Nuvei Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 13 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Nuveit Corporation's First Quarter 2023 Earnings Call. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Chris Mamoni, Head of IR.

Operator

Please go ahead, Mr. Mamoni.

Speaker 1

Thank you, operator, and thanks to everyone for joining us this morning. With us today are Phil Fair, Air and CEO and David Schwartz, CFO. As a reminder, this conference call is being recorded and webcast in its copyrighted property of Nuvve. Is available on the Events section of our Investor Relations website, investors. Nuve.com.

Speaker 1

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 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, can be found in NuVasive's filings with the Canadian Securities and Regulatory Authority and on the company's website. Our discussions 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 understanding and our ongoing performance, but they are not a supplement to and should not be considered in isolation from a substitute for IFRS financial matters. Reconciliation of these measures to IFRS measures is available in our earnings release and MD and A.

Speaker 1

We'll open up the call for your questions after our prepared remarks. During that portion of the call, And with that, I'd like to now turn the call over to Phil.

Speaker 2

Thank you, Chris, and good morning, everyone. We have a lot to share with you today, so I'll jump right in. As you've now seen, NUVE is off to an excellent start in 2023 delivering 1st quarter results ahead of our financial outlook as we remain heads down executing our strategic initiatives, growing our market share, winning new customers and expanding with existing customers, driving innovation and extending our geographic reach. As we celebrate our 20th year, it's incredible to reflect from everything we've accomplished. Today, NUVE enables leading discretionary and non discretionary use cases all over the world with tremendous white space for continued growth in a very large and addressable market.

Speaker 2

And naturally, we fully intend on continuing to scale the business and grow both organically and inorganically. And yet even after all the growth, innovation and learnings, we're still very much on the ground floor with the best yet to come. Great businesses are not built overnight and our success is directly attributable to our people and culture and I want to take a moment to thank our more than 2,000 colleagues around the world for their tireless efforts, passion and dedication to growing our business and supporting our customers. You guys are rock stars and it's truly a privilege to be working with you. So this morning, I'm excited to share 2 recent changes to our leadership team.

Speaker 2

First is a promotion of Scott Callahan to Chief Strategy Officer, a newly created global role reporting to me. Scott, who has led M and A efforts since 2018, will now lead strategy, integration and M and A. 2nd is welcoming Caitlin Shutter, previously Pius Chief People Officer as our new Global Chief People Officer replacing Mickey Zindman. We thank Nikki for many contributions during her time in Nuvein and wish her well in her future endeavors. I look forward to partnering with Scott and Caitlin.

Speaker 2

Turning now to Paya, which as a reminder, the deal rationale adds B2B, government and ISV 3 highly attractive, growing, non discretionary and largely underpenetrated channels to our business. We completed the acquisition in February and the integration is on plan as we've combined 2 fantastic teams into a single organization and are now focused on applying additional resources towards accelerating the go to market strategy, which I'll touch upon later in my prepared remarks. Hyatt's CEO, Jeff Hack and CFO, Glen Ramzoni will be departing the company within the next few weeks. I can't thank Jeff and Glen enough for their professionalism and operating with such class and dignity throughout the entire process. Looking further at our progress with the integration, We've now retired 1 of PIA's legacy payment gateways and we have a deliberate plan in place to sunset the rest over time, freeing up additional resources for continued investments.

Speaker 2

Having now aligned our leadership team and eliminated public company costs, we start to execute on our estimated $21,000,000 cost synergy target. As we have stated previously, the majority of the cost synergies are expected to be recognized towards the end of the 24 month period following the completion of the acquisition. Furthermore, by plugging PYA into NuVasive Tech Stack, we've identified between $50,000,000 $100,000,000 of new revenue opportunity above Hyatt standalone base case by 2027, consistent with our thesis of accelerating Hyatt's growth trajectory. We see ample opportunity to achieve this revenue growth by enabling global opportunities and implementing our go to market playbook. The key takeaways I'll leave you with on Paya are that we're on plan.

Speaker 2

We feel really good about the acquisition and the deal rationale and are confident in our ability to accelerate the growth of the business. Turning now to our financial results, which above all else indicates that we continue to scale the platform and win market share. Total volume for the Q1 was $42,000,000,000 increasing 45% on a reported basis and 48% on a constant currency basis over the prior year's Q1. Total volume on an organic constant currency basis Revenue for the Q1 was $256,000,000 increasing approximately 20% on a reported basis and 22% on a constant currency basis. Organic revenue growth on a constant currency basis excluding digital assets and cryptocurrencies grew 26 Taking it one step further, that 26% growth rate means that we face approximately 30 And cryptocurrencies on a constant currency basis.

Speaker 2

Remember that because we are an at scale platform, The majority of these associated dollars flow to adjusted EBITDA and free cash flow. We believe this helps frame the operating scalability of our business. Adjusted EBITDA increased 5% to $96,000,000 with a 38% margin in the quarter and free cash flow was $84,000,000 also an increase in prior year. We continue to believe that we are a fintech unlike any other with our differentiating compelling financial profile, which features a unique combination of growth, profitability, low CapEx and high free cash flow generation. As you may recall, we manage our go to market effort in 3 distribution channels, Global E Commerce, e commerce resellers and small and medium sized businesses.

Speaker 2

With Paya, we've now added 3 new channels, including B2B, Government and ISV double clicking on our results for the quarter by channel. Global E Commerce, which is our primary focus and core value proposition grew 37% at constant currency excluding digital assets and cryptocurrencies. And I can't stress this enough. We believe this is Class A in growth and shows that we're truly winning market share and more importantly growing Beyond global e commerce, NUVE continues to support our legacy channels, which include e commerce resellers and SMBs, both of which are predominantly driven by independent sales organizations in North America and on a combined basis represent a smaller percentage of revenue compared to Global Ecommerce. For the quarter, revenue at constant currency increased 8% for e commerce resellers and declined 1% in SMB.

Speaker 2

I'll expand on SMB and what we're seeing there later on in my prepared remarks. So there should be no surprise and as we've been saying, we continue to see High growth in Global Ecommerce, winning market share and driving category leading performances, which is being offset somewhat by slower growth in our legacy reseller and SMB channels. Naturally, as e commerce continues to grow and becomes a greater percentage of our business, These smaller legacy channels will become less relevant to our growth profile. Now looking at our B2B, government and ISV channels. On a pro form a basis for the Q1, B2B grew 15%, government grew 15% and ISVs grew 17%.

Speaker 2

As I just outlined, we're encouraged by this baseline performance and expect to accelerate growth in these channels over the coming quarters and years. Hiya also has a lower growth legacy channel, which is a mix of resellers and SMBs and declined 1% on a pro form a basis in the Q1. So the key takeaway here is with respect to our channels is that by leveraging our technology, our global e commerce business is exhibiting best in class growth benefiting from our focus Investments and strategy and we expect to accelerate performance in our newer B2B, government and ISV channels, which over time will render our smaller reseller and SME channels less meaningful and less of a headwind to our overall growth. With this additional information, We hope you can appreciate the momentum of the business, the opportunities that lie ahead of us, and hopefully you can share the excitement of why we continue to feel that we're very much on the ground floor. Taking a closer look at our results by region.

Speaker 2

In North America, revenue grew 55% in the first quarter $125,000,000 from $81,000,000 Excluding Paya, revenue in the region grew 17% driven by continued growth in our global ecommerce channel, which grew by approximately 51% over last year's Q1. In EMEA, revenue declined 4% to $120,000,000 from $125,000,000 However, revenue excluding digital assets and cryptocurrencies grew 27% as a majority of that exposure originates from European operators. In LatAm, revenue increased 68% to $11,000,000 from $6,000,000 as we continue to see our business accelerating rapidly driven by investments in the region. In APAC, while revenue decreased to 1,100,000 from $2,900,000 It is important to note that our actual process volume has increased as we continue moving our customers from international to local and see a lot of opportunity to continue accelerating our business in the region. Turning now to operating trends for the first Our observation echo earlier comments made by others, but underscores strong results and performance in our global e commerce, B2B, government and ISV channels and slowdown in domestic SMBs.

Speaker 2

Double clicking for the quarter, certain organic revenue trends we saw by vertical include: Online retail grew by 84%, travel grew by 65%, online gaming grew by 53%, Video and social gains grew by 51% and our SMB channel, which I discussed earlier and is largely our cart present business in North America, which includes consumer retail, Restaurants and other verticals declined 3% on a reported basis and 1% on a constant currency basis. Digital assets and cryptocurrencies were down approximately 61% compared to last year's quarter and declined 10% sequentially. As we stated previously, this vertical is immaterial to NUVE and going forward is expected to continue to decline and represent approximately 5%. Moving on now to an update on our go to market efforts. As you can appreciate from the commentary I just provide on our sales channels, We're really excited about the momentum of our sales efforts.

Speaker 2

Our capabilities give us the right to win Our fair share of new business and we're winning as demonstrated by our global e commerce revenue growth of 37% at constant currency Digitalizing cryptocurrencies in this year's Q1. And with our new B2B, government and IT channels, we are applying our playbook, knowledge and experience to build out a Class C and go to market effort globally. While it's early, new in year business Excluding digital assets and cryptocurrencies through the first quarter's promising, up more than 125% compared to the same period last year. We also have some very large implementations launching the second and third quarters, which should contribute to our results in the second half of the year. Turning now to an update on product and innovation.

Speaker 2

We are a technology company at heart and never standing still as we continue to accelerate range. As we continue to grow, we will favor purposeful investments that propel our differentiated value proposition forward. This is how we stay ahead of the competition. And we're progressing nicely across our strategic initiatives, namely our unified commerce, embedded finance and open banking offerings. Finally, in an area that is clearly fascinating for everyone, we continue to test and implement new use cases for artificial intelligence to enhance internal support channels, Customer support, merchant onboarding, risk management, underwriting and compliance.

Speaker 2

We look forward to seeing this developed further. Turning now to our disciplined capital allocation strategy. As we said previously, aside from debt repayment and continuing to be opportunistic with We expect to prioritize our excess cash or share buybacks. To this end, in March, we renewed our normal course issuer bid pursuant to which we may purchase up to 10% of our public float over a 12 month period. We've also implemented an automatic share repurchase plan, which allows us to purchase shares during blackout periods under predefined Subsequently, we purchased 1,350,000 shares in the Q1 or roughly 2% of public float for a total consideration of $56,000,000 As stewards of capital is a young public company, we've returned a total of $223,000,000 to shareholders in the form of stock I'll now discuss recent market trends and how that informs our views in the current quarter and the rest of the year.

Speaker 2

So far, it's been a continuation of what we talked about before with positive momentum in our global e commerce coupled with stability in B2B, government and ISV, Consistency in our reseller channel and light headwinds in SMB. When it comes to our 2nd quarter, there is seasonality sequentially, when considering events such as Super Bowl, March Madness, Spring Break, charitable giving and tax payments in the Q1. Nevertheless, volume in both April and the 1st week of May is in line with our expectations. With respect to the full year, we continue to take a balanced tone as a macro environment remains challenging to predict even though we haven't seen any significant changes so far. I'll leave Dave to discuss the outlook for the Q2 and full year in 2023 in greater detail, but we continue to expect NUVEY's organic growth rate at constant currency excluding digital assets and cryptocurrencies to be between 23% 28% for the full year.

Speaker 2

We are raising the low end of our full year outlook by the amount we beat in Q1 as we remain cautious on the macro for the remainder of the year. We are also reiterating our medium and long term targets for revenue, adjusted EBITDA and CapEx. I am confident that Nubay's growing leadership position within the payment ecosystem, global scale, Product innovation, talent and platform advantages will allow us to continue to deliver sustainable, profitable and durable growth. With that, I'll now turn the call over to Dave.

Speaker 3

Thanks, Phil, and good morning, everyone. I'll start by reviewing our financial performance for the Q1, then discuss our outlook for the Q2 fiscal year 2023. Looking at our performance during the March quarter, I am pleased to say that we are off to a strong start to the year. Total volume for the Q1 increased by 45 percent to $42,000,000,000 which was 3% above the high end of our outlook range. The stronger than expected results were driven by our focused investments and execution within our global e commerce direct channel.

Speaker 3

Our e commerce volume represented 90% of total volume in the period. On a constant currency basis, Total volume increased by 48%. Naturally, the inclusion of Paya for approximately 5 weeks during the quarter was a meaningful contributor to our growth. Excluding Paya, total volume on a constant currency basis grew organically by 29%. Revenue for the quarter was $256,000,000 up 20% year over year.

Speaker 3

On a constant currency basis, Revenue grew 22% and also exceeded the high end of our outlook range. Hyatt contributed $30,000,000 of revenue from the date of acquisition through the end of Q1. On a pro form a basis, PAIA generated $70,000,000 in total revenue for the Q1, up 10% year over year. All revenue figures for PAIA are expressed net of interchange to be consistent with NUVEY's definition of revenue on a basis. PAIA's performance for the quarter was driven primarily by mid teens growth across its B2B, ISV and government channels.

Speaker 3

Paya's legacy reseller channel experienced same store sales headwinds in the quarter. This is consistent with what we saw on an organic basis in our legacy SMB channel and seems to be indicative of an industry wide trend. Consistent with our focus on driving incremental gross profit dollars through our land and expand approach, gross profit increased by $34,000,000 compared to last year's Q1 of 202,000,000 representing gross margin of approximately 70 The vast majority of this can be attributable to 2 components, both relating to Paya. The first item relates to one time professional fees during the quarter, which were higher primarily due to the acquisition and integration related to costs in conjunction with the Paya acquisition. 2nd component relates to the contribution of SG and A from Paya for the period since the acquisition date.

Speaker 3

In particular, commissions paid during the quarter were higher, mostly due to Bayer's operating model, which Places a higher reliance on indirect partner distribution. Employee compensation other than share based payments for the quarter increased by almost $8,000,000 versus the comparable period. Here again, the increase year over year reflects the inclusion of PAIA for a partial quarter. The other main driver was investments such as in our product, technology and commercial teams to drive growth. Share based payments decreased 4% versus last year, and I'll revisit this topic toward the end of my remarks.

Speaker 3

Adjusted EBITDA for the quarter was $96,000,000 which was slightly above the top end of our outlook range, representing an adjusted EBITDA margin of 37.5 percent in the quarter. Looking at other line items on the income statement, Net finance cost was $13,000,000 compared to $7,000,000 in last year's Q1. We earned higher finance income of $5,000,000 primarily due to higher interest rate environment. That was more than offset by an increase in finance costs of about $11,000,000 to service our outstanding debt, inclusive of the new $800,000,000 credit facility we entered into in late February in connection with the closing of the PIE acquisition. Net loss for the quarter was $8,000,000 or $0.07 per share compared to net income of $4,500,000 or $0.02 per share.

Speaker 3

As I mentioned earlier, the results include one time PIA related acquisition and integration costs of approximately $20,000,000 which represented approximately $0.12 per diluted share. Adjusted net income was $64,000,000 or 0 point 4 $4 per diluted share for the quarter. Turning to the balance sheet and cash flow. As of March 31, 2023, we had cash and cash equivalents of $133,000,000 We also had term debt of $1,300,000,000 Meanwhile, our cash generation remains strong. Cash flow from operating activities for the 3 month period was $57,000,000 compared to $66,000,000 for the comparable period last year.

Speaker 3

Importantly, this year's figure was impacted by some of the one time acquisition related fees paid during the period, primarily related to the PIE acquisition. During the Q1, as part of our capital allocation strategy and shortly after renewing our normal course issuer bid, We deployed $56,000,000 towards repurchasing 1,350,000 shares, representing approximately 2% of our public float. In addition to share repurchases, we intend to use excess cash to further reduce our leverage from current levels, while still maintaining the flexibility to invest in our business in pursuit of both organic and inorganic growth. I will now turn to our outlook and would refer you to our forward looking information disclosure in our press release and MD and A. As a reminder, our revenue growth profile this year will be a tale of 2 halves.

Speaker 3

During the first half of the year, we expect our growth to be impacted by challenging comparables in digital assets. Then in the second half, we expect our growth rates to accelerate as we lap those factors. Excluding digital assets and cryptocurrencies, We continue to expect our organic revenue growth rate to be between 23% 28% on a full year basis. Our first quarter growth rate was 26%, positioning us favorably to achieve this objective. That said, we do expect some variability within the remaining quarters.

Speaker 3

Specifically, we expect the 2nd quarter to be below the full year expectation, We remain confident with the full year organic revenue growth rate excluding digital assets and cryptocurrencies of between 23% 28%. For the Q2, which will represent the 1st full quarter including Paya, we expect total volume between $50,000,000,000 $52,000,000,000 revenue of between $300,000,000 $308,000,000 Revenue at constant currency between $301,000,000 $309,000,000 and adjusted EBITDA of between $105,000,000 $110,000,000 As you can see, we expect the 2nd quarter to include several milestones as we expect to achieve in excess of $50,000,000,000 in total volume, $300,000,000 in revenue $100,000,000 in adjusted EBITDA. These quarterly milestones speak to our success in scaling our global platform. For the full year of 2023, we are marginally raising our previously announced outlook to reflect our Q1 results. But as our view of the macro environment has remained relatively consistent during the 2 months that have elapsed since we first issued our full year outlook, We are keeping our outlook mostly intact.

Speaker 3

It follows that we now expect total volume of between $196,000,000,000 $202,000,000,000 Revenue of between $1,230,000,000 and $1,260,000,000 and adjusted EBITDA of between 4.56 at $477,000,000 representing an adjusted EBITDA margin of approximately 37% to 38%. We continue to believe our outlook is appropriately balanced between the global macro environment and the strong business momentum year to date. Specifically, the Q1's organic revenue growth on a constant currency basis, excluding digital assets and cryptocurrencies of 26%, driven by the momentum in our global e commerce channel, which grew 37% in constant currency and excluding digital assets and cryptocurrencies. Before concluding, I'd like to briefly discuss share based compensation from both a dilutive and expense perspective. In terms of dilution, there are 2 important takeaways.

Speaker 3

First, there is a significant portion of outstanding awards, almost 25%, which are significantly out of the money or failing to meet their performance conditions. 2nd, we expect to continue Purchasing shares through our normal course issuer bid, which will exceed dilution resulting from the settlement of awards during the year. From an expense perspective, it is notable that share based payments have been relatively stable within a range of $33,000,000 to $37,000,000 over the past 6 consecutive quarters. However, as a percentage of revenue, share based expense decreased from Approximately 16% on average through the 5 quarters ended Q4 2022, a 14% in the Q1 of this year. All else being equal, as our revenue continues to increase and as some of the larger one time grants start to anniversary, Such as our 2020 IPO grant to all employees, share based payments as a percentage of revenue is expected to continue to trend down over time.

Speaker 3

Considering our 20% medium term revenue growth target, share based compensation could be in the single digits as a percentage of revenue over the next 3 to 5 years. I'll now turn the call back over to Phil for some closing remarks.

Speaker 2

Thanks, Dave. Before opening up to questions, I'd like to reiterate the key takeaways from today's call. 1st, organic revenue at Constant currency excluding digital assets and cryptocurrencies was 26% in the quarter. 2nd, global e commerce revenue growth was 37% excluding digital assets and cryptocurrencies at constant currency. 3rd, the integration of PAIA is going according to plan and we've identified $50,000,000 to $100,000,000 of new revenue synergy opportunities above Pius standalone base case by 2027.

Speaker 2

4th, We continue to invest in the business as appropriate, including in our commercial, technology and product teams. And 5th, we'll continue our disciplined focus towards capital allocation. With that operator, we're ready to take questions.

Operator

Thank you. Our first question is from Will Nance with Goldman Sachs. Please proceed with your question.

Speaker 4

Hey guys, I appreciate you taking the question. I wanted to go ahead and

Speaker 3

follow-up on some of the

Speaker 4

stuff that you're seeing on the reseller and SMB Business, I detect a note of caution in some of your remarks there. I was just wondering if you can maybe size the combined total. How big are those as a percentage of the combined organization right now? And is your expectation that those will continue to be relatively flattish over the next the remainder of the year?

Speaker 2

Good morning, Will. It's Phil. I think we've been pretty clear on our investment focus on total e commerce for the past 3 to 4 years and really love That we're building in our global e commerce business. And that's why we want to unpack, what we're seeing in e commerce, what we're seeing in resellers and what we're seeing in SMB. We've been seeing very good momentum in e commerce and cross border along with some interesting momentum in PIA's channels in ISV, B2B And government, from an SMB standpoint, as we continue scaling our core channels, which on an organic basis for NUVEY, Global Ecommerce is over 70% today and continues to drive the majority of our growth.

Speaker 2

The headwinds that we may see in SMB and resellers will continue So we are investing in our growth. We are maintaining our small business and reseller channels. And overall, if you look at the business in the medium term, The vast majority will continue to be Global Ecommerce, B2B, IT and Government.

Speaker 4

Understood. And then I know there was some commentary on 2Q and that being a little bit below where you're targeting kind of for the full year. Can you walk through Some of the puts and takes on the Q2 guide and just how you're thinking about the acceleration in the back half of the year. I know you mentioned some big wins that are coming into the numbers. And Maybe one for David, if you could just touch on the seasonality of yields over the course of the year.

Speaker 4

I know you guys don't manage to that number, but it seems like the guidance implies a step up in yields in the back half of the year. And I know historically there's been some negative seasonality in the Q4. So just wondering if you could talk through some of the moving pieces there? Thank you.

