we go to market both directly to the agencies and more recently via software-focused partnerships. Post-acquisition, we are enhancing the payment functionality to include open banking payments and payouts wherever applicable, along with expanding the footprint of our offering beyond the United States. In the quarter, new client wins included the U.S. Virgin Islands, the cities of St. Petersburg, Florida, and Erie, Colorado, to support the main public water utilities in those municipalities, and Llano County, Texas, for processing property taxes, amongst many other wins. In total, the early results here, too, are compelling. This quarter alone saw more than 10% in annualized new business growth as we're successfully winning both new partners and municipalities. We believe government growth can also accelerate to over 20% in the medium term. Moving now to integrated payments, while it's early days, the monetization opportunities for Nuve with software partners based on embedding our unified commerce capabilities into the ecosystems of global software and technology partners are very compelling. Integrated payments is an enormous global market opportunity with a TAM of approximately $35 trillion. And like global commerce and B2B, we believe our capabilities are uniquely suited to help our integrated partners thrive globally. To support the varying business models of our integrated partners, we launched this quarter our fully managed PayFactors of Service offering, which includes onboarding, reporting, fraud management, and configurable funding options with a comprehensive roadmap of additional functionality under development. This quarter alone, We onboard two very large ISVs, both processing over $1 billion in annual volume and servicing over 20,000 unique locations across North America. Based on our current capabilities, coupled with our investment roadmap, we believe we have the potential to be the partner of choice for mid-market integrated partners globally. In summary, we think there's enormous opportunity here for Nuve to accelerate the growth of our emerging channel to 20% plus over the medium term. Finally, turning to our legacy channel, which predominantly consists of our non-integrated standalone SMB portfolio, Performa revenue declined 5% to $81 million and represented 26% of the revenue in the second quarter. Specifically, the legacy business is more sensitive to the prevailing macro conditions that can impact same-store sale trends. As such, Q2 marked the second straight quarter where we saw a slowdown in same-store sales versus the previous year. Nuve's legacy channel is a mature business and while we'll continue to provide full support and remain loyal to our customers, it is not expected to be a key focus of our growth. Bringing it all together, you now have better visibility for each of our channels, which should give you more insights into our overall growth. To summarize, we have fundamentally changed our business, significantly increased our tab, and expanded our technology use cases. We have category-leading growth in our core global commerce channel, with 35% growth excluding digital assets and cryptocurrencies, and $100 million in pending new business. We also have a defined path to accelerate growth into the 20% range for our emerging channel of B2B government and integrated payments. Finally, over time, as the legacy channel becomes a smaller portion of the overall business, the impact to our consolidated growth rate will become less meaningful. As it relates to the medium-term outlook for our consolidated growth, while we execute on our expanded distribution and end markets in pursuit of these growth initiatives, We feel that it's proven for now to amend our medium term revenue growth target to a range of 15 to 20%. We remain confident that we can grow consistently within this range. Turning now to an update on technology product innovation, a few key highlights for the quarter include. We are on track to insource North American processing with Canada being finalized by year end and the United States by mid 2024. This is an important step, as it will allow us to normalize all operational functions globally, drive greater efficiencies and standardized processes, in addition to improving our operating margin in the region. We're continuing to invest in our vast APM offering, now supporting 634 alternative payment methods available to our customers globally. We've also launched self-APM enrollment functionality in our merchant dashboard, allowing our customers to select and enable additional payment methods instantly. We've launched our AI-driven data analytics platform, providing insights that help optimize approval rates for customers by as much as 1% to 2%. But here, we are just scratching the surface and continue to identify new opportunities in traditional AI, machine learning, and generative AI to improve the outcomes and the overall customer experience. For generative AI in particular, we're starting to use it in customer service queries to support our compliance and legal teams, as well as for customer onboarding, to name just a few of the emerging use cases. But unlike others, We don't necessarily believe AI is purely a cost reduction opportunity, but rather it will help us scale the business faster and provide greater efficiency, thereby allowing us to expand our operating margins over time. Additionally, we continue to advance our domestic processing capabilities for global airline customers, providing them with more compelling acceptance offering across every major market in which they operate. And finally, we have released the first phase of our new global chargeback suite. which we expect to benefit our customers by automating significant portions of the dispute resolution process. So as you can appreciate, we are not standing still. Every new capability drives greater opportunity to deeply engage with our customers as we focus on helping them grow their businesses. Turning now to capital allocation strategy, we continue to be highly disciplined in our approach. During the second quarter, we focus on deleveraging, repaying $55 million of our outstanding debt, bringing our leverage ratio down to 2.76 times at the end of June. This puts us in a very comfortable leverage ratio and gives us optionality. While we expect to continue prioritizing debt repayment, we will also explore opportunities to expand our use cases and markets capabilities and geographic reach via strategic M&A as appropriate. In terms of our ongoing commitment to returning excess capital to shareholders and giving careful consideration to our limited float, we are introducing a quarterly cash dividend, which for this quarter is 10 cents per share. With the dividend in place, And as one of Nuve's largest shareholders, I have elected to forego any stock-based compensation going forward, thereby further aligning my compensation with the interests of all shareholders. I'll now discuss recent market trends and how that informs our views of the current quarter and the rest of the year. Daily average volume through July and early August have remained solid, and we're not seeing any signs that the near-term macro environment has changed. We are, however, revising our full-year outlook, driven by two factors. First, the delayed timing of a new business versus prior expectations. And second, our recent decision to off-board a large customer. Dave will cover the updated outlook in more detail. Despite this near-term revision, I've never felt better about how Nuve's positioned to accelerate its growth potential over the long term. We have a rapidly growing core global commerce channel and a phenomenal potential in our emerging B2B government and integrated payments channel. And we're executing very well against a wealth of opportunities across the entire business. Before turning the call over to Dave, I'd like to welcome our new recently appointed board member, Caritha Rushing. Caritha joined the Nuve board with over 36 years of human resource experience. She is a former chief human resource officer at Equifax and serves on the boards of both ThredUP and 2U Inc. She also further strengthens our corporate governance by increasing the number of independent directors and advances our board diversity. As chair of Nuve, I look forward to working and learning from her. And to our Nuve colleagues, I want to thank you for all your hard work and dedication. You guys are simply amazing. With that, I'll now turn over the call to Dave.