EVO Payments - Q1 2022

Transcript

Operator (participant)

Good morning. My name is Joseph, and I will be your conference operator today. At this time, I would like to welcome everyone to the EVO Payments First Quarter 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press star and the number one on your telephone keypad. Thank you. Ed O'Hare, you may begin the conference.

Ed O'Hare (Senior VP of Investor Relations)

Good morning and welcome to EVO Payments' first quarter earnings conference call. Our press release and supplementary slides are available on the investor relations portion of our website. Before we begin, I want to remind all listeners that EVO Payments is acting under the safe harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call, such as projections regarding future performance, may be considered forward-looking statements within the meaning of the act. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press release and filings with the SEC.

Please refer to our press release for an explanation of the non-GAAP financial measures discussed in today's call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Today, we discuss our first quarter results and overall business performance. Joining me on the call is Jim Kelly, our Chief Executive Officer; Tom Panther, our Chief Financial Officer; Darren Wilson, President of the International Segment; and Brendan Tansill, President of the Americas Segment. I will now turn the call over to Jim.

Jim Kelly (CEO)

Thank you, Ed. Good morning, everyone, and thank you for joining us today. In the first quarter, EVO demonstrated strong performance across our markets as we executed on our solid sales strategies to capitalize on the favorable macroeconomic trends across the Americas and Europe to grow the business. To begin today's call, I would like to acknowledge the ongoing tragic events in Europe following Russia's invasion of Ukraine in February. As you're aware, we have a very significant business in Poland, which shares its eastern border with Ukraine. Since the hostility in Ukraine began, over 3 million people have crossed the border into Poland, resulting in higher volumes across all verticals in our Polish market. Darren will provide more detail regarding the war's impact on our business later on the call.

In the first quarter, the company demonstrated volume growth of 26% compared to the first quarter of 2021, which is the third consecutive quarter of volume acceleration. On a constant currency basis, revenue grew 23%, adjusted EBITDA grew 21%, and margin of 32% remained flat with the prior year. These results reflect our ability to execute on our well-established bank referral and tech-enabled distribution strategies across both Europe and the Americas, which includes growing our existing channels and a key focus on new capabilities and M&A activity. In our bank channel, we continue to make progress on a joint venture in Greece and have completed all the necessary actions to launch this business later this year upon receiving regulatory approval. Darren will further discuss our business in Greece later on the call.

In our tech-enabled channel, we continue to sign referral partners and expand our capabilities across all our markets. Specifically in the U.S., we completed a native API integration to the Acumatica ERP system and now have four certified ERP integrations which will grow our B2B business. As we move further into 2022, I'm excited about the sales momentum we have generated in the first part of the year and look forward to continued strong performance across the company. I am confident that we will be able to execute on our strategies and generate solid top line and bottom line growth for the company, given the diversification of the business, the cash to card tailwinds across our markets, and our significant M&A pipeline and capital capacity. I will now turn the call over to Darren, who will discuss our European business in more detail. Darren?

Darren Wilson (President of International Segment)

Thanks, Jim. For the quarter, Europe's constant currency revenue increased 51% and volume increased 40%. These results were largely attributable to our strong sales execution across our bank referral and tech-enabled channels, as many COVID-related restrictions were lifted throughout Europe. Additionally, we also benefited from strong DCC volumes across many of our markets, which reflects the increase in cross-border activity during the quarter. As reflected in this quarter's financial results, we are experiencing broad-based growth across all of our markets and industry verticals. The strong rebound in economic activity is further evidenced by our continued new business wins from our bank and tech-enabled referral channels this quarter. In Ireland, for example, we signed the Gucci and Montblanc stores in addition to the Select Group, which is the premium Apple reseller in Ireland and the U.K.

In Germany, we renewed and expanded our relationship with a large online clothing retailer, C&A, and will now process for this merchant across 22 countries in Europe. Further, we strengthened our portfolio in Poland and the Czech Republic as we signed new merchants via the respective cashless programs which remained in effect in both markets. Our strong first quarter performance is driven by our solid sales execution, which is supported by our well-established bank referral relationships and our compelling suite of products and services.

To drive accelerated growth for our European portfolio, we are also expanding our tech-enabled referral network across all markets by signing new partners and enhancing our existing relationships as we continue to invest in our integrated software capabilities. In the first quarter, we enabled open banking solutions in Poland to support bank transfers at the physical point of sale and online via our Pay by Link capability.

