Good morning, ladies and gentlemen and thank you for standing by. Welcome to Nuvei Corporation's Second Quarter 2023 Earnings Call. As a reminder, this conference call is being recorded. I'll now turn the conference call over to Chris Mammone, Head of IR. Please go ahead, Mr. Mammone..

Thank you, operator, and thanks to everyone for joining us this morning. With us today are Philip Fayer, Chair and CEO; and David Schwartz, CFO. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Nuvei. We broadcasted this information in whole or in part without written consent of Nuvei is prohibited.

Earlier this morning, Nuvei issued a press release announcing financial results for the period ended June 30, 2023. The release as well as an accompanying supplemental slide deck is available on the Events section of our Investor Relations website, investors.nuvei.com.

During this call, we may make certain forward-looking statements within the meaning of the applicable securities laws.

Such forward-looking statements involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of the business or developments in Nuvei's industry to differ materially from anticipated results, performance, achievements and developments expressed or implied by such forward-looking statements.

Information about these factors that could cause actual results to differ materially from anticipated results or performance can be found in Nuvei's filings with the Canadian securities regulatory authority and on the company's website.

Our discussion today will include non-IFRS measures, including but not limited to, adjusted EBITDA, adjusted net income and adjusted net income per share.

Management believes non-IFRS results are useful in order to enhance our understanding and our ongoing performance, but they're not a supplement to and should not be considered in isolation from excessive for IFRS financial measures. Reconciliation of these measures to IFRS measures is available in our earnings release and MD&A.

We'll open up the call to your questions after our prepared remarks during that portion of the call in order to get to as many people in queue within the allotted time, we ask that you limit yourself to 1 question and 1 follow-up. And with that, I'd like to now turn the call over to Phil..

first, the delayed timing of new business versus prior expectations and second, our recent decision to afford a large customer. Dave will cover the updated outlook in more detail. Despite this near-term revision, I never felt better about how Nuvei is positioned to accelerate its growth potential over the long term.

We have a rapidly growing core global commerce channel and a phenomenal potential in our emerging B2B, government and integrated payments channel, and we're executing very well against the wealth of opportunities across the entire business.

Before turning the call over to Dave, I'd like to welcome our new recently appointed board member, Coretha Rushing, Coretha joined Nuvei Board with over 36 years of human resource experience. She is a former Chief Human Resource Officer at Equifax and serves on the Boards of both ThredUp and 2U Inc.

She also further strengthens our corporate governance by increasing the number of independent directors and advances our Board of diversity as Chair of Nuvei, I look forward to working and learning from her. And to our Nuvei colleagues, I want to thank you for all your hard work and dedication you guys are simply amazing.

With that, I'll now turn over the call to Dave..

the first and more significant factor relates to longer lag times than we anticipated between signing and implementing new in-year business. As we've come to appreciate the nature of serving larger enterprise customers is that the time line to go live and begin generating revenue tends to be longer.

The second factor stems from our recent decision to exit a relationship with a large customer. For the third quarter, we expect total volume of between $47.5 billion and $49.5 billion, representing a year-over-year increase of 69% to 76%, revenue of between $300 million and $308 million, representing a year-over-year increase of 52% to 56%.

Revenue at constant currency of between $294 million and $302 million, representing a year-over-year increase of 49% to 53%. And adjusted EBITDA of between $105 million and $110 million, representing an adjusted EBITDA margin of approximately 35% to 36%. For the full year 2023, we are revising our outlook to reflect the 2 reasons I just mentioned.

We now expect total volume of between $193 billion and $197 billion representing a year-over-year increase of 51% to 54%, revenue of between $1.17 billion and $1.2 billion, representing a year-over-year increase of 39% to 42%, revenue at constant currency of between $1.16 billion and $1.18 billion, representing a year-over-year increase of 37% to 40% and adjusted EBITDA between $417 million and $432 million, representing an adjusted EBITDA margin of approximately 36%.

