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spk11: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Nuvei Corporation's third quarter 2020 earnings conference call. As a reminder, this conference call is being recorded. Before we begin, I'd like to remind you that this call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the Canadian Securities Regulatory Authority. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them as except required by law. In addition, today's call may include non-IFRS measures. These measures should be considered as a supplement to and not as a substitute for IFRS financial measures. Reconciliation to the nearest IFRS, measure can be found in today's earnings release, which is available on the company's website. Also, please note that results reported are in U.S. dollars. Hosting the call today are Philip Thayer, Chairman and Chief Executive Officer, and David Schwartz, Chief Financial Officer. Following their prepared remarks, we will open the line for your questions. With that, I'd like to turn the call over to Philip Thayer, Chairman and Chief Executive Officer. Mr. Thayer, you may begin.
spk08: Thank you, operating. Good morning, everyone. I want to thank you all for joining our third quarter's earning call. We are very pleased with our third quarter results, which include total volume processed of $11.5 billion for growth of 62%, revenue growth of 32%, and adjusted EBITDA growth of 59%. New client wins also accelerated with many significant client onboardings across all of our key verticals. Furthermore, we completed a highly successful IPO and embarked on our journey as a publicly traded company. I'd like to take a brief moment to thank all of our amazing employees from around the world. We would not be here without you. I'm so incredibly proud to welcome all of you as shareholders with $100,000 per employee option grant at the IPO. And finally, I'd like to thank you, all of our shareholders, for your confidence in our company and our future. We are honored you're joining us on this very exciting journey. As today's call is our first as a public company, I thought it would be helpful to provide an overview of Nuvei talk about our growth strategy, and then turning it over to Dave to review our third quarter results in detail. Nuvei is a global payment technology partner. Our purpose is to make the world a local marketplace, and we do this by providing not only amazing technology, but the intelligence our merchants need to succeed locally and globally all through one simple and single integration. I often get asked what Nuvei means, and the name means new way. a new way forward, a new way to drive payment capabilities, a new way for our merchants to connect with their customers, regardless of country, currency, or payment type. Through Nuve, our merchants have the capability to accept over 450 different payment methods in nearly 150 different currencies in over 200 markets around the world. And all of this made possible through a single integration. Our technology platform was purpose-built from the ground up to help our merchants connect with their customers, to drive more sales, to simplify their back office, allowing them to focus their time and attention entirely on their business and their customers. Nuvei removes the requirements to have multiple vendors, multiple integrations, and multiple points of failure with respect to every single country in which the merchant may operate. Take, for example, a merchant in the United States. They would need one payment gateway. They would need an acquirer. They would need an ACH provider. They would look to potentially include some local alternative payment methods like a PayPal. They would need fraud solutions. They would need an early warning solution. And the list goes on. And that is just for the United States. Imagine as they operate in other countries. All of this adds tremendous inefficiencies to their operation and provides multiple points of failure. With Nuvei, merchants only need one single integration to our platform. We collapse all those vendor relationships into that single integration. Merchants can then use us as needed, either as a payment gateway only, for their local acquiring, for their local and alternate payment methods, for their currency management, for enhanced authorization approval technology, for their payouts, or for a long list of value-added services, including our rich fraud and compliance capabilities. And all of this helps our customers connect with their customers while simplifying their day-to-day operations. We are a true technology partner, and we remain agnostic with respect to our technology stack. This allows merchants to pick and choose the best features that are right for them in the markets where they operate and forms the basis of our land and expense strategy. Our technology is modular and comes on a cart, enabling us to land merchant relationships based on whatever their needs may be at the time and then expand our relationship over time as they grow and the requirements grow. We operate our business on three strategic pillars, global connectivity, innovation and flexibility, and reliability and security. For global connectivity, we are a payment technology partner to our merchants, and we make sure our technology is connected to everywhere our merchants want to operate, and that includes over 200 markets and acquirers around the world. In parallel, We are continuously working to expand our local acquiring wherever feasible. And finally, we provide the most complete stack of alternative payment methods supporting over 450 different APMs today. We work with our merchants on their strategic roadmaps. Where do they want to be in three months or in three years? And we ensure we'll have those capabilities. We're removing the payment barriers for merchants to operate worldwide on a frictionless basis. Our second strategic pillar, innovation and