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spk03: weren't able to do in the past because we were reliant on a third party. Improved settlement time as an example, speed of reporting allows us to do things quicker and to implement things quicker for our customers. So there's a lot of, I'd say, intangible or non-quantifiable benefits more than just the cost savings that it drives from an insourcing perspective. And then if you think about on the OpEx side, we have a great platform, we have the people There's certainly always enhancements that we make, but we feel really good about where our optics is today, where the margins are today, and we think we can expand from here. The other area on SG&A we've pointed out in the past is on share-based compensation. That continues to decrease as a percentage of revenue, and that is a large item. The other area I'd point out is commissions. If you think about our channel distribution, and you think about the global commerce channel in specific, and that's being the highest growth channel, you know, most of the commissions are driven by our B2B gov ISV channel. And so as the global commerce channel grows, again, commission as a total percentage of revenue also has some opportunities there. And there's many, many specific cost initiatives that we have internally that both affect the gross margin as well as OpEx. And similarly to how we're driving new implementations that Phil talked about earlier, we have a similar cadence with respect to costs. And we have a regular cadence internally with a Tiger team as well, where we're driving through a lot of the initiatives that we identify. And the fact is, we keep identifying more as we kind of go down and hit the larger items and the lower hanging fruit. There's still more that we see. So we're driving margins as we go forward.
spk05: Thanks, guys.
spk02: Our next questions are from the line of Matt Coad with Autonomous Research. Please just use your questions.
spk00: Hey, good morning, guys. Thank you for taking the question. Wanted to double click on your commentary around the retail vertical earlier. I thought that was pretty interesting. Wanted to better understand the land and expand opportunity here. So you have some great clients in Sheen and Teemu. How do you kind of expand that wallet share over time?
spk04: Great question. What's interesting about Sheen, Teemu, Capshi, and a lot of these merchants is that they are global brands and they too have their own journeys of expansion. So, for example, with some of them, we're looking at new countries in particular regions. We're looking at new alternative payment methods. We're always looking with them and piloting with them trends with respect to authorization rate improvement. So we are not a vendor to them. We are a partner with one in particular is been a big driver to help us in terms of cascading and driving better authorization rates in the US, which is a very interesting project for us. And then actually using them as key pillars, since they are what some of the most recognizable names as you kind of enter with the market leaders and helping us gain credibility as we continue building out our retail capabilities around the world. Within that as well on retail, which is really important, is the Omni application that we're building. So we're launching that into three markets so that we can provide multi-channel journeys for our end customers. But we started at the top with retail with some great brands that they themselves are growing. We're seeing opportunity within those to capture more wallet share. In transparency, we are still small on the wallet share, so there's a lot of opportunity, we think, to continue expanding our relevancy with these big brands, both from a country, from a capability, and then from a payment application in terms of what we provide to them. So retail is something that We are just entering. We're lapping somewhat of our first year and a half in retail. And we think we're starting to build some really strong momentum.
spk00: Really helpful, Phil. And then just for my follow-up here, the growth and the margin expansion that you guys talked to, free cash flow improvement should follow. So just curious, the incremental dollars of free cash flow that you'll get, how are you thinking about that from a capital management perspective?
spk04: I think your base case is that we're going to continue focusing on debt repayment and to deliver. We're quite excited just the performance of the business, right? From when we acquired Paya sub three times, just under three times, to today to 2.6. That is kind of the cadence that we'd like to be at two or less. We think, Matt, that that's going to open up opportunities. You know, the entire backdrop is changing. And from our perspective, in terms of building blocks and opportunity around M&A, we think the second half of next year will yield some quite compelling opportunities, both domestically and globally, and we want to remain opportunistic. So our base case will be continued to focus on debt repayment, lower our interest expense, and then have the ability and flexibility and optionality to execute on potential M&A. But naturally, we have so much optionality with our cash flow and our balance sheet, and we'll execute on that as is appropriate and remain opportunistic.
spk05: Thanks, Phil.
spk02: The next question comes from the line of Bob Napoli with William Blair. Please proceed with your question.
spk06: Thank you, and good morning. Good to see the solid quarter and guidance. A question on PIA, I guess, and integrated payments. How is that acquisition performing versus your expectations, and what are your thoughts around being able to leverage PIA the integrated payments strategy from Paya and from elsewhere within NewBay over the next few years?