Speaker 2

Certainly. He snuck in another question, Will. I'm happy to answer it. I think we never provided a Q2 guide, right? So we're very confident With the full year, so from a second quarter perspective, as we continue diversifying the business, we do have some seasonality.

Speaker 2

When you think about Super Bowl or March Madness for spring break and some of the tax payments as well as charitable payments that we see out through the Q1. Nevertheless, we see really good momentum. I want to remind everyone that every year we start effectively a new sales journey. So our mid market and large Client implementations typically go from the Q2 to Q3 and then certainly ramp in the Q4. So nothing to flag beyond Normal business process in the Q2 late, we'll see a pickup of travel, and certainly other verticals that pick up as well.

Speaker 2

So We are diversifying the base. We are building up exposure in each quarter with respect to opportunities from a sales perspective, And the momentum is strong and there's no surprises ultimately the flag for the Q2. I'll turn it over to Dave.

Speaker 3

Hi, good morning, Will. So yes, I mean just to add on to what Phil said with respect to the second half of the year. We said, if you recall Last quarter, when we spoke to you not that long ago, we talked about the tale of 2 halves for 2023. And Certainly part of that is the headwinds that we face in the first half on digital assets. So that will lap in the second half.

Speaker 3

What you saw in Q4 and what you see again in Q1 is 20 6% organic growth ex digital assets and cryptocurrency. So 2 consecutive quarters that are within that guidance we gave for the full year, 23% to 28%. And if you think if you kind of do the math, you'll see that from a second half perspective, If you take Q2 as kind of our base case and then kind of see what growth we need to have in the second half to get to the full year revenue range, it's about a 3.5% increase second half over that kind of that Q2 base. So we feel confident with it. And like Phil mentioned, the new business, We saw really good granted it's early, it's just the Q1, but we saw new business also pick up, right, 125% higher than last year's Q1.

Speaker 3

So that's going to contribute as well as we get later in the year. The other things I'd point to, Certainly, with respect to the synergies, that will take some time. So that obviously hasn't kicked in yet, but that will take some time. And with respect to take rate, Like you said, we don't manage specifically the take rate. There is fluctuations.

Speaker 3

Certainly, what we do see is we see typically Q4 being a little bit lower, Then it steps up in Q1 and we saw that last year and you see that again this year. And then I guess from a go forward perspective, certainly We'll have a full quarter of PAIA in the Q2. So that will have an impact slightly on take rate. That will be a little bit lower. But for the most part, don't expect much variability on the take rate from a take rate perspective.

Operator

Our next question is from Darrin Peller with Wolfe Research. Please proceed with your question.

Speaker 3

Hey, guys. The Q1 obviously did underscore the strength of the e comm business. When we look at April May trends, I know you made a quick comment on that, just maybe reiterate or just touch again on what you're seeing now. And then more importantly, Just looking through the rest of the year, now that you have a little more insight into Paya, if you could help us understand what the Updated expectations are for the different sub segments within that business going forward as well as monetization rates It's really good to hear all the revenue synergies also, Phil. So anything more on what those are and how you think you're going to recognize those?

Speaker 3

Thanks, guys.

Speaker 2

Yes. Thanks, Darren. I'll echo previous comments. So we've seen strong momentum in e commerce throughout the Q1, January and February strong results. We did see some slowdown in March, but that's predominantly some seasonality as it picked up at the end of March in e commerce.

Speaker 2

Interestingly enough, we saw daily average volume increase in April. So total e commerce volume was higher in April even though it ended on a weekend and had So we actually really like what's happening around e commerce. In the Paya business, we saw again strong January, February, Softer March with a stronger uptick in April. So overall, it's just allowed us to form the opinion. And when we broke it down, You see certain verticals have strong stability, which we're quite excited about, and some have really good momentum.

Speaker 2

I think the other element that's interesting from our book of business is that We see different events in different countries that we operate around the world as well as our end markets. So we see really good momentum across all of our core verticals, and we believe that strengthens our view for the full year. In terms of Paya, without double clicking too much, I want to give a good sense of the baseline that we have with Paya And something that we're really proud of, right? Pie has done an excellent job with the resources they have. Like just a great group of folks that have executed really well.

Speaker 2

What we find is interesting is we're bringing our playbook now and we've unpacked all of PIA's core channels, B2B, what we're doing in government, What we're doing in ISV is and obviously spent a lot of time with our current partners and customers and from unpacking global opportunities to unpacking Product capabilities that NuVasive that PAIA had on the roadmap, as well as looking at some cross sell opportunities, certainly not Tomorrow, but something that as we integrate Paya into NewWave's flow and we connect them technically, there are a lot of tentacles for continued growth. So Bringing our playbook from sales enablement, from marketing, from account management, from distribution that we do in the highly competitive sphere of e commerce Into the Pia fold into verticals that we think are largely underpenetrated is very exciting for us.

Speaker 3

Thank you. I guess very quick follow-up just on the gaming, online gaming was I thought I think we saw over 50% Growth. And that's obviously a meaningful part of the story. So just any comment on what's happening in driving that magnitude of strength? And then, we'll leave it there.

Speaker 3

Thanks, guys.

Speaker 2

Yes, pleasure. I think online gaming is more about executing on our playbook. So we are seeing now really good momentum in North America. We are seeing new markets coming online as well. So overall, it's about executing with our customers.

Speaker 2

We've always said that we're going to Kind of crawl, walk, run-in North America, we're running now. We have lots of good opportunities that we're executing on Across the entire market, not just the U. S, what we've done in Ontario, there's talk of Alberta coming online. There's been some new states that have activated in the U. S.

Speaker 2

That will continue driving its journey as well as real meaningful opportunities that we see in 'twenty four with Back to some proposals around UAE and what's happening in Brazil and other markets. So gaming is more of extending our position, investing wisely, having resources and technology that Relevant for the markets that we're operating in and we're just at that inflection point now.

Operator

Our next question is from Sanjay Sakhrani with KBW. Please proceed with your question.

Speaker 5

Thanks. Good morning. Appreciate all the commentary on the macro. Obviously, that's front and center with the investment community. I'm just curious if the lack of seeing anything on the macro is a function of you guys taking share inside your merchant base?

Speaker 5

Or is it that your Could you just elaborate a little bit on that balanced view you're taking into the forward look? Thanks.

Speaker 2

Certainly. Thanks, Anjay. I think from our end, it's not just a linear market. So many of the other peers that you follow are talking about the U. S.

Speaker 2

Only. And so we have that global footprint. Some of our verticals have high growth in new markets and that does give us some tailwinds. I think in general, There's 2 rules of thumb certainly is we sign up a customer and we participate and keeping in mind that none of our customers are new Customers, meaning they come to us for a specific issue that they're trying to resolve. And thereafter, we grow with them and we grow with them by adding capabilities, adhering to their roadmap Or adding geographies.

Speaker 2

And we think there's lots of upside in our own customer base to continue driving greater wallet share by executing with them and being the partner that they need. They're after in terms of what their business journey and what their environment looks like, we think there's greater opportunity within our Customers continue rolling wallet share versus the exposure from a macro perspective within our own customers in a general basis. Certainly, there's some spheres to that. But on the SMB side, we're taking a more cautious approach. We are seeing same store sales decline.

Speaker 2

And so we are watching that. I think what's different in RS and E versus the peers that you follow is we've elected not to do Significant repricing. So what you end up seeing here is true same store sales, and that is probably a different lever than that we're seeing in others. So we're watching it carefully. To date on SMB, besides volume slowdowns, we have not seen any delta in terms of merchant bankruptcies or losses or others.

Speaker 2

So from a macro perspective, Some headwinds in SMB, really good momentum in global e commerce, and we think lots of opportunity in B2B ISV and specifically gov as well.

Operator

Our next question is from Joseph Faffee with Canaccord Genuity. Please proceed with your question.

Speaker 6

Hey guys, good morning. Nice results and start to the year. Just wanted to circle back on Paya real quick Again, I know you indicated you're going to be closing some of those payment gateways there. Was that contemplated in the cost synergies on Before the acquisition or should we look at that as incremental?

Speaker 2

A good question, Joe. It is part of The overall plan actually is to utilize the APIs and rich library of integrations Wherever possible and connecting them into Nuveys tech stack. So and Paya has multiple gateways. So they had a little bit of technical debt from the M and A They've done in the past, and they were on that journey as consolidating. So from our perspective, it's maintaining a really good adding to what NUVE And then reallocating the resources because Pine has got a great workforce to help us accelerate growth and capabilities in B2B, ISV and Gov.

Speaker 2

So it's all of the above is retiring, is refocusing and accelerating.

Speaker 6

Great. And then, I know you mentioned that new business in the quarter was up over 100% year over year. Is there anything to call out there in terms of size of Some of those customers in the new incremental adds versus a year ago and how that trajectory of new business could Expand and contribute during the year. Thanks a lot.

Speaker 2

Yes, it's a great question, Joe. I think the biggest thing I would highlight for everyone is every year we build a new portfolio of And it takes a while, it's like building blocks, right? January starts in 0. And at the end of the year, it drives a momentum for the following year. So it is a big part of the following year's It is the gardening in year.

Speaker 2

I wouldn't tally too much about the Q1. It's a nice place to start, but it's more about what's going In terms of this momentum into the second, third and fourth quarter that we're excited about, I wouldn't call anything out in terms of Specific customers because we'd like to do that when they actually go live, but as they work through implementations, but it's been a good start to the year.

Operator

Our next question is from Jason Kupferberg with Bank of America. Please proceed with your question.

Speaker 7

Thanks, guys. I just wanted to come back to the comments around Q2 organic growth ex crypto being below the full year range of 23% to 28%. Why is that the case and what drives that second half reacceleration that you referenced?

Speaker 3

Hey, Jason, it's David. We expected some seasonality, so really nothing out of the ordinary. So no surprise there. And really what we saw in Q1 and Q4, we expect that to continue at that rate within the 23%, 28%. So really nothing out of the ordinary.

Speaker 3

Part of it certainly also is the new business that we see that will grow in the latter half of the year. Like I said earlier, if you do the math kind of on the core, it's a 3.5% second half versus first half. We feel really good about the full year numbers. And we always try and take a balanced view, right? That's always been our approach, considering the macro and just considering overall, Just by our nature to take a more conservative view.

Speaker 3

So we feel good about it. And there's great momentum that we're building, both as we see kind of month to month in the volumes that Phil talked about, but also in the new business. So both new and existing businesses are performing well.

Speaker 7

Understood. And then, just as a follow-up. So on volumes, you basically raised the midpoint of the full year guidance by the amount That you beat the Q1 midpoint by, but then on revenue, it looked like you beat the midpoint in Q1 by a solid $4,000,000 I think you only ticked up the low end of Full year range by $1,000,000 So essentially the midpoint didn't really change there. I know these are sort of small numbers, but just it did kind of jump out at us. So wondering if The function of mix or take rates or other dynamics?