flexibility, is the heart of what we do. Our amazing engineers and product leaders are dedicated to helping our merchants convert more sales, streamline payouts, and ensuring that all the complexities of global commerce are simply completely reconciled. With our feature-rich connection options, either via our flexible APIs or deeply customized cashier, our technology allows our merchants to connect simply and efficiently with our customers. In addition, our smart technology enhances authorization rates, but not only relying on our own acquiring capabilities, but should we receive a decline, we immediately cascade the transaction, route it through second, third, and fourth probable acquirers to seek an approval. And after cascading, should we still receive a decline, we can help with either securing a partial approval or recommending a relevant decline recycling medium to make sure we help our merchants complete every possible transaction. Beyond acquiring, we help our merchants with real-time payouts, be it commission payments, payroll, insurance claims, B2B, gaming winnings, etc. Some of our merchants only have millions of pay-ins, but also millions of payouts, which could be in multiple currencies, from multiple geographies, and or multiple payment types. Our reconciliation tools beautifully reconcile complex activity, simplifying global commerce. Our third strategic pillar is reliability and security. And without that, none of the rest matters. Our scalable infrastructure delivers maximum uptime and high-speed processing. Importantly, we have the ability to absorb major events like Cyber Monday or Super Bowl Sunday, 10-time volume events. Our infrastructure is monitored and staffed 24 hours a day, 365 days a year to ensure our customers can connect with their customers anytime. In terms of merchant back-office tools, our normalized functions allow merchants to collapse multiple vendors, streamlining tokenization, PII data storage, compliance, transaction fraud management, chargeback management, PSD2 management, and our AML solutions. These strategic pillars position us well to execute on multiple growth opportunities, including growing with our existing merchants in high-growth verticals, winning new merchants in existing and new geographies, accelerating the pace of our product innovation, and pursuing strategic acquisitions. We have significant white space to grow with our existing merchants. They all operate in high growth and complex verticals, be it regulated online gaming, social games, online retail, marketplaces, digital goods and services, regulated financial services, and travel. Each of these verticals has longevity. Each has a sustainable industry tailwind, and they all have the propensity to operate around the world. So we'll grow as our customers grow, as they implement their own growth initiatives, as we take on more of our existing solutions, and as we offer them new capabilities, and as we help them expand into new geographies. We win more wallet share as we become true partners to our merchants. During the quarter, we expanded our footprint geographically, launching our local processing solutions in Russia, Brazil, Colombia, Hong Kong, and Singapore. These new markets meaningfully expand our total addressable market. providing extended reach for existing merchants and enabling us to win new merchants in those markets. On the new merchant fund, there's also meaningful white space opportunity. We are investing in our direct sales force, which will further fuel new merchant growth. Once we onboard new merchants, they grow in the same manner as our existing merchants. We had many big wins in the quarter, including Carousel, our first U.S. gaming merchant. Other notable strategic wins include merchants across the gaming, financial services, marketplace verticals, with the addition of Quiff, MaxVet, SuperVet, WarGaming, Owanda, Pepperstone, and Renesante. Our third growth strategy is around innovation. We strive to maintain our position as a leading provider of global payment solutions for innovation and comprehensive technology-driven solutions to our merchants. During the quarter, we received our gaming service provider license from both Indiana and Colorado, and we are currently working on all other states that permit online sports betting and iGaming. Additionally, we expanded our financial service vertical to include cryptocurrency exchanges and onboarded our first two exchanges in the quarter. And lastly, we'll continue to grow through acquisition. M&A is very much part of our fabric. We have a long history of completing accretive and transformational acquisitions, and we expect to continue with more of the same. With our leverage as low as it is today, we're in a very strong position to evaluate future opportunities. When we think about acquisitions, we think about them in three buckets, adding new geographies, adding new capabilities, or adding scale. We have a dedicated M&A team focused on opportunities all around the world, and our pipeline has never been so robust. With that said, we're incredibly diligent in making sure we are able to execute. You may have seen that earlier this month we announced the closure of our most recent acquisition, Smart the Bank. this acquisition would fall into the new capability bucket. Smart2Pay expands our geographic reach and strengthens our presence in high-growth digital and gaming space. Smart2Pay also strengthens our product offering to global marketplaces, expands our reach into social game vertical, and expands our local acquiring capabilities in both Brazil and Russia. We are incredibly excited about Smart2Pay and are already well on our way in terms of integration. As you can see, through growth in existing merchants, new customers, product innovation, and strategic M&A, we have ample avenues to sustain our robust growth well into the future. With that, I'll turn it over to Dave to review our third quarter results.
