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spk13: 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.
spk06: 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.
spk02: 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.
spk15: Thanks, Phil, and good morning, everyone. I'll start by reviewing our financial performance for the second quarter. I'll then discuss our outlook for the third quarter and fiscal year 2023. Looking at our performance during the quarter, we are pleased with our execution through the first half of the year. For Q2 specifically, it is notable that we realized some very significant milestones. We achieved in excess of $50 billion in total volume, $300 million in revenue, and $100 million in adjusted EBITDA for the first time in the company's history. These quarterly accomplishments speak to our success in scaling our platform. And yet, in terms of our overall runway for growth, we are in the early innings with so much opportunity still ahead of us. For the second quarter, total volume increased by 68% to $51 billion and was within our outlook range. Results were driven by our focused investments and execution within our global commerce channel and the inclusion of Pi after the full quarter. E-commerce volume represented 88% of total volume in the period. Revenue for the quarter was $307 million, up 45% year over year, and essentially aligned with the high end of our outlook range. Paya contributed $76 million of revenue during Q2. As a reminder, all revenue figures for Paya are expressed net of interchange to be consistent with our accounting treatment of revenue. Excluding Paya, organic revenue growth was 9% in the quarter. This reflects the impact from the decrease in revenue relating to digital assets and cryptocurrencies. Adjusting for this factor, organic growth at constant currency and excluding digital assets and cryptocurrencies was 20%. From a regional perspective, we experienced strong growth. In North America, revenue grew by 108%, Latin America grew by 77%, and Asia Pacific grew by 67%. In the Europe and Middle East Africa region, reported revenue was essentially flat year over year, due to the $15 million revenue decrease relating to digital assets and cryptocurrencies. Excluding the impact from digital assets and cryptocurrencies, EMEA region growth would have been 17% in the quarter. Consistent with our focus on driving incremental gross profit dollars through expanding wallet share with our customers, gross profit increased by $78 million to $253 million compared to last year's second quarter. representing gross margin in excess of 82%. Selling, general, and administrative expenses in the second quarter increased by $75 million, or 51% year over year, to $222 million. Of this increase, $63 million can be attributable to the contribution of SG&A from PIA across all expense items, including commissions, employee compensation, and depreciation and amortization. Share-based payments increased by $3 million versus last year. The majority of this increase is due to the contribution from share-based payments related to the PIA team members who joined Nuve. As a percentage of revenue, share-based expense continued to decrease from 15% in Q2 last year to under 12% in the second quarter of this year. We expect share-based expense to continue declining as a percentage of revenue over time. Adjusted EBITDA for the quarter was $110 million and was above the top end of our outlook range, representing an adjusted EBITDA margin of 36% in the quarter. Looking at other line items on the income statement, net finance cost was $28 million compared to net finance income of $4 million in last year's second quarter. The main driver of this delta was an increase in finance costs to service our outstanding debt, including the new $800 million credit facility we entered into in late February in connection with financing the PIA acquisition. Going forward, as we use excess cash to deliver, we expect this will have a positive impact on finance costs. Net income for the quarter was $12 million, or $0.07 per share, compared to net income of $35 million, or $0.23 per diluted share. As I just mentioned, the $31 million increase in net finance costs was the largest contributor to the reduction in net income. Adjusted net income was $58 million or $0.39 per diluted share for the quarter. Turning to the balance sheet. As at June 30th, 2023, we had cash and cash equivalents of $118 million and term debt of just under $1.3 billion. Meanwhile, our cash generation remains strong. Free cash flow increased by 19% to $96 million, representing an 87% conversion rate from adjusted EBITDA. Cash flow from operating activities for the three-month period was $60 million versus $91 million for the comparable prior period. As I mentioned previously, this year's figure was impacted