We also launched the SoftPOS smartphone terminal application for our Czech merchants earlier this year, which is continuing to generate new business as these merchants embrace software at the point of sale. We will look to extend these capabilities to our other European markets later this year. Turning to Greece, we have continued to make progress to launch our joint venture in the market since our last call. Our executive team has recently made several trips to Athens to meet with NBG's executives, and both parties remain excited about the development of our business integration plan and sales and marketing campaign. We will be ready to launch operations in Greece upon securing regulatory approval, which we now anticipate occurring in the fourth quarter of this year.

Lastly, we are working with our bank partners in the Czech Republic, Raiffeisenbank and MONETA, to identify additional growth opportunities as both banks recently announced acquisitions in the market. We look forward to further enabling digital payment acceptance and increasing market share in the Czech Republic now with the expansion of our existing referral channels. As we execute on our bank and tech-enabled sales strategies across our European segment, we look forward to the continued growth of our business and strong financial performance. We're excited about the continued resumption of cross-border activity, including DCC, and the launch of our business in Greece, which will accelerate revenue growth for the segment. As we continue to expand our European footprint, we are also making additional investments in market-leading products and capabilities to enhance our market share and maintain strong growth in the region.

Before I turn the call over to Brendan, I would like to follow up on Jim's comments regarding the crisis in Ukraine and its impact on our business. We have no merchants or third-party service providers in Ukraine or Russia. However, the war has indirectly impacted our Central and Eastern European business. As Jim noted, there has been a significant influx of Ukrainians into Poland and adjacent European markets, which has resulted in increased consumer spending since March, specifically in Poland. With regard to the sanctions placed on Russia, we have implemented certain system functionalities to prevent processing for Russian and associated Russian territory-issued cards. In Poland, we've also recently enabled our terminal to provide a donation option at the point of sale to allow our merchants and their customers to show their support for Ukraine.

Further, we are working closely with our partner bank, PKO Bank Polski, to support Ukrainians in the market, demonstrated by our donation to the bank's refugee fund, our other charitable activity, and special thanks go to the significant efforts of our Polish employees who are offering significant support to the refugees and those adversely impacted by the war. We remain focused on enabling digital payments for all merchants and consumers in our European markets as we work to facilitate economic activity and the flow of commerce to assist this region during this extremely challenging period. I will now turn the call over to Brendan, who will provide an update on our Americas segment. Brendan?

Brendan Tansill (President of Americas Segment)

Thanks, Darren. For the quarter, the Americas constant currency revenue increased 9%, which reflects the segment's 11% volume growth in the quarter. These results were largely attributable to growth from our bank referral channels in Mexico and Chile and our tech-enabled businesses across all markets. Beginning with Chile, we demonstrated accelerated growth once again in the first quarter as we worked closely with BCI to accelerate our bank referral activity and continued to sign new e-commerce merchants via our Pago Fácil acquisition. We now have more than 10,000 merchants in Chile, less than a year since launching operations in the market, and our new merchant signings are accelerating month-over-month.

In Mexico, consistent with previous quarters, we demonstrated mid- to high-teens volume and adjusted revenue growth of 18% and 15% respectively, driven by our bank referral channel as COVID-related restrictions abated and customers resumed in-store buying activity. Turning to the U.S., our tech-enabled channel is delivering strong results this year as we continue to expand and enhance our referral network and build out our products and capabilities to drive growth for this market. In the first quarter, our tech-enabled revenue increased 13% compared to the prior year, which reflects our ISV and B2B growth and strong momentum for our repositioned direct e-commerce business.

In our ISV business, we continue to distinguish ourselves from our competitors in the U.S. by providing superior customer service and market-leading technology, which enabled us to sign new merchants and delivered strong financial performance in the quarter. In our B2B business, we continue to execute our organic sales strategy by forming new integrated payments partnerships that allow us to sign new merchants through a growing referral network. Most recently, we completed a certified native integration to the Acumatica ERP system, which has already enabled us to sign new customers. Further, this integration expands our opportunity to sign new referral partners who offer Acumatica products as part of their software offering. As the world's fastest-growing ERP system, Acumatica has more than 8,000 customers and relationships with approximately 250 value-added resellers. Their customers represent nearly all industry verticals, including retail, construction and manufacturing, consumer services, among others.

This is EVO's fourth proprietary integration to a scaled ERP solution since we entered the B2B market in 2017, and we are excited to build market share among Acumatica users as we continue to expand our suite of integrations to additional ERP systems. Many of our existing distribution partners in the B2B business already operate in the Acumatica channel, and this new integration should increase our penetration of those partners' customer base. Lastly, I would like to provide an update on the repositioning of our U.S. e-commerce business, which we announced on our last call. Since we expanded the capabilities of our B2B PayFabric gateway to process B2C transactions, we are continuing to sign a steady stream of referral partners across a range of industry verticals, particularly those that require subscription or alternative forms of recurring payment capabilities.