spk01: Thanks, Phil. Before I get into our third quarter results, I'd like to provide a brief overview of our business model. Our revenue is primarily sales volume and transaction-based, generated from merchants' daily sales and through fees for value-added services. We also generate subscription revenue from our business intelligence tools, merchant dashboards, and other technology solutions for which we typically charge flat subscription fees on a monthly basis. Our revenue is largely recurring due to the mission-critical nature of our product and service offerings and the deep integration of our payments technology into our merchants' ERPs. We generate revenue in three ways. The first is through our gateway technology, where merchants are charged a per-transaction fee for gateway services. Our second source of revenue is acquiring ERPs. where we charge fees for payment processing services. Acquiring is the core of our business, whereby merchants are priced using a percentage of volume, a per transaction fee, as well as other static fees. Finally, we generate revenue from our value-added services, such as analytics and insights monitoring. For value-added services, pricing really depends on the service. It could be percentage-based, fixed periodic, or fixed transaction-based. We believe total volume is a good indicator of the performance of our business. Total volume does not represent revenue earned by us, but rather the total dollar value of transactions processed by merchants under contractual agreement with us. Total volume encompasses both acquiring volume, where we are in the flow of funds in the settlement transaction cycle, and gateway technology volume, where we provide our gateway services that are not in the flow of funds. Fluctuations in total volume will generally impact the revenue, although it's not a perfect correlation due to differences in volume mix. Now let's turn to our financial results for the third quarter ended September 30, 2020. Total volume process in the quarter was $11.5 billion, an increase of 62% from the third quarter of 2019. Revenue in the quarter was $93.6 million, an increase of 32%. from the prior year third quarter. Gross profit in the quarter was $76.6 million, which represents an increase of 31% from the prior year. Selling, general, and administrative expenses decreased by $1.3 million in the quarter to $61.4 million, or by 2% year over year. This decrease was driven primarily by lower acquisition and other transaction-related costs in the third quarter of 2019, including costs related to the safe charge acquisition. These decreases were partially offset by increases in share-based compensation, employee compensation, and depreciation and amortization. Net loss in the quarter was $77.9 million as compared to a net loss of $65.7 million in the third quarter of 2019. Net loss in the third quarter included an $83.4 million non-cash finance costs relating to the IPO and its associated valuation. These costs consisted of $24.5 million of unamortized transaction costs recognized as interest on loans and borrowings finance costs. This resulted from the partial repayment on the first lien term loan and full repayment on the second lien term loan. This is from the proceeds of the IPO. As well, it was a $58.9 million change in redemption value related to certain common and preferred shares. Adjusted EBITDA in the quarter was $41 million, an increase of 59% versus the year-ago period. Adjusted EBITDA margin in the quarter was 43.8% as compared to 33.8% in the prior period. As you know, during the quarter, we completed our IPO with the company receiving gross proceeds of $758 million. We used the proceeds for the partial repayment of the first mean term loan, as well as the full repayment on the second mean term loan. We ended the quarter with $99.4 million in cash and total loans and borrowings of $108.4 million, including $9 million of lease liabilities. As Phil mentioned, we recently closed on our acquisition of Smart2Pay. In connection with this acquisition, we modified our credit facility. increasing our term loan by $10 million, and increasing our revolving facility from $50 million to $100 million. Our low level of leverage and increased revolving facility provides us with flexibility and opportunity to further our growth through both internal investment and strategic acquisitions. In summary, we are very pleased with our third quarter results and continue to experience positive trends in the current quarter. Total volume in the fourth quarter of 2020 to date continues to be strong with year-over-year growth in line with what we saw in the third quarter of 2020. In addition, our fourth quarter will reflect the inclusion of Smart2Pay in our results as of the date of closing, which was November 2nd, 2020. The fourth quarter of 2020 will also represent our first full quarter as a publicly traded company. And as a result, incremental costs pertaining to being a public company will be incurred in the quarter. Additionally, we continue to invest in our direct sales force, which will result in incremental expenses in the quarter, but will ultimately fuel our growth going forward. To conclude, we're very excited about the opportunity ahead of us as we continue to make our world a local marketplace. We look forward to updating you on our progress in future calls. With that, we are happy to answer any questions you may have. I will now pass it back to the operator. Thank you.
spk11: 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 question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we call for your questions. Our first questions come from the line. I'm George Mahalos with Cowen. Please proceed with your questions.
spk06: George Mahalos Hey, thank you. Good morning, guys, and congrats on the IPO and obviously the very strong results coming out the gate. Nice to see you. I guess just the first question, can you help us just on a pro forma basis for third quarter, what exactly did volume grow on a pro forma basis? And then in the commentary about the fourth quarter, it seems to suggest that that momentum will continue third quarter to fourth quarter. I'm assuming, just to be clear, that growth in volume is on a pro forma basis that you guys are talking about, right?
spk01: Hey, George. Thank you. It's David. Yeah, so that's a good question. That's a good point to make. So on a pro forma basis, volume growth in the third quarter was about 36% versus the 62 reported, and that's really just because in the third quarter of last year it wasn't a full quarter of safe charges. So on a pro forma basis, 36%, which is consistent if you kind of look at what we showed in the prospectus in terms of month-over-month volume growth for some of the months we had in there. You see that that's in line. And so that's what we're seeing in the fourth quarter, continuing to see that level of growth from a volume perspective. And so that's how you should think about it.
spk06: Okay, that's helpful. And just a quick follow-up, the investments you're making in the business and in the sales force, should we assume that EBITDA margin maybe over the near term comes down a little bit from what we saw in the third quarter? as you continue to kind of scale up and try to capitalize on this opportunity you guys have on the revenue front?
spk01: Yeah. So if you look at our last few quarters and specifically the adjusted EBITDA margins, you'll see that, you know, like we had in the third quarter and the prior few quarters, adjusted EBITDA margin in the low to mid 40% range. And so then you think about kind of the new costs that come in. So for sure, the direct sales force is one and same with the public company costs. So, I think that's fair to assume in the same kind of range, you know, thinking about the incremental costs in the fourth quarter versus the third. So I think that's right. You know, consistently we've seen a pass in that low to mid 40% range for the near term.
spk06: Okay. Thanks for the color. And Doug, that's again. Thanks, George.
spk11: Thank you. Our next question comes from the line of Sanjay Sekharani of KBW. Please proceed with your question.
spk00: Thanks. Good morning, and my congratulations as well. First question is on the acceleration in wins and implications to 2021. Maybe, Phil, can you give us a sense of the materiality of these wins to 2021? And are these a land and the expansion will happen thereafter, or are some of them significant at the outset?
spk08: A little bit of both. I think you have to – Most of our integrations are typically long and complex, and it depends on how many countries they come back and how many countries they want to launch with. So from our perspective, we typically see about 20% of the opportunity in the first year growing into the second and third year, very much kind of the land and expand. So it's built in already in our 2021, and I don't think it will be a material change to what was provided for 2021.
spk00: Okay, great. And then just to follow up on George's questions related to some of the guidance points, David, can you maybe just talk about the mix of the volumes that you're seeing? Because the take rates were just a tad bit lower than what we thought they would be. But should we assume similar take rates? And then just specifically on the expenses, can you maybe just give us some sense of sort of what the total expenses might look like relative to third quarter given these investments? Thanks.
spk01: Yeah, sure. Thanks, Andrej. So, look, we're really focused on driving volume and revenue and EBITDA. That's, you know, take rate as an output, but really the focus on the inputs, which is volume, revenue, and EBITDA. You know, every day we're out there trying to win new merchants, and we mentioned a few of them in this quarter, and we really want to win every opportunity, and we've been successful in that regard. And then at the same time, we're trying to really, you know, increase wallet share with our existing merchants, both through, offering new solutions but also kind of winning from existing solutions that they may be using. So ultimately that formula of focusing on volume and revenue, that drives EBITDA and EBITDA margin. We're really focused on those incremental dollars, volume and revenue that kind of fall at a very positive and incremental rate down to our EBITDA margin. So that's kind of the way to think about it. I think what you saw in the third quarter is you should expect similar, I guess, in the fourth in that regard. And then on the expense side, look, the direct sales force is something that continues to ramp. We've added resources along the way. Public company costs, you know, they're meaningful when you think of it. But, you know, I guess what I'd point back to is kind of on George's question, just the EBITDA range in the low to mid 40%, I guess, is the way to think about it. Okay. Hopefully that gives you a sense of what those, the magnitude of those expenses could be in the fourth quarter on a four-quarter basis.
spk00: Brian, thank you.
spk11: Thank you. Our next question has come from the line of Bob Napoli with William Blair.
spk10: Please proceed with your questions. Good morning. Thank you and add my congratulations on a great IPO. First question, I guess, just on gaming, the U.S. gaming business, you got added, you know, your first client in U.S. gaming. You got approval in a couple markets. What is the game plan, and what do you think, Phil, that business could be over the next five years? How long does it take? How difficult is it to get a material position as your new entrant essentially in that market?