by financing costs related to the PIA acquisition. In Q2, interest paid increased by $29 million. During the second quarter, as part of our capital allocation strategy, we deployed $55 million of cash towards reducing our outstanding debt, bringing our leverage ratio down to 2.76 times. Of this $55 million, $44 million was voluntary, which shows the magnitude of our cash generation and our approach to de-levering. Our financial profile provides us with enhanced opportunities to return excess cash to shareholders in several ways. while still maintaining the flexibility to invest in our business in pursuing both organic and inorganic growth. Through the first half of the year, we chose to use excess cash to further reduce our leverage from current levels and to repurchase almost 1.4 million of our shares under our normal course issuer bid. Today, we announced a quarterly cash dividend of 10 cents per share, payable on September 5th, 2023, to shareholders of record as of August 21, 2023. The aggregate amount of the dividend is expected to be approximately $15 million. I will now turn to our outlook and would refer you to our forward-looking information disclosure in our press release and MD&A. We are revising our growth expectations for the back half of the year primarily due to two factors. The first and more significant factor relates to longer lag times than we anticipated between signing and implementing new in-year business. As we've come to appreciate, the nature of serving larger enterprise customers is that the timeline to go live and begin generating revenue tends to be longer. The second factor stems from our recent decision to exit a relationship with a large customer. For the third quarter, we expect total volume of between 47.5 and 49.5 billion, representing a year-over-year increase of 69% to 76%. Revenue of between $300 and $308 million, representing a year-over-year increase of 52 to 56%. Revenue at constant currency of between $294 and $302 million, representing a year-over-year increase of 49 to 53%. an adjusted EBITDA of between $105 and $110 million, representing an adjusted EBITDA margin of approximately 35 to 36%. For the full year 2023, we are revising our outlook to reflect the two reasons I just mentioned. We now expect total volume of between $193 and $197 billion, representing a year-over-year increase of 51 to 54%, revenue of between $1 point one seven and one point two billion dollars representing a year over year increase of thirty nine percent to forty two percent. Revenue at constant currency of between one point one six and one point one eight billion representing a year over year increase of thirty seven to forty percent. An adjusted EBITDA of between four hundred and seventeen and four hundred thirty two million representing an adjusted EBITDA margin of approximately thirty six percent. In addition, we now expect full-year organic revenue growth at constant currency and excluding digital assets and cryptocurrencies to be between 16% and 20%. In addition, as Phil mentioned, we are amending our medium-term revenue growth target to be between 15% and 20% and are reiterating our long-term adjusted EBITDA margin of greater than 50%. Overall, we are pleased with our results and continue to be excited about our prospects going forward. I'll now turn the call back over to Phil for closing remarks.
spk02: Thanks, Dave. Before opening it up to questions, I'd like to reiterate the key takeaways from today's call. First, our category-leading global e-commerce business had 35% organic revenue growth excluding digital assets and cryptocurrencies. Second, We're well on our way to accelerate the growth profile of our emerging B2B government and integrated payments channel to 20% plus over the medium term. Third, our revised outlook is due to two near-term transitionary effects with no bearing on a robust pipeline of high profile customer opportunities. And fourth, our strong cash generation provides us flexibility to deliver our balance sheet quickly and return excess cash to shareholders via dividend. With that operator, we're ready to take questions.
spk13: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Will Nance with Goldman Sachs. Please go ahead. Hey, guys.
spk05: Good morning. I wanted to ask on some of the building blocks of the updated target, you know, the vertical disclosures of the last couple quarters have been helpful. I just, if we think about S&B, it sounds like that is going to be relatively flat. You know, the pie business has kind of been growing in low double digits. You know, it would seem like the updated guidance implies something like high 20s growth on the, you know, 55% of the business that's global e-commerce. Is that the right way to think about growth going forward, or are there any refinements to that framework you would make?
spk02: Good morning, Will. It's Phil. I think you have it in the right zip code. So for us, we tried to do a channel disclosure to highlight the different segments of the business now with Paya fully in the folds. Our core channel, we're expecting between 20% and 30% growth. In our emerging channel, we are accelerating the growth. It's today 13%. We believe we can accelerate it. And SMB, relatively flat. It is down 5% this quarter, predominantly just because of same-store sales movement, but we expect it to be relatively flat. And one thing as you build your models is understand that core is 56% of our revenue today. But as it continues growing, it's going to be a larger and larger part of the revenue. So the impact from SMB over time will decrease. And certainly as Paya and our emerging channel continue driving momentum combined, we believe that our high growth channels will both be 20% plus and SMB will be a lesser part of the dragon growth in the outer years.
spk05: Got it. That's helpful. And then if I can just follow up on the $100 billion pipeline disclosure that you guys gave, how do I think about that in the context of the updated medium from Target if we're maybe thinking about some of the out years in our model? I know you mentioned in the script that new business is only 20% of the growth. So if we think about that, being a contributor to new business, what can you tell us maybe about wallet share expansion opportunities with the existing customer set that could kind of bridge the rest of that delta?
spk02: Yeah, so revenue opportunities for us are always built into existing customers and new customers. And I think you've seen just the myriad of press releases that have come up. I'm so proud of this team. We are winning ultimately the who's who across all of our regions, and it is taking a little bit more time for those clients to activate. But the opportunities and the quality of business that we've been onboarding this year is truly exceptional. But the onboarding doesn't end, right? So it's taking a little bit longer for us to onboard, and that's something that we are reflected in the revised outlook for the remaining of the year. But the interesting thing is client opportunities have tentacles of continued growth. So it's interesting. They onboard for a particular feature functionality and drive forward as they, too, have experience with new, they enter new countries or consume new solutions. So the $100 million revenue is a mix of both new In year new, you typically see a smaller percentage of the full potential of the customer. And it takes two, three years to really drive the full potential of the customer's existing profile. And naturally, as we add capabilities and geographies, wallet share opportunities as that customer continues developing. So it's a fascinating business. It's not a sign and done. It's a sign, engage, and grow with, which is such an interesting component to the end market that we're servicing in our core channel.
spk05: Got it.
spk09: I appreciate you taking the question.
spk13: Thanks, Will. Thank you. Next question comes from the line of Darren Peller with Wolf Research. Please go ahead.
spk14: Hey, guys. You know, I think we'd love to just get a little bit more color on what actually drove the cut to the medium-term guide in terms of the change from what you had anticipated even at the time of the PIA closed. to now saying the 15% to 20% versus the 20, you know, not too long ago? Was it, is there something competitively changing? Was it something about, you know, just maybe a little more color on what the actual drivers were first would be helpful.
spk15: Good morning, Darren. It's David speaking. So we obviously spent, you know, time under, you know, looking at the, you know, at our medium term targets. It's important to make sure that we're in line. You know, we talked about in our prepared remarks, kind of the great quarter that we had, and I think we should start there, just thinking about the growth that we've seen, right? 45% revenue growth in the quarter on a reported basis, organic growth, 20%. And then if you think about that core global commerce channel on an organic basis, excluding digital assets, is 35%. So those last two data points, the 20% organic growth and the 35% organic on global commerce, excluding digital assets, that's kind of where I'd frame in terms of what our growth profile looks like. When you think about that growth profile and the scale that we're at from a revenue perspective, we think that it's class leading and quite impressive. And then Phil talked about, I won't belabor it, but when you think about the channels, I think that's probably the best way to think about that medium term um you know revenue growth target that we've set and you look you know i'll quickly say it just to make sure that it's clearly understood but those three channels the core channel at 56 of total revenue now it grew at 35 pro forma was 16 um but but you know 35 excluding digital assets and digital assets we're going to we're going to lap that right this is the last quarter that there was really an impact starting in q3 the you know that's pretty much muted And then think about the traction that we've just seen in that channel on some of the, you know, we, we had a whole bunch of PRS that we mentioned, um, and that we had and wins, whether it's Sheen cart.com or in drive, those are pretty good names. You can see the traction that we're building up in that channel. You know, the downside, um, you know, at least for the, for the current year is that we did see, you know, learn a bit, bit more about how timing of some of those larger merchants, you know, how long it takes to kind of get them up and running. But we do have line of sight on $100 million of revenue opportunities. So that's kind of the core channel. And emerging, again, B2B, ISB, and Gov, that grew on a profile base of 13%. But we certainly have line of sight to 20% plus growth. We talked about the expansion of ERP platforms. We talked about some of the government wins. And then as well on ISB, some of those two large billion dollar plus partners that we signed. And if I kind of, you know, remind you of the 50 to 100 million of incremental revenue potential too, that's also, you know, on the pious side, that really plays into that emerging channel. So if you do the math, kind of weighted average with those growth rates, you get a pretty good sense that, you know, that 15 to 20% is something that we feel really confident about achieving. And we want to be, you know, disciplined in our approach and make sure that the expectations are appropriate. And so that's kind of a logic of how we got to that 15% 20% medium term, which is, you know, effectively what we're growing at today. Um, you know, and of course, you know, for the rest of this year, and even when we think about, you know, medium term, we obviously want to, you know, be cautious of how we kind of set expectations.