Speaker 7

Thanks.

Speaker 3

Yes. It's always going to be a function of mix, like you said. You can call it take rate, you can call it mix. So it's they certainly move directionally in line, but not necessarily the same magnitude. So we feel good about both the volume and the revenue guidance we've given for the full year.

Operator

Our next question is from John Davis with Raymond James. Please proceed with your question.

Speaker 8

Hey, good morning guys. David, just want to clarify that despite kind of the incremental opportunity from a revenue perspective, revenue synergies Paya, the full year kind of rev and EBITDA guide still includes very limited, if any, Paya synergies. Just want to confirm that.

Speaker 3

That's correct. That's correct. That's more of a it's a longer build on the revenue side for sure, even on the cost side, Which will be, like we said in our prepared remarks, more towards the latter half of that twenty four month period. And to the extent there are certainly, there's some that are more current on the Outside, like public company costs, but others take more time. So yes, that's no significant impact from a synergy perspective on our current year outlook, correct?

Speaker 8

Okay. And then Phil, earlier in response, I think maybe to Darren's question, you talked about pricing Trends and that you guys have elected not to kind of increase as we've seen a lot of your larger peers kind of raise price across the board. So Curious there, just pricing philosophy, it's not just SMB, we've seen price increases, we've seen them in e comm as well. So Just curious, have you guys raised price at all? Like how do you think about it?

Speaker 8

It was a lever that you have to pull in the future. Just any comments there would be helpful.

Speaker 2

Yes, certainly, I think you have to break it down by group. So large enterprise clients pricing is not a lever. So it's never been a lever just because Certainly, how they operate. In SMBs, it is a potential lever. I think we'll watch and see how the year kind of But from our perspective now, we typically follow and pass through increases that are happening from card associations and maybe opportunistic on those in terms of what happens In the twice a year increases, but nothing to flag, John.

Speaker 2

From our standpoint, pricing is always a short term leader, right? It's more we're more interested And investing into the future and driving growth with our customers.

Operator

Our next question is from Spencer James with William Blair. Please proceed with your question.

Speaker 9

Hi, this is Spencer on for Bob Napoli. Thank you for taking the question. I was wondering if you could comment on The evolution of the mix of 2 parts of volume, payouts and cross border as a percent of mix and talk about any influence Those might have had on take rate or might on take rate over time?

Speaker 2

Yes. There is nothing to flag in terms of payouts and or cross border. I mean, naturally, we are a cross border business. When you think about global e commerce, our customers operate In a myriad of markets all around the world, so that is our core. In terms of payouts, if you unpack our modules, We provide our customers with a myriad of capabilities, which includes paying and payouts, globally.

Speaker 2

I wouldn't break that down. I think it's Relevant in terms of double clicking and breaking down the volume. I'm assuming this comes from a recent disclosure from D Local, but in our perspective, payouts, cross border, Pay ins, our entire Ethos is to help our customers connect with their customers regardless of solution and regardless of payment modality.

Speaker 9

Thank you for taking the question.

Operator

Our next question is from Paul Treiber with RBC Capital Markets. Please proceed with your question.

Speaker 2

Thanks very much and good morning. Just wanted to if you can elaborate on some of the large implementations you talked about that you expect to deploy in Q2 and Q3. Specifically in terms of large deals, are you seeing more large deal momentum in the past versus the past? And then what fundamentally is I would tell you it's about our perfection of our go to market. So we talked a little bit about this last time, but we've built out our sales enablement teams.

Speaker 2

We really perfected the commercial teams. We have realigned the organizational structure On a regional basis and on a country basis, and that is allowing us to be present and relevant. We have also Built out brand awareness and that is now allowing us to be included in ultimately some very, very compelling RFPs And then just blocking and tackling with our current customers and our current technology partners that is driving the sales momentum. So overall, Very significant pipeline with a lot of discussions on an advanced stage. And we think just in general from a macro perspective, this bodes well to NewWave, right, as Our customers are evaluating payment efficiencies and technical efficiencies.

Speaker 2

We think this just bodes well from an opportunity for Nubay. And in regards to tech investments, you mentioned up 40% year over year. Is that organic or does that include And then can you elaborate like on the key priorities here, which ones do you see as the most impactful to your near term pipeline? Yes, I think the tech investments do, it's a good question, the tech investments do include Paya. Just keeping in mind, right, as we retire Payas, Tech Stack, those resources will be realigned for NewWave.

Speaker 2

So we're excited to have that. In terms of priorities, we put them into 2 key buckets, right? It's the roadmap to execute on our customers' journey themselves. So that is bucket 1, and we And the second is about our own product capabilities that we've prioritized based on vertical customer and geography. So we believe, for example, IV requirements We have in terms of B2B with my life what we think global e commerce, so we prioritize them.

Speaker 2

I wouldn't double click on any of them, but Just reminding everyone that we do well over 150 different product releases a year, and we're really excited about maintaining and expanding our leadership position In our current verticals where we have them and building up a greater challenger position than the ones that we aspire to be larger.

Operator

Our next question is from Todd Coupland with CIBC. Please proceed with your question.

Speaker 10

Yes. Good morning, everyone. I wanted to ask about EBITDA margins, a little bit lighter in Q2 And then implied stronger in the second half of the year. Could you just walk us through the puts and takes of The down couple of points in Q2 and then what brings us back up in the second half of the year? Thanks.

Speaker 3

Hey, good morning, Todd. So good question. I'll start off by just saying, like we've always said, we're building for the future. So we're certainly investing in the company. Q2, specifically, if you talk about the it going down a bit So that 35%, 36% EBITDA margin.

Speaker 3

It includes the first it's the 1st full quarter of Paya. Paya did have a lower EBITDA margin, if you look back at historically about 26% or so. So there is a slight Drag from an EBITDA margin perspective. As we continue to invest in the business, not just on Paya, but just to build incremental growth, Such as brand awareness that we've been doing and just increasing our sales distribution team. So that's part of it too.

Speaker 3

And then as you think about kind of later in the year, Going back up for a full year to be at about 37%, 38% margin, it's in line with where we were at Q1. Certainly, as we build from a new business perspective, that certainly has an impact as well as we put in some of The synergies related to Tapaya, some of that will flow in as well as we go later on in the year. So those really kind of are the building blocks as you think about Step down in Q2 and then it steps back up in the latter part of the year. And overall, you think about our long term margin, like I said at the We're building for the future and that long term target of 50% plus is still something we feel strongly about.

Speaker 10

Okay, that's helpful. And then as a follow-up, if we think about North America, very strong, up 55% In the quarter, a lot of new business, I assume, is ramping and then in the second half of the year. Are there margin headwinds as that new business comes on as well? Is that something to keep in mind or is it simply just the mix shift and higher synergies, etcetera, in the second half?

Speaker 2

I would say, I mean, Todd, as you remember, right, we're in the business of generating gross profit dollars. So ultimately, as those businesses onboard, they will improve operating margin. But we're investing for the long term. So we feel very confident the pipeline And the journey that we take with our customers, they don't just onboard in one country. It starts the birth in one country and allows us to go from country to country.

Speaker 2

So nothing predominantly different to flag for you.

Operator

Our next question is from Kyle Lindgren with Credit Suisse. Please proceed with your question.

Speaker 11

Hi, this is Kyle on for Tim Chiodo. Thanks for taking the question. So Nueva is obviously gaining share and you guys operate across a diverse set of verticals and geographies. But I was wondering if you could maybe discuss the Underlying industry or end market growth that's implied versus the medium term guidance that you've given? Thanks.

Speaker 2

Thanks, Tom. I think where I urge you to go back to is my comments in terms of industry Growth that we've seen in the last quarter, I think we wouldn't go down by vertical by vertical, but we actually build our business case by customer and But overall, we're seeing great momentum across all of our focus verticals. We're expanding our market Share in new verticals like marketplaces, online retail and travel and extending what we believe is a leadership position in our core verticals as well. So I wouldn't flag anything different. I'd urge you to double click on the disclosure in my prepared remarks.

Operator

Our next question is from Richard Tse with National Bank Financial. Please proceed with your question.

Speaker 12

Hi, this is Mihir calling in for Richard. Congrats on the quarter. So I just wanted to ask on Paya, you mentioned that commissions were up due to Paya's sales model. How should we think about that going forward? Will that model be changed more to leveraging NewWave's direct sales force?

Speaker 12

Or How should we think about that?

Speaker 3

Hey, good morning. No, I think part of the model that is just the relationships they have with ISVs and other partners. So certainly, as a percentage of our overall, it will change because obviously this wasn't Q1 wasn't a full quarter of FIES, so we'll have a full quarter in Q2. But from a strategic perspective and how we go to market As it relates to those channels, we don't expect anything to significantly change in terms of how we go to market.

Speaker 12

Okay. And then just one follow-up. Is there room to increase yields on Pius volumes basically by selling payment types like Virtual cards or other higher yielding payment methods for B2B transactions?

Speaker 2

It's a good question. We group that more in To account payable opportunity, but so far, I would urge you to continue understanding PIA's current business. We're in the mix today in terms of growing that current business. And as we add product capabilities, it will be driven by what our B2B partners require and those will be prioritized.

Operator

Our final question is from Kevin Crisciuti with Scotiabank. Please proceed with your question.

Speaker 10

Hey there. Good morning. Thanks for fitting me in. Just a question on Paya, the growth there mid teens, I think you called it. How do we think about how much of that is land versus land?

Speaker 10

And you also mentioned 125% growth in new business growth. I think that was at the company level. How does that look for Paya? And then I did want to ask on any sort of seasonality to think about there given the speed of government in terms of new

Speaker 2

Kevin, I lost track with all the questions. I'll try answering as many of It might be Pia's business is slightly different because we partner with a municipality Or we partner with an ISV or we partner with a B2B. The municipality naturally is a 1 on 1 relationship. So as you implement it, yes, you may extend Some additional value propositions from a product perspective, but that is certainly a land. In B2B, those land and expand where we Create a partnership, we integrate with them and then we cross sell within the VAR network and that typically has a longevity of multi years to generate a significant base within the B2B platform and the same is true for ISV where you partner with that ISV for a particular need and then you're able to

Operator

We have reached the end of the question and answer session. I would now like to turn the conference back over to Chris Mamoni for closing comments.

Speaker 1

Thanks, and thanks, Deborah again. Thanks again for joining us this morning. Anthony and I are both available to follow-up, so Please reach out to Investor Relations with your questions. We look forward to seeing many of you on the upcoming investor conference circuit. We're planning to be at

Operator

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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Earnings Conference Call
Nuvei Q1 2023
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