spk08: Great question. Thanks, Bob. So we have been very, very adamant of crawling, walking, and running for U.S. gaming. We do believe that we're at the dawn of a new era for the iGaming and sports betting as a whole, industries as a whole, with multiple states coming online. And when you end up looking at the difference between sports betting and iGaming, there's a path for north of 75% of the states to be online within the next few years, and iGaming to be in the 25% to 30%. So a very significant market that comes up. In terms of TAMs, you know, from our estimates, it's going to be between the $15 billion and $20 billion TAM opportunity for Nuve. And in terms of how difficult it is, it is quite difficult just because it's not pure acquiring, meaning merchants require technology, they require a cashier, they require integrations into a myriad of market-specific vendors that are not necessarily the same that you have in other regions. And we have spent an enormous amount of time integrating cashier into all the vendors, providing all the reconciliation tools that they need, both for their pains and payouts. And we launched with Carousel in Colorado. And, you know, quite, quite interesting launch for us. It is our first what we think of many. And it's something that we're putting a lot of focus on. So overall, I would tell you that it's not pure acquiring, Bob. And just remember, they need you know, many forms of alternative that are not necessarily part and parcel of just the general gaming market and the other markets, be it like a Sightline or Pay With My Bank or Mizuma or Global VIPs, all within that single integration. And then merchants are seeking multi-acquirer solutions and seeking payout solutions. So our solution and our stack and our capability is very, very uniquely fitted for the market. and more importantly to highlight is many of the clients that are operating or looking to operate in the United States are already our clients in other parts of the world. So, you know, we think we're uniquely positioned. We're certainly still walking. I'd say we're about walking today. And as we see more progress, we're going to start running for U.S. gaming.
spk10: Thank you. And then, I mean, you have a number of new countries with local acquiring companies. What are the strategies as you enter those markets and building a business, you know, from, you know, de novo, if you would? And what is the marketing strategy or partnership strategy? And, you know, how do you think about strategically the opportunities in those markets and how that fits into New Day?
spk08: Yeah, great question. So I think the first element for everyone to appreciate is we don't enter a new market de novo, really. We enter a new market in consultancy with our merchants, and they tell us where they want to be in three, six, nine months, as I mentioned earlier. And we use that as our local acquiring expansion strategy. And so we start with connectivity to make sure that if the merchant says, I want to operate, for example, in Colombia, and I'll use that one as our first example, We will then start working with the merchant to launch in Columbia, and we will dissect the market of what's required. So it's not just acquiring. It's all the alternative payment methods, all the elements for payouts. How do we normalize our solution stack for that market for that particular client, as well as how relevant is that solution going to be to our other clients? So for Columbia, we launched with WPlay. which from inception to today is growing quite meaningfully. They are our launch customer in Colombia, and what we found in Colombia naturally is obviously reliance on APMs, acquiring right after that, and then just the relevancy of having a single solution for that merchant as they operate in other areas. When you end up coming back, something very important to remember for us, Bob, is a merchant may be born with us in the United States, But they may use us in other markets. So it's not just the novel infrastructure that we set up in Russia. It could be a merchant from Seattle that says, I'd like to expand my services into Russia. How do we go about doing that? So that is the biggest driver for us. And we always use our current clients. We always make sure that there's a business case. But ultimately, for us, it's about connecting our merchants with their customers and making that as seamless as possible. And it is our objective to every year add more and more local market capabilities. Great. Thank you. Appreciate it.
spk11: Thank you. Our next question has come from the line of John Davis with Raymond James.
spk12: Please proceed with your questions. Hey, good morning, guys, and I'll add my congratulations on the IPO. Maybe both Dave and Phil, just talk about the pro forma volume growth of 36% in the quarter, continuing that pace in the 4Q. That's well above kind of the longer-term range you talked about through the IPO Roadshow. So just wondering about sustainability in 21 and what's driving that kind of above normal growth rate in 3Q.
spk08: I'll take the first part. Dave, you want me to take the first part? You need the second part? All right. So I think what we're seeing today is, one, an acceleration from a wallet share from our merchants, which we're very pleased with, coupled with acceleration of net new client boards. So when we look at this year versus last year, we're seeing greater performance from net new, which is obviously part and parcel of our expanded focus on distribution. So I think that's the first part. We looked at the pace on a month-over-month. We're continuously seeing the same results from Q3 as we were seeing in October. And from a sustainability perspective, you know, it's all about innovation and product and geographic expansion. We feel that based on the feedback from our current clients, based on, you know, new markets that they intend on expanding into, we feel very confident about the sustainability in 2021. Turning it to you, Dave.
spk01: As an example, our cashier in the U.S. launching that. So there's a lot of levers we can pull, and that's what we're seeing in the results in the current period.
spk12: Okay, thanks. And then I want to follow up on Bob's question on U.S. gaming. Just the competitive environment, obviously it's very complex, which usually, you know, means barriers to entry are a little bit higher. So who else is doing this in the U.S.? Who are you competing with? And what do you think? Is this ultimately you probably have a handful of players, not the many that we have kind of in regular brick and mortar and e-commerce acquiring, but just curious on what that competitive landscape looks like today and how you see that transforming over the next couple of years.
spk08: I think what's interesting, great question. I think what's interesting is acquirers are coming in with just their acquiring only product, kind of the white vanilla, hey, I can acquire for you. And from our sense, merchants need regulatory. Merchants need more capabilities than just the generic acquiring. So I think we're very uniquely positioned. Who we run in mostly and what we're seeing mostly so far in the U.S. is Vantive and WorldPay have a pretty dominant footprint. I think they were the first to launch. It seems like... like First Data has a gaming group for acquiring only. But from a product mix perspective, you know, yes, they have debit routing for reduced costs, but they don't offer cashier. They don't have the sale integration point. They don't have all the back office tools. They don't have a clean integration for payouts. So I think from a product perspective, we're very, very competitive. But who we see mostly are predominantly First Data and with our partnership with MetaBank and We'll Pay. Okay. All right. Thanks, guys.
spk11: Thank you. Our next questions come from the line of Timothy Chiwoko of Credit Suisse. Please proceed with your questions.
spk02: Thanks a lot. Thanks for taking the question. You touched on this just a little bit ago in terms of the growth algorithm. Phil, a little bit you mentioned the existing merchants versus the new merchants. Maybe you could expand upon that a little bit in terms of this is a topic that comes up often with investors around that algorithm going forward in terms of the mix of growth that will come from existing, and then within that there's sort of a same-store sales, there's a wallet share, and then there's some underlying churn, and then also the new merchants.
spk08: Yeah, I think to sum up, great question, Tim, thank you. Historically, you know, we're in kind of the mid-70s of same-store wallet share expansion, and with the balance in terms of being net new, with the acceleration of net new, We're in about today about 65% roughly from the same store. So you see a pretty meaningful pickup in net new, and we think that's going to continue accelerating as we expand our footprint.
spk02: Okay, very nice. So shifting more to 65-35, if I heard that correctly, from what used to be sort of 75-25? Roughly, yes. Okay, great. And safe to assume that it's sort of on the larger merchant size, given the investment behind the direct sales force? Correct. Great. Okay, thank you so much for taking the questions.
spk11: Thanks, Tim. Thank you. Our next question has come from the line of Ashwin Srivikar of Citi. Please proceed with your questions.
spk05: Thank you, and congratulations from me as well. Also on a pretty solid first set of results here. I want to follow up on the revenue yield answer. So mix, I understand, but I wanted to get into it a little bit to try to figure out When you say mix, did you mean, you know, card present versus card not present? Did you mean by vertical, by geography? What's the detail behind saying that yield changes due to mix? And which are the more important factors to consider going forward?
spk01: Yeah, hey, it's David. So good question, Ashton. Thank you. What I would say is, you know, consistently is that what we focus on internally is not so much the take rate, but really, you know, how we drive volume and how we drive revenue. And you know that we're focused on e-commerce, so that's really where the focus is. And at the same time, you can see from some of these merchant wins, there are some larger merchants that we've won and will continue to win. So that's kind of a mixed dynamic. I think those are the things to think about. It's really – it's e-commerce and it's those merchants that are – the overall portfolio. And the focus for us is really that's on the new merchant side. And the focus there is just, you know, there's a lot of opportunity from a product perspective and from a white space perspective geographically. We see a lot of opportunity to win more merchants, and we're doing that. So that's one component. And then the other component is really just that, you know, bringing on, you know, more volume from existing merchants. And whatever that solution set is they need, we're going to give it to them. And so really the focus for us is, you know, take rates and output. It's not something we talk about in our day-to-day lexicon. Our account management team is really focused on, you know, what we have with our existing merchants. And that's really how they look at it as well. So, like I said, the take rate is an output. Our focus is how do we drive that volume, how do we drive that revenue. What is it? fall quite nicely down to EBITDA and help our EBITDA margins and expand EBITDA. So that's really how we think about it and how I'd recommend you think about it as well.
spk05: Okay. No, understood on that. And then, you know, I know you guys are less than 30% card present, but could you provide some sort of breakout on where that card present comes from? You know, we do get questions frequently. with regards to the impact of new lockdowns in Europe and increased controls here in North America as well. So I just wanted to be careful about that.
spk08: Sure. I'm happy to take that. Dave, do you want to go, or I'm happy to take it? Go ahead, Phil. So I think what's interesting is the percentage of e-commerce volume in the quarter has accelerated for us about 75%. And then you break down and look at card presence. The majority is U.S. I would say just off the top of our head because I don't have the breakdown, but off the top of our head, it's about 70% U.S., 30% Canada.
spk05: Okay. So Europe really is e-commerce and should, in fact, benefit. Correct. Great. Thank you.
spk08: Thank you for that. And just asking, like when we talk about potential lockdowns, yes, it should benefit. Certain verticals, maybe not, right? I mean, there's a potential for sports betting or sports initiatives to be canceled or deferred again. So it's still a TBD if you think about what are the long-term impacts or even short-term impacts of COVID.
spk05: Yeah, yeah, understood, understood. Thank you.
spk11: Thank you. Our next question has come from the line of Paul Treiber with RBC Capital Markets. Please proceed with your questions.
spk07: Thanks very much, and good morning. I was just hoping that you could break down at a high level the e-commerce growth by vertical. Is it still skewed to some of the faster-growing verticals, and do you see that being sustained into October?
spk01: So in terms of overall growth, I mean, if you look at our overall kind of sequential quarter-over-quarter growth. We had 29% from Q2 to Q3, so that kind of gives you the overall portfolio. Of course, e-commerce, you know, both card-present and e-commerce performed well in the quarter, and that's somewhat as, you know, on the card-present side, it's, you know, some recovery that we've seen in North America. In terms of the verticals, you know, for the most part, and this is consistent with the past, is that there is no one vertical that represents more than, let's say, you know, mid-to-high teens. And, of course, you know, there's, you know, online gaming and financial services are the two larger ones. And like Phil just said, you know, on the online gaming side, specifically the sports betting, you know, we've got to be cautious on how things play out in Europe. Across the board, that's good.
spk04: And, like I said, I do.
spk07: My second question, and this is a high-level one, but obviously the payments industry has seen positive impacts due to the pandemic. With the potential for a vaccine and the return of normalcy, how do you see the payments industry going forward? What do you see as structural beneficiaries or what areas have been structurally benefiting from the pandemic, like a shift to electronics payments? Do you see that as a permanent shift? Are there other areas that you think may go back to the old ways or is the old ways in the past? I think most merchants have taken that view.
spk08: That's a great question, Paul. I think more importantly, as it's relevant to us, is our verticals haven't really seen the COVID bump. We don't service grocery stores and that's probably more relevant to our peers. But we think in the verticals that we operate in, we didn't see a natural benefit of COVID. And certainly they had their own tailwinds pre-COVID, but it's not as relevant to us as it would be from our other e-commerce-focused peers.
spk07: Okay, thank you for taking my questions. Thanks, Paul.
spk11: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Todd Coupland of CIBC. Please proceed with your questions.
spk09: Yeah, good morning, everyone. I wanted to just make sure I got the messaging right on the take rate and the volume going into the fourth quarter. So I get the point on mix shifting and take rate comes in lower in the third quarter. That's the output. And the messaging is that that's appropriate to think about it at that level for the fourth quarter and maybe beyond. I don't know if you want to comment on that. And then the volume is coming in stronger than you expected. So those would be, I guess, the two significant offsets in terms of the top line in the quarter. Could you just clarify that, please?
spk01: Hey, Todd, that's right. That's the right way to think about it. for the most part. So volume, you know, think about it as, you know, the pro forma 36%. So that kind of gives you a sense of where volume currently that we're seeing in Q4. And then on, you know, on take rate, like we said, it is the historically it's been in the 80 to 90 basis point range, third quarter is in the low end of that range. So that's probably the right way to think about it, at least for the near term. But, you know, there could be opportunities to expand as we offer, you know, different solutions that may have higher rates. But, look, ultimately we're driving volume and revenue. So I guess I'll restate that message. That's the way we think about it. That's the way our teams think about it. We don't really focus on the take rate.
spk09: Okay. And then my follow-up is, over time, how material can the move into crypto be? on the business. It certainly impacted some other companies in a material way. Is this just a toe in the water at the moment, or could this be material over the next year or so? Any perspective on that would be helpful. Thanks a lot.
spk08: Yeah, great question. So I think it's a natural extension to our financial service vertical. We think it's actually a very compelling vertical. But we're not just looking at it as supporting it for acquiring. We are also looking at supporting it different exchanges directly as alternative payment methods, and it is a focus for us in 2021. So it is something that's very relevant. It is something that we're spending quite a bit of time on looking for licensing in the different regions that we operate in, but it will be very relevant for us come next year.
spk11: Excellent.
spk07: Thanks, Arthur.
spk11: Thank you. Our next questions come from the line of Matthew O'Neill with Coleman Sachs. Please proceed with your questions.
spk03: Matthew O' Yeah. Hi, Phil and David. Thanks so much for taking my questions, and sure, congrats on the recent IPO and all the positive momentum. I was just hoping to touch base on two things quickly. One, you know, in addition to everything else going on, you guys did just close the Smart2Pay acquisition. just wanted to think through that integration, you know, what to expect with respect around, you know, both cost synergies and revenue synergies, particularly the extent to which some of the gateway volume represents an opportunity for more full stack and then conversion over time. And then I'll just add my follow-up in there. I was hoping to just get a little bit more details around the continued investments in the Salesforce, just thinking of how is that more new geography-based or sort of product vertical base or maybe more broadly. Thanks.
spk08: Sure. I'll take first the first question, Dave. Actually, I'll take both, and if you want to add something on that, just please do. By the way, Dave, I'm hearing you coming in and out. I'm not sure if it's my phone just letting you know the reception on your end. This doesn't sound great. For Smart2Pay, great business. About 60 folks operate in verticals that we think are extremely complementary. It strengthens our positions in social games and marketplaces. They also have some technical enhancements for us that we think are quite meaningful to our own customer base. So we haven't disclosed cost synergies or revenue synergies, and we won't highlight them, but we do think that they're quite significant. And naturally from Smart2Pay, as they are an APM provider only, there is, you guys call that, it's not necessarily just gateway, Matt, it's just APM, right? So they are in the flow of funds, but they're only participating in a small part of the overall wallet. So I think it's very much in line with our overall strategy of, winning new clients and expanding our wallet share with capabilities. And we think our capabilities combined are very, very much aligned and something that will provide an interesting platform for continued growth. From an integration standpoint itself, we have our methodology quite proven of how we enter the business. We were very fortunate that we were able to start early just because of European regulatory approval, which means that we've been quite busy working with the team for the better part of four months. So it is something that's well on track and it gives us very good confidence that we'll be able to have the integration done quicker than expected. In terms of investing in the sales force, our objective is to dramatically increase the sales force over the next three years. We did talk a lot about that during the roadshow. And when you end up looking at where we were in our digital business, you know, we've more than doubled the sales force already so far this year, and that is obviously picking up the momentum in our e-commerce business, and we'll continue doing so. And in terms of the structure, underneath our chief commercial officer, we'll have both geography and vertical-based expertise, And we're going to be coupling solutions engineers and creating local market support services to make sure that it's extremely successful. And it's all going to be investment indirect. So, you know, in the verticals that we focus on, in the markets that we focus on, and making sure that we bring, you know, the expertise locally into the market, into the regular time zone, and interacting directly with the merchants. Understood.
spk03: Thanks so much, Phil. Thanks.
spk11: Our next questions come from the line of Bob Napoli with William Blair. Please proceed with your question.
spk10: Thank you for taking the time. Phil, you talked pretty positively about the M&A pipeline, and you did go through the strategy that you're looking for. But I was just wondering if you could give a little more color on the pipeline and what is strategically on the higher end of your list for M&A pipeline.
spk08: Great question, Bob. I think I would rather just keep it a little bit higher level, but we have everything from transformational to really interesting capabilities in the pipeline. So we're having very, very interesting conversations, and these really go through the three buckets that we look for. So we have some very compelling geography expansions, that they themselves provide tremendous opportunity for continuously cross-selling, helping our clients, both ours and the targets. We have some very, very compelling capability opportunities in the verticals that we operate in. And that is something that, again, you know, provides some meaningful revenue synergies. And we do have some on scale, meaning they are in the markets that we operate, but they help us being scaling up our distribution opportunities. potentially adding licenses on a shorter base time because sometimes licensing in markets can take a few years. So we do have some of those, but ultimately it's a very, very deep pipeline, and we're very pleased with the engagement that we've seen from folks, especially since a post-IPO as we're having some meaningful conversations with folks that would have never considered it in the past. Interesting. Great. Thank you. Appreciate it. Thanks, Bob.
spk11: There are no further questions at this time. And with that, that does conclude today's conference call. We appreciate your participation. You may disconnect your lines at this time.
spk08: Thank you, everybody. Thanks, everyone.
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