spk14: Okay. And then guys, just a little more color on the decision to exit this large customer. What, what exactly drove that? Um, and is that anything, is that really just one off to be clear?
spk02: You know, we strive to be, Darren, the North Star in all verticals and use cases globally. I mean, that is our commitment across all stakeholders around Nuve. We have a team of 200 in compliance risk and underwriting focused on doing the right thing for the company, regardless of size. But I think the biggest takeaway is exiting this merchant relationship is just the right thing for Nuve. You know, these things happen all the time, Darren, in terms of onboarding and offboarding. This just happens to be a top 10 customer. But I would come back and just say that these things are not scheduled, right? This was Nume's decision to exit that particular customer, and we feel strongly that it was the right thing for us to do. All right. Thanks, guys.
spk13: Thank you. Next question comes from the line of Joseph Wafi with Canaccord Generity. Please go ahead.
spk07: Hey, guys. Thanks for the extra color here this quarter. I thought maybe we would just first start on Paya here. You know, the large ISV is expanding into some other ERP platforms. Just would like to know, were some of these endeavors underway pre-acquisition or you know, how much of that, I guess, you know, extra roadmap or progress that we're seeing there is kind of post-acquisition and, you know, perhaps, you know, maybe the beginning of your revenue synergy endeavors here. And then I'll follow up.
spk02: Good morning, Joe. I think it's the beginning of our revenue synergy target. We've been adding resources into the emerging channel. We feel that our technology, and additional use cases really combine well together. And we're very excited about what the overall opportunity is for Nuve. So two additional ERP platforms, significant ERP platforms. With the introduction of Sage and Infor, we think microsource dynamics will be material as well. But let's not also forget we've expanded the relationship with Sage into new geographies. We have active discussions on other ERPs for new geographies. So it's part of the marriage between what Piya brought to the table and what Nuve is able to deliver together. And we think that is ultimately the foundation for accelerating our footprint in B2B.
spk07: Fair enough. And then I guess, you know, if we look at, you know, the business moving forward, I mean, I guess I think, Dave, you said that you framed maybe a little bit of the headwind here to be more on the ramp of new customers versus that customer loss. I guess just wondering, is that customer now exited, and we think about lapping that in four quarters or timing there relative to exiting that customer? Thanks a lot.
spk02: Hey, Joe. No, the customer's been – we started the exit process in the second quarter. I believe it will be done this quarter. So it's a process to exit clients, but the majority of the client volume has been moved off today.
spk07: Thanks very much.
spk13: Thank you. Next question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.
spk08: Thanks. Good morning. Um, there's a lot to digest here. I wanted to jump into the guidance and specifically maybe start with third quarter. Um, so it looks like pro forma growth at the midpoint is calling for kind of 14% and I think you just did nine. Um, so I guess one, you know, what's driving the kind of 500 basis points, sequential acceleration. I know FX is about two points of that, but it's still like 300 basis points. So I'm just trying to understand why that would accelerate. And then the implied fourth quarter at the midpoint looks like it gets back to about 8% with a much bigger benefit from FX. So that looks like a bigger deceleration. I'm assuming that's the client deconversion, but Phil, you just sounded like most of the volumes are off. So maybe you can help us understand the cadence of that.
spk15: Hey, good morning. Good morning, Dan. It's David. Hey, David. So, you know, obviously that for the third quarter, we have pretty good line of sight. We're in the quarter now. We feel really comfortable with kind of the growth rate that we're seeing. Certainly there's going to be some variability within the quarters. You know, Q3, like we said, we lapped crypto. So Q2 is impacted by crypto. So there's some variability there. And then when you look out into Q4 from a revenue perspective, that's typically seasonally a strong quarter for us. So there is some uptake there from a seasonality perspective. If you're looking purely on the revenue side, of course, we can get into the take rate discussion as well. That's a little bit different. There's obviously seasonally some lower take rates we see in Q4. But generally speaking, from an organic perspective, in Q3 and Q4, certainly the loss of the customer impacts and then, of course, the off-boarding, sorry, the new business kind of timing, both of those transitory. And so Granted, over time, we see that the revenue starts to come back up to that 15% to 20% level that we have on the midterm target. But effectively, there's nothing specific to call out other than crypto impact in Q2. Of course, you mentioned that the FX impact that is more impactful in the second half. As you can see, the first half impact was somewhat of a headwind. Second half is somewhat of a tailwind. Overall, when you look at that, FX impact on our total revenue from a percentage basis. It's not huge, but it does add up in terms of dollars. So there is some fluctuation there on the FX side, both in Q3 and slightly more in Q4.
spk08: Okay. That's helpful. Just philosophically, I was a little surprised to see you guys starting to pay a dividend kind of this early in your growth, I guess, algorithm. So Phil, can you just maybe talk about how that discussion even came about? Obviously, you have the free cash flow to handle it, but most companies at this growth stage are probably not dividend payers yet. So anyway, you can just kind of contextualize how that conversation went to arrive at this point. Thank you.
spk02: You know, we strive to set the pace, guys. I think that's the biggest thing. But in all seriousness, people forget that we're high growth and we're highly profitable. And we're generating a tremendous amount of free cash flow that provide us flexibility. I think as we started exploring returning cash to shareholders via buybacks or dividend, the dividend boded better for us just because of the limited float. And we do think it will open up a new line of investors for us. And it's just a continuation of our capital allocation strategy of how we intend on returning capital to shareholders via dividend and or buybacks.
spk03: Got it. Thank you. Thanks, Dan.
spk13: Thank you. Next question comes from the line of Todd Copeland with CIBC. Please go ahead.
spk03: Great. Good morning. I wanted to circle back to the lost customer. If you could just, maybe I missed it, talk about why you're going to exit that relationship.
spk02: Todd, just out of respect, it's nothing that we would consider doing. You know, these are all great businesses that have their own success and journey, but it was no longer a fit for Nuve. I'm proud of our team for making the right decisions. We expect this customer to continue thriving, but from a profile perspective, it's not a client for Nuve, and we'll leave it at that.
spk03: Okay. There should be not any impression left that this is a competitive exit. This is a Nuve decision. Todd, we've talked about that, correct? Yeah, okay. Secondly, I wanted to ask about, you know, you got the breakdown on growth by your new segmentation. Can you just talk about the EBITDA margin profile or path in those segments, maybe qualitatively to start to get you towards your longer-term target? Thanks a lot.