In addition, we now expect full year organic revenue growth at constant currency and excluding digital assets and cryptocurrencies to be between 16% and 20%. In addition, as Phil mentioned, we are amending our medium-term revenue growth target to be between 15% and 20% and are reiterating our long-term adjusted EBITDA margin of greater than 50%.

Overall, we are pleased with our results and continue to be excited about our prospects going forward. I'll now turn the call back over to Phil for closing remarks..

Thanks, Dave. Before opening it up to questions, I'd like to reiterate the key takeaways from today's call. First, our category-leading global e-Commerce business had 35% organic revenue growth, excluding digital assets and cryptocurrencies.

Second, we're well on our way to accelerate the growth profile of our emerging B2B, government and integrated payments channel to 20% plus over the medium term. Third, our revised outlook is due to 2 near-term transitionary effects with no bearing on our robust pipeline of high-profile customer opportunities.

And fourth, our strong cash generation provides us flexibility to delever our balance sheet quickly and return excess cash to shareholders via dividend. With that, operator, we're ready to take questions..

[Operator Instructions]. The first question comes from the line of Will Nance with Goldman Sachs..

I wanted to ask on some of the building blocks of the updated target. The vertical disclosures over the last couple of quarters have been helpful. I just -- if we think about SMB, it sounds like that is going to be relatively flat.

The Paya business has kind of been growing at low double digits, it would seem like the updated guidance implies something like high 20s growth on the 55% of the business that's global e-commerce.

Is that the right way to think about growth going forward? Or are there any refinements to that framework you would make?.

It's Phil. I think you have it in the right ZIP code. So for us, we try to do a channel disclosure to highlight the different segments of the business now with Paya in the fold. Our core channel, we're expecting between 20% and 30% growth in our emerging channel, we are accelerating the growth. It's today 13%.

We believe we can accelerate it and SMB relatively flat. It is down 5% this quarter, predominantly just because of same-store sales movement, but we expect it to be relatively flat. And one thing as you build your models is understand that core is 56% of our revenue today.

But as it continues growing, it's going to be a larger market part of the revenue. So the impact from SMB over time will decrease. And certainly, as Paya and our emerging channel continue driving momentum Combined, we believe that our high growth channels will both be 20% plus and SMB will be a lesser part of the drag on growth in the outer years..

Got it. That's helpful. And then if I can just follow up on the $100 billion pipeline disclosure that you guys gave. How do I think about that in the context of the updated meeting from target if we're maybe thinking about some of the out years in our model? I know you mentioned in the script that like new business is only 20% of the growth.

So if you think about that being a contributor to new business, what can you tell us maybe about voluntary expansion opportunities with the existing customer set that could kind of bridge the rest of that delta..

Yes. So revenue opportunities for us are always built into existing customers and new customers. And I think you've seen just the mirror to press releases that have come up I'm so proud of this team. We are winning ultimately the host who across all of our regions, and it is taking a little bit more time for those clients to activate.

But the opportunities and the quality of business that we've been onboarding this year is truly exceptional. But the onboarding doesn't end, right? So it's taking a little bit longer for us to onboard and that's something that we are reflected in the revised outlook for the remaining of the year.

But the interesting thing is client opportunities have tentacles of continued growth. So it's interesting, the onboard for a particular feature functionality and drive forward as they too have experience with Nuvei enter new countries or consume new solutions. So the $100 billion revenue is a mix of both new.

In year new, you typically see a smaller percentage of the full potential of the customer. and it takes 2, 3 years to really drive the full potential of the customer's existing profile. And naturally, as we add capabilities and geographies, wallet share opportunities as that customer continues developing. So it's a fascinating business.

It's not a sign and done. It's a sign, engage and grow with, which is such an interesting component to the end market that we're servicing in our core channel..

Next question comes from the line of Darrin Peller with Wolfe Research..

I think we'd love to just get a little bit more color on what actually drove the cut to the medium-term guide in terms of the change from what you had anticipated even at the time of the Paya close to now saying the 15% to 20% versus the 20% not too long ago.

Was it -- is there something competitively changing? Was it something about -- just maybe a little more color on what the actual drivers were first would be helpful..

It's David speaking. So we obviously spent time looking at the our medium-term targets. It's important to make sure that we're in line. We talked about in our prepared remarks kind of the great quarter that we have. I think we should start there. Just thinking about the growth that we've seen, right, 45% revenue growth in the quarter on a reported basis.

Organic growth, 20% and then if you think about that core global commerce channel on an organic basis, excluding digital assets, is 35%, so those last 2 data points, the 20% organic growth and the 35% organic on global commerce, excluding digital assets, that's kind of where I'd frame in terms of what our growth profile looks like.

And when you think about that growth profile and the scale that we're at from a revenue perspective, we think that it's class leading and quite impressive. And then Phil talked about, I won't belabor it when you think about the channels, I think that's probably the best way to think about that medium-term revenue growth target that we've set.

And you look -- I'll quickly say it just to make sure that it's clearly understood, but those 3 channels, the core channel at 56% of total revenue. Now it grew at 35% pro forma was 16%, but 35%, excluding digital assets.

And digital assets, we're going to -- we're going to lap that, right? This is the last quarter that there was really an impact starting in Q3, that's pretty much muted.

And then think about the traction that we've just seen in that channel on some of the -- we had a whole bunch of PRs that we mentioned and that we had and wins, whether it's Shein, Cart.com or inDrive, those are pretty good names. You can see the traction that we're building up in that channel.

The downside, at least for the current year is that we did see -- learned a bit more about how timing of some of those larger merchants, how long it takes to kind of get them up and running but we do have line of sight on $100 billion of revenue opportunities.

So that's kind of the core channel and emerging, again, B2B, ISV and GOV, that grew on a pro forma base of 13%, but we certainly have line of sight to 20% plus growth. We talked about the expansion of the ERP platforms.

We talked about some of the government wins and then as well on ISP, some of those 2 large $1 billion plus partners that we signed and if I kind of remind you of the $50 million to $100 million of incremental revenue potential too, that's also on the Paya side, that really plays into that emerging channel.

So if you do the math, kind of weighted average with those growth rates, you get a pretty good sense that, that 15% to 20% is something we feel really confident about achieving and we want to be disciplined in our approach and make sure that the expectations are appropriate.

And so that -- that's kind of the logic of how we got to that 15%, 20% medium term, which is effectively what we're growing at today.

And of course, for the rest of this year and even when we think about medium term, we obviously want to be cautious of how we kind of set expectations?.

Okay. And then, guys, just a little more color on the decision to exit this large customer.

What exactly drove that? And is that anything -- is that really just a one-off to be clear?.

We strive to be down, but North Star in all verticals and use cases globally. I mean that is our commitment across all stakeholders around Nuvei. We have a team of 200 in compliance risk and underwriting focus on doing the right thing for the company regardless of size.

But I think the biggest takeaway is exiting this merchant relationship is just the right thing for Nuvei. These things happen all the time, Darrin, in terms of onboarding and offboarding.

This just happens to be a top 10 customer but I would come back and just say that these things are not scheduled, right? This was a new base decision to exit that particular customer, and we feel strongly that it was the right thing for us to do..

Next question comes from the line of Joseph Vafi with Canaccord Genuity..

Thanks for the extra color here this quarter. I thought maybe we would just first start on Paya here, the large ISVs expanding into some other ERP platforms.

Just would like to know, were these some of these endeavors underway pre-acquisition or how much of that, I guess, extra road map of progress that we're seeing there is kind of post-acquisition and perhaps maybe the beginning of your revenue synergy endeavors here? And then I have a follow-up..

I think it's the beginning of our revenue synergy target. We've been adding resources into the emerging channel. We feel that our technology and additional use cases combine well together, and we're very excited about what the overall opportunity is for Nuvei.

So two additional ERP platforms, significant ERP platforms with the introduction of Sage and Infor, we think Microsoft dynamics will be material as well. But let's not also forget, we've expanded the relationship with Sage into new geographies.

We have active discussions on other ERPs for new geographies, so it's part of the marriage between what Paya brought to the table and what Nuvei is able to deliver together. And we think that is ultimately the foundation for accelerating our footprint in B2B..

Fair enough. And then I guess if we look at the business moving for -- I mean, I guess, I think, Dave, you said that you framed maybe a little bit of the of the headwind here to be more on the ramp of new customers for that customer loss.

I guess, just wondering, is that customer now exited and we think about lapping that in 4 quarters or timing there? relative to exiting that customer?.

No, the customer has been -- we started the exit process in the second quarter. I believe it will be done this quarter. So it's a process to exit clients. but the majority of the clients volume has been moved off Nuvei..

Next question comes from the line of Dan Perlin with RBC Capital Markets..

There's a lot to digest here. I wanted to jump into the guidance and specifically maybe start with third quarter. So it looks like pro forma growth at the midpoint is calling for kind of 14%, and I think you just did 9%. So I guess, one, what's driving the kind of 500 basis point sequential acceleration.

I know FX is about 2 points of that, but it's still like 300 basis points. So I'm just trying to understand why that would accelerate. And then the implied fourth quarter At the midpoint, looks like it gets back to about 8% with a much bigger benefit from FX. So that looks like a bigger deceleration.

I'm assuming that's the client deconversion, but really, you just sounded like most of the volumes are off. So maybe you can help -- help us understand the cadence of that..

Dan, it's David. The -- so obviously, that for the third quarter, we have a pretty good line of sight we're in the quarter now. We feel really comfortable with kind of the growth rate that we're seeing. Certainly, there's going to be some variability within the quarters. Q3, like we said, we lapped crypto. So Q2 is impacted by crypto.

So there's some variability there. And then when you look out into Q4 from a revenue perspective, that's typically seasonally a strong quarter for us. So there is some uptake there from a seasonality perspective. If you're looking purely on the revenue side, of course, we can get into the take rate discussion as well. That's a little bit different.

There's obviously seasonally some lower take rates we see -- but generally speaking, from an organic perspective, the in Q3 and Q4, certainly the loss of the customer impacts and then, of course, the off-boarding -- sorry, the new business kind of timing both of those transitory.

And so granted over time, we see that the revenue starts to come back up to that 15% to 20% level that we have on the midterm target. But effectively, there's nothing specific to call out other than crypto impact in Q2, of course, you mentioned that the FX impact that is more impactful in the second half.

As you can see, the first half impact was somewhat of a headwind. Second half is somewhat of a tailwind Overall, when you look at that FX impact on our total revenue from a percentage basis, it's not huge, but it does add up in terms of dollars. So there is some fluctuation there on the FX side, both in Q3 and slightly more in Q4..

Okay. That's helpful.

Just philosophically, I was a little surprised to see you guys starting to pay a dividend kind of this early in your growth, I guess, algorithm? So Phil, can you just maybe talk about how that discussion even came about? Obviously, you have the free cash flow to handle it, but most companies at this growth stage probably not dividend payers yet.

So anyway, you can just kind of contextualize how that conversation went to arrive at this point..

We strive to set the pace guide. I think that's the biggest thing. But in all seriousness, people forget that we're high growth, and we're highly profitable and we're generating a tremendous amount of free cash flow that provides us flexibility.

I think as we started exploring returning cash to shareholders via buybacks or dividend, the dividend boded better for us just because of the limited float and we do think we'll open up a new line of investors for us, and it's just a continuation of our capital allocation strategy of how we intend on returning capital to shareholders via dividend and buyback..

Next question comes from the line of Todd Coupland with CIBC..

Great. I wanted to circle back to the lost customer. If you could just -- maybe I missed this, talk about -- why do you want to exit that relationship..

Todd, just out of respect, it's nothing that we would consider doing. These are all great businesses that have their own success in journey, but it was no longer a fit for Nuvei. I'm proud of our team for making the right decisions. We expect this customer to continue thriving.

But from a profile perspective, it's not a client for Nuvei and we'll leave it at that..

But there should be not any impression left that this is a competitive exit. This is a Nuvei decision..

We've talked about that correct..

Yes. Okay. Secondly, I wanted to ask about -- you got the breakdown on growth by your new segmentation. Can you just talk about the EBITDA margin profile or path in those segments, maybe qualitatively to start to get you towards your longer-term target..

Todd, it's David. So in terms of the channels, I mean, we don't specifically talk to the EBITDA margins of each. We really -- there is infrastructure across the company that really supports all those channels. Of course, the -- we talked about the growth profile in both the core and emerging channels.

So those profiles and that growth rates certainly will contribute more so as we look forward to our both the revenue but also to adjusted EBITDA margin, especially as the legacy business is flat to declining.

In terms of that, the long term, the 50% plus long-term EBITDA margin target, that's something that we still feel very strongly and this is a business that -- it is at scale and continues to grow and nothing has changed. Fundamentally, nothing has changed in the business. So that target still holds well.

We talked a bit about the incremental revenue we talked about last quarter, you mentioned it again a bit this quarter, but on the Paya revenue synergy opportunities, there's about $50 million to $100 million of incremental revenue that's there.

So that will certainly contribute not just to growth but to EBITDA margin expansion as we have the platform that can scale and absorb that revenue with a high contribution to EBITDA margin. So we feel very good about and very confident about that long-term 5% EBITDA margin and correspondingly, our growth rates that are going to get us as..

Next question comes from the line of Bob Napoli with William Blair..

I was going to dig into margins a little bit. Just any commentary kind of on the path of the -- what we should expect on an annual basis? Do you have a target for expansion on an annual basis? Or I mean, obviously, there's a lot of operating leverage and 15% to 20% growth is -- there was still very good growth.

So just any commentary on what we should expect on, as we look at 2024 kind of margin expansion from current levels and it may be annually..

Bob, it's David. Nothing specific that we've targeted externally. Of course, internally, we have our own expectations. That ramp to get to 50%, of course, there'll be there'll be certain things that will result in maybe step-ups, so incremental.

So as we do certain things from, let's say, from an integration, implementation, in-sourcing perspective, when you think about costs. So there could be some one step items that happen along the way. But at the same time, there will also be some gradual increase in margin just as we continue to scale and grow on the top line.

So it takes a bit of a function of both. And certainly, that 50% plus target is, like we said, it's over the longer term. So I think about that as 5 to 7 years out. But nothing specific and nothing that's a large one step, Bob.

It's more kind of incremental steps along the way as we continue to do the things we do from a product technology integration perspective..

And then I don't -- I think you said what sector the customer that you deconverted is in what vertical they were in.

And just as you adjusted your guidance this year, how much of the change is from the timing, I guess, of onboarding versus the deconversion?.

Yes, Bob, we're not going to double-click on the customer specifics. And I would tell you, just for the second question, it feels about 2/3, 1/3, 1/3 customer, 2/3 delayed in implementation..

Great. And I guess if I could sneak one last one in. Geographically, where are you doubling down or -- and given the lower growth rate profile that you're targeting, which is still very good.

Are you pulling back on investments in any area?.

Well, it's interesting on is we've made the investments already. So we actually have lots of white space in APAC and LATAM as we continue growing. We see North America has a lot of opportunity for us as well. So we have we have pending licenses and other infrastructure that's actually already been expensed. So we're going to execute on those..

Next question comes from the line of Jason Kupferberg with Bank of America..

Phil, I'm just curious what your overall assessment of execution across the organization? It seems like the market opportunity is very real. But forward-looking expectations have been a bit of a moving target..

Yes, it's a good question. I think ultimately, as we're moving upmarket and just how fundamentally the business has changed, Jason, we're learning as we go through it. But I think you have to keep in mind, right, over $1 billion of revenue, over $400-plus million of EBITDA, significant free cash flow and profitable growth.