spk04: Thank you, Bob. Great question. We are super pleased with Paya. For one, wonderful people. You know, we share the same values and culture. We hit the ground running. You can see, ultimately, Paya is our B2B government and most of our integrated payments business. And we are accelerating the growth of the business. We're creating more dependency on new-based technology stack. And we're executing ultimately not just the expectations, but I think we've exceeded expectations with respect to where we're at right now. We firmly believe this channel can and will be a 15% to 20% grower. We're naturally now above that from a performer basis, and there's a lot more to come. With each providing very unique tentacles for continued growth and B2B, you know, we're going to be baiting factoring off balance sheet naturally with a partner. We're going to be driving applicability around our card issuing for virtual card issuing and then expanding into the AP side as well. So there is a lot of tentacles and then naturally kind of our bread and butter on the B2B side with respect to Paya is bringing and internationalizing these relationships. We've kickstarted that now with Canada. and going to be taking these partnerships around the world. So we're very pleased with Paya. You know, the performance of the business has been strong. We've been executing thoughtfully on the cost side. And we're actually very pleased, both from our technology, from the gap that we are able to plug from what Paya had, and more importantly, from the relevance from our own use cases to Paya's end customers. In terms of integrated payments, you'll see us spend a lot of time here, Bob. We wanted to naturally focus on kick-starting our government and B2B business, which is what we've done, being really thoughtful in terms of mind and management time. And now we're turning our focus around integrated payments. It is the slower growth out of our B2B government and ISV channel, but we think there's a lot of pent-up opportunity. Where we're focused on right now naturally is plugging in our Omni into that offering, into the three markets that we're servicing that, and then driving our ISV capabilities to the use cases that we have in the markets that we support. We believe integrated payments will be that last piece of the puzzle to accelerate this channel to the high end of what our internal targets are around the integrated payments vertical for us.
spk06: Great. Thank you. And then just maybe I'm not sure if it's a fair question, but what's changed since last quarter? I mean, as far as visibility, I mean, certainly the tone in the quarter, what is it that seems to have led to more stability, clarity overall in your business?
spk04: I wouldn't say, and that's a good question. I think it's a fair question. I wouldn't say it's toner or visibility. I think the biggest thing in payments is that it's never built just quarter to quarter. We report quarter to quarter, but customers live and they have their own journeys that we're trying to manage our way to. We were quite bullish last quarter as well. It's just a matter of client activations and timeframe around activations. And then naturally what ends up happening around the end markets that we're operating in. So I think we're really bullish, right? If we look at our own metrics, be it per channel, organic growth, the health of our financial profile, the fact how quickly we're delivering our ability to continue executing, and the fact that we have low CapEx and a very, very high cash flow profile, allowing us to be thoughtful in terms of where we're investing. And more importantly, that the investments that we have already made have hit an inflection point. We like where we are. And we think our core global commerce channel has so much opportunity ahead. That one is a bit chunkier in terms of when it comes in and out. We think we now have some great stability and momentum in B2B and we're executing on the SMB side. So I wouldn't call it a visibility question or a tone. It's just a matter of great businesses are not built overnight and they're not necessarily measured quarterly. We understand your job is to measure quarterly and we totally get shareholder sentiment with respect to the quarterly side. but we really do love what we have going on. And we think this is a platform from a profitability perspective to be at a multiple of where we are now. So we still think we're on the ground floor above.
spk05: Thank you. Appreciate it. Our next question is coming from the line of Todd Copeland with CIBC.
spk02: Let's just see with your questions.
spk07: Yeah. Good morning, everyone. Phil, I wanted to have you comment on how much you think is in your control as you think about 24 and getting back to your midterm guidance of 15% from 13 or 14%. And talk about what's in your control and what needs to happen and what might be a factor out of your control. Thanks a lot.
spk04: Good morning, Todd. Great question. I mean, I think the biggest thing that I would leave here is that we have the building blocks, the people, the technology and the world-class sales organization to execute. And that's exactly what we're focused on. And you can see that as we look at the sequential improvement in Q3. We really do love the conversations that we're having with customers. You know, we have some pretty meaningful conversations in flight. Naturally, those take time. And it's a matter of understanding that taking the time. Those are the things that we're working hard on. And for that, we have changed the way I operate the business in terms of being really, really focused, pulling up a chair and making sure that my entire ELP is extremely focused on, you know, the five pillars, which are our current customers, our new customers, product innovation, cost efficiencies, and our people. And those are the things that are in our control. And we're going to be continuously focusing on those and they give us visibility, great building blocks that we have today. And our, our focus is on delivering so that we execute for, in the range of our mid-term growth targets and Q4 2024.