spk15: Hey, good morning, Todd. It's David. So, in terms of the channels, I mean, we don't specifically talk to the EBITDA margins of each. We really, you know, there's infrastructure across the company that really supports all those channels. Of course, the, you know, we talked about the growth profile in both the core and emerging channels. So, those profiles and that growth rates certainly will contribute more so as we look forward. to our, you know, both to revenue, but also to adjusted EBITDA margin, especially as a legacy business, you know, is flat to declining. In terms of that, you know, the long-term, the 50% plus long-term EBITDA margin target, that's something that we still feel very strongly. And this is a business that is, you know, it is at scale and continues to grow. And nothing has changed, you know, fundamentally nothing's changed in the business. So that, that, target still holds well we talked a bit about you know the incremental revenue we talked about last quarter we mentioned again a bit this quarter but on the on the prior revenue synergy opportunities there's about 150 to 100 million of incremental revenue that's there so that will certainly contribute not just to growth but to EBITDA margin expansion as we you know have the platform that can scale and absorb that revenue with a high contribution to EBITDA margin so we feel very confident about that long-term 50% EBITDA margin and, you know, correspondingly, our growth rates that are going to get us there.
spk09: Great. Thank you.
spk13: Thank you. Next question comes from the line of Bob Napoli with Filmplay. Please go ahead.
spk04: Thank you. I was going to dig into margins a little bit. Just any commentary kind of on what we should expect on an annual basis. Do you have a target for expansion on an annual basis? I mean, obviously, there's a lot of operating leverage, and 15% to 20% growth is still very good growth. So just any commentary on what we should expect as we look at 2024 kind of margin expansion from current levels and maybe annually?
spk15: Good morning, Bob. It's David. Nothing specific that we've targeted externally. Of course, internally, we have our own expectations. That ramp to get to 50%, of course, there'll be certain things that will result in maybe step-ups, so incremental. So as we do certain things from, let's say, from integration, implementation, insourcing, perspective, we think about costs. So there could be some one-step items that happen along the way. But at the same time, there'll also be some gradual increase in margin, just as we continue to scale and grow on the top line. So it takes a bit of a function of both. And certainly that 50% plus target is, like we said, it's over the longer term. So think about that as five to seven years out. But nothing specific and nothing that's a large one step. It's more kind of incremental steps along the way as we continue to do the things we do from a, you know, product technology integration perspective.
spk04: Thank you. And then I don't, I think you said what sector, the, uh, the customer that you deconverted, uh, is in what vertical, uh, they were in. And, and just as you adjusted your guidance this year, how much of the changes from the timing, I guess, uh, of, uh, onboarding versus the deconversion.
spk02: Yeah, Bob, we're not going to double click on the customer specifics. And I would tell you just for the second question, it feels about two-thirds, one-third, one-third customer, two-thirds delayed in implementation.
spk04: Great. Thank you. And I guess if I could sneak one last one in. Geographically, where are you doubling down? And given the lower growth rate profile that you're targeting, which is still very good, are you pulling back on investments in any area?
spk02: What's interesting, Bob, is we've made the investments already. So we actually have lots of white space in APAC and LATAM as we continue growing. We feel North America has a lot of opportunity for us as well. So we have pending licenses and other infrastructure that's actually already been expensed. So we're going to execute on those.
spk04: Great. Thank you very much. Appreciate it.
spk02: Thank you.
spk13: Thank you. Next question comes from the line of Jason
spk01: Good morning, guys. Phil, I'm just curious what's your overall assessment of execution across the organization? It seems like the market opportunity is very real, but forward-looking expectations have been a bit of a moving target.
spk02: Yeah, it's a good question. I think ultimately as we're moving up market and just how fundamentally the business has changed, Jason, we're learning as we go through it. But I think you have to keep in mind, right, you know, over a billion dollars of revenue, over 400 plus million of EBITDA, you know, significant free cash flow and profitable growth. I think we're in a very unique zip code, Jason, and our discipline growth in terms of meaning not revenue at all costs, but our discipline growth is saying, you know, we think is, you know, a very compelling path for future growth. Our objectives are high, and we think that there's a lot of scaling left for us to do in every one of our regions in our channel. I think the team is doing a really great job and I'm really proud of every new employee in terms of execution.
spk01: Okay. And then I guess just coming back to guidance, I guess if we look at the second half in aggregate, the implication is that organic growth X crypto will be around 13% on average in the second half. So that's below the updated medium term. revenue guidance and, you know, I respect some of the factors impacting you this year are transitory, but just how would you encourage investors to get comfortable that the growth can really re-accelerate comfortably and sustainably into that 15 to 20% range as we look at 2024 and beyond?
spk15: Good morning, it's David. Yeah, I think that observation is correct, Jason. But really, when we think about, it's like you said, when you think about the rest of this year, it's really those two transitory factors, the off boarding of the of the large customer and then timing of the business. So that's really the impact what we see for the rest of the year. That will lap as we go forward. And I guess the way that I would frame it is, you know, coming back to we said at the beginning, you know, two things one thinking about the channels and thinking about how those growth growth profiles of each one specifically core and emerging And if you drill down, just the, you know, drill down and kind of strip away the onion and you can see the growth of those businesses, right? So 35% excluding digital assets, cryptocurrencies, and then, you know, just overall business 20%. And then the emerging business, again, at 13%, but with really good upside and line of sight on the 20%. So that's what I would say in terms of how to think about the go forward and the medium term. We're in that zip code now, the 15 to 20%. or even to some degree above if you look at the core business. So we feel really confident about that medium-term target, and we feel that that's going to be very achievable for us. And you still mentioned the prepared remarks. We'll continue to look at that target, but certainly we feel good about it. And I'd say also the rest of this year, especially as it relates to Q4, I think we have some caution built into our outlook. I think that's another important factor to think about when you think about Q4.
spk09: Okay, appreciate the color. Thank you.
spk12: Next question comes from the line of Tim Chiodo with Credit Suisse.
spk13: Please go ahead.
spk00: Great, thank you. I think we kind of covered this in terms of what's implied in the median term, but if we look at those, the three buckets, so core global commerce, ballpark 55%, emerging ballpark 20, and legacy ballpark about a quarter of the revenue, just using round numbers. but core global commerce and implied in the guide, I'm assuming it's in sort of the twenties to low thirties emerging is potentially approaching back towards 20, I believe you said. And then I guess the main question was for legacy SMB within the medium term guide, are you implying that it'll be catering at a, maybe a slightly negative rate over the coming years in the medium term? And then the brief followup is on the legacy SMB. And then you mentioned that it is non integrated, non integrated into software. Can you just talk about how that business is or was distributed? Was it direct sales going to SMBs? Was it through third-party ISOs? Or just in general, what the distribution approach was for that portion of the business?
spk15: Good morning, Tim. It's David. On the first part of your question, kind of what we baked into the guide, so on the SMB, on the legacy business, like we said, like Phil mentioned it earlier, it is kind of mid-signal digit decline now is what we're seeing. A lot of that is driven by same store sales. We suspect that, you know, from a go forward perspective, it's, you know, flat to maybe slightly negative is kind of where we see that business. In terms of distribution in the legacy side, it was really all through indirect. I mean, these are really SMBs, indirect. So we're going, you know, through partners, through relationships to, you know, the feet on the street to win that business. And so that's kind of that distribution model, which is slightly different, of course, than our Then our core, which is really direct, and then on the emerging side, it's indirect, but it's through technology providers. Let's call it technology partners if you think about ISDs and that sort. Whereas on the SMB, it's more of a feet on the street, indirect relationship. So it's kind of a one-to-many through our partners that are on the street.
spk09: Perfect. Yep, that's exactly the context I was looking for. Appreciate that on both. Thank you.
spk12: Thank you. This concludes today's question and answer session.
spk13: I would like to turn the floor back over to Chris Mamone for closing comments.
spk06: Thanks again to everyone for joining the call today. The IR team, both Anthony and myself, are available for follow-up calls and questions. We look forward to speaking and seeing you out on the road.
spk09: Bye for now.
spk12: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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