I think we're in a very unique circle, Jason, and our disciplined growth in terms of meaning not revenue at all costs, but our disciplined growth is paying we think, is a very compelling path for future growth. Our objectives are high, and we think that there's a lot of scaling left for us to do in every one of our regions in our channels.

So I think the team is doing a really great job, and I'm really proud of every new employee in terms of execution..

Okay. And then I guess just coming back to guidance. I guess if we look at the second half in aggregate, the implication is that organic growth ex crypto will be around 13% on average in the second half. So that's below the updated medium-term revenue guidance and I respect some of the factors impacting this year are transitory.

But just how would you encourage investors to get comfortable that the growth can really reaccelerate comfortably and sustainably into that 15% to 20% range as we look at 2024 and beyond..

It's David. The -- yes, I think that observation is correct, Jason. But really, when we think about -- it's like you said, when you think about the rest of this year. It's really those 2 transitory factors, the off-boarding of the large customer and the timing of new business. So that's really the impact of what we see for the rest of the year.

that will lap as we go forward. And I guess the way that I would frame it is coming back to we said at the beginning, 2 things.

One, thinking about the channels and thinking about how those -- the growth profiles of each one, specifically core and emerging and if you drill down just the drill down and kind of strip away the onion and you can see the growth of those businesses, right? So 35% excluding digital assets, cryptocurrencies, and then just overall in the business, 20% and then the emerging business, again, the 13%, but with really good upside and line of sight on the 20%.

So that's -- that's what I would say in terms of how to think about the go forward and the medium term. We're in that zip code down to 15% to 20% or even to some degree above if you look at the core business. So we feel really confident about that medium-term target. And we feel that, that's going to be very achievable for us.

And Phil mentioned in the prepared remarks, like we'll continue to look at that target, but there's certainly, we feel good about it. And I'd say also this rest of this year, especially as it relates to Q4, I think we have some caution built into our outlook. I think that's another important factor to think about when you think about Q4..

Next question comes from the line of Tim Chiodo with Credit Suisse..

Great. I think we kind of covered this in terms of what's implied in the medium term. But if we look at those -- the 3 buckets, so core global commerce, ballpark, 55% emerging ballpark 20% and legacy ballpark about 1/4 of the revenue, just using round numbers.

But core global commerce implied in the guide, I'm assuming it's in sort of the 20s to low 30s emerging potentially approaching back towards 20%, I believe you said.

And then I guess the main question was for legacy SMB within the medium-term guide, are you implying that it will be cagering at maybe a slightly negative rate over the coming years in the medium term? And then the brief follow-up is on the legacy SMB. I know you mentioned that it is nonintegrated into software.

Can you just talk about how that business is or was distributed? Was it direct sales going to SMBs? Was it through third-party ISOs or just in general, what the distribution approach was for that portion of the business?.

It's David. On the first part of your question, kind of what we baked into the guide. So on the SMB on the legacy business, like we said, like Phil mentioned it earlier, it is kind of mid-single-digit decline now is what we're seeing A lot of that is driven by same-store sales.

We suspect that from a go-forward perspective, it's flat to maybe slightly negative is kind of where we see that business. In terms of distribution on the legacy side, it was really all through indirect. I mean these are really SMBs indirect. So we're going through partners, through relationships to the feet on the street to win that business.

And so that's kind of that distribution model, which is slightly different, of course, in our core, which is really direct and then on the emerging side, it's indirect, but it's through technology providers, let's call it, technology partners, you think about ISPs and that sort.

Whereas on the SMB, it's more of a feet on the street in the rec relationship. So it's kind of a one to many through our partners that are on the street..

This concludes today's question-and-answer session. I would like to turn the floor back over to Chris Mammone for closing comments..

Thanks again to everyone for joining the call today. The IR team, both Anthony and myself are available for follow-up calls and questions. We look forward to speaking and seeing you out on the road. Bye for now..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..