spk07: Thanks, Zola. And as a follow-up, how should we think about with, I guess, combined with PIA, the seasonality in 2024? I know you're not given specific guidance, but what will be the rhythm of the business sort of Q1 to Q4? Any qualitative discussion there would be helpful. Thanks a lot.
spk04: It's been very interesting when you think about seasonality in our business, Todd, because over the last three years, historically from New Bay excluding Paya, there's been noise, right? 21, you had COVID. In 22 comparison, we had World Cup, which was a significant event, both in Q3 and Q4 when you compare New Bay in 23 to 22. And the next year, we're going to have more of a normal year. So from a New Bay perspective, it's actually going to be a normal year. And then you have kind of the dribs and drabs of each of the verticals that we can getting momentum into. So, you know, Q1, we have a football season. In Q2, you have to build up for the summer season. In Q3, you have travel. And then Q4, you have the holiday specials. And we're trying to build our end market exposure to have naturally some focus on each of them. And that's kind of what Nuve has been building out. We like where we sit, but from a normal year perspective, from a new bay, you typically have Q1, a ramp into Q2, slight flattish down into Q3, and then step up into Q4. Paya is slightly different. We've seen in Paya, and if you look at it historically, Paya had a softer Q1, and then acceleration Q2, and then flattish Q3, Q4. What's changed for us around Paya It's just the momentum of new business and the pipeline that we have. I mentioned it last quarter that we had a 27% increase in stick count in B2B. That will be an opportunity that we'll see processing next year. So we actually think our emerging channel, which is our government, B2B, and ISV, will see some step-ups predominantly driven by new business.
spk05: Thanks, Phil. Appreciate it. Thanks, Doc.
spk02: Thank you. The next question is from the line of Joe Fafi with Canaccord Genuity. Please proceed with your questions.
spk01: Good morning. This is Fala Seni on for Joe. Thanks for taking our questions. First off, on the emerging business, last quarter you added two new ERP platforms, Infor and SAP. Can you maybe give us an update on the progress there and any update on Microsoft Dynamics?
spk04: Yeah, great questions. Yes, we have activated Infor. That is already in process and part of our onboarding. Our team's doing a great job at not just, if you think about the steps, is first you integrate and partner with ERP, and then you drive through the VAR network. We've seen great progress around that. SAP's still early, and Microsoft, we're expecting this quarter or early next quarter to activate. The great thing here, guys, is we now have access to about 3 million end merchants in all parts of the world, and that's what we're executing on. So each ERP typically runs through its journey from integration to activation. But what we found aside from ERPs is that there's some overlap between the VARs underneath that we may or may not already have relationships with. So it's an interesting environment that we want to make sure that our use cases and our technology is applicable and accessible for every one of the VARs that ends up touching those 3 million merchants, and that's what we're focused on.
spk01: Great. Thanks. And, um, uh, it would be good to get an update on, on the gaming business, uh, in the U S thanks.
spk04: Yeah, I would say, uh, on the gaming business, we're continuously moving forward with new States. I think just last week we had name, um, you know, we're progressing in terms of each of the States that come up. We've done great job in Ontario. We're waiting to see what happens around Alberta in North America as well. But, um, There is nothing to flag from the gaming business. Obviously, we welcome Caesars. We've helped bring one of our European customers 888 into North America, and we're continuously head down, focused on helping our current operators in market go from state to state. Our foreign operators enter the market and our current operators in the US exiting the market in terms of global. I think the most interesting that I leave is gaming has become a global vertical, and it's not just what's happening. within the four quarters of the United States is what's happening in every single market. Lots of interest in South America, actually still continuing momentum in North America, and we still see continuing momentum in Europe. So a significant time with still, even though we have a great position in gaming, but a lot of opportunity for us to continue expanding and growing.
spk05: Thanks a lot. Thank you.
spk02: At this time, we've reached the end of our allotted time for questions and answers. I'll turn the floor back to Chris Mamone for closing remarks.
spk08: Thank you, Rob. Thanks again to everyone for joining us today. Please reach out to the IR team with your follow-up questions. We'll be on the road in the next few weeks. We're planning to attend investor conferences hosted by RBC, Wells Fargo, and UBS, among others. So we hope to see many of you during those appearances. Bye for now.
spk02: This concludes today's conference. Let me disconnect your lines at this time. Thank you for your participation.
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