These verticals, such as field services, healthcare, and veterinary, are under-penetrated compared to traditional retail e-commerce and will provide additional growth opportunities for our U.S tech-enabled channel to complement our ISV and B2B businesses. I am pleased with the performance we are demonstrating in 2022 as we execute on our sales strategies across our markets. With that, I will turn the call over to Tom, who will cover the financials in more detail. Tom?

Tom Panther (CFO)

Thanks, Brendan, and good morning, everyone. As previously noted, EVO delivered strong results for the quarter, providing a solid start to 2022. On a constant currency basis, revenue increased 23%, adjusted EBITDA increased 21%, and margin of 32% remained consistent with the prior year. These results reflect strong volume growth in the quarter, which increased 26% compared to 2021 and 32% compared to 2019 as lingering COVID-related restrictions were lifted in Europe and economic activity rebounded across all of our markets. With respect to segment performance, in Europe, our year-over-year constant currency revenue increased 51% and adjusted segment profit increased 82%. Our European performance reflects the widespread easing of COVID-related restrictions, which remained in effect during the first quarter of 2021.

In addition, the increase in cross-border activity resulted in DCC revenue tripling compared to the prior year and increased more than 20% compared to pre-pandemic levels. In the Americas, year-over-year constant currency revenue increased 9% and adjusted segment profit increased 13%. Adjusted corporate expenses for the quarter increased $3 million, primarily due to the deferral of certain personnel costs in the first quarter of 2021 when COVID-19 was having a significant impact on our business. We continue to actively manage our costs to mitigate the inflationary pressure we're experiencing across our markets. Adjusted net income for the quarter increased 51% to $19 million compared to last year, and adjusted net income per share for the quarter was $0.20, which increased $0.07 or 54% compared to a year ago.

At the end of the quarter, diluted shares totaled 95 million, an increase of 1 million weighted average shares compared to the prior year. In the first quarter, capital expenditures were $8 million versus $11 million in Q1 2021. Of this amount, approximately 65% was for terminals as we continue to capitalize on the strong cash to card tailwinds and board new merchants. Free cash flow for the first quarter increased 67% to $28 million compared to the prior year, resulting in a free cash flow conversion of 71%, driven by our strong earnings and lower interest expense from the refinancing of our debt in the fourth quarter. Our capital position remains extremely strong with over $200 million of available cash and $200 million of capacity under our revolver.

The generation of free cash flow and the active management of our balance sheet resulted in us lowering our leverage from 2.8 times a year ago to 2.0 times at the end of the first quarter. Turning to our outlook, 2022 is off to a good start, and we're encouraged by the recent business trends we are seeing across our markets. However, we remain cautious about the global economic uncertainty from the crisis in Ukraine, lingering supply chain constraints, and the recent surge in inflation. As a result, we are maintaining our previously issued 2022 guidance, which anticipates revenue growth of 11%-13%, adjusted EBITDA growth of 13%-15%, and 80-90 basis points of margin expansion.

Given our first quarter performance, we now expect our revenue and EBITDA growth rates to be at the mid to high end of these ranges. Specifically for the second quarter, we expect revenue growth to be slightly above the full year growth rate and margin to modestly increase compared to the second quarter of last year as COVID continued to impact our markets during the early stages of Q2 2021. These results exclude the incremental earnings from any acquisitions that closed during the year and assume FX rates remain consistent with the first quarter. With that, I'll turn the call back over to Jim. Jim?

Jim Kelly (CEO)

Thanks, Tom. Our strong results demonstrate our continued ability to execute on our strategies and growth initiatives despite the global and economic challenges we faced over the last few years, particularly COVID-19, now the war in Ukraine, and more recently, inflationary pressures. Across our developing card markets in Latin America, Central and Eastern Europe, and Greece, we remain focused on investing in technology-driven solutions to support card adoption. Domestically, we are building out our software solutions in key under-penetrated verticals, particularly B2B and e-commerce, to drive long-term revenue and EBITDA growth for our business. After more than two years since the onset of the pandemic, we are proving to be well-positioned for the recovery in consumer spending across Europe as cross-border travel and related DCC activity increases across the segment.

Similarly, our new merchant sales have continued to accelerate as they respond to the increasing consumer demand for digital solutions at both the physical and online point of sale. Our adjusted EBITDA margin of 32% this quarter is up 400 basis points from Q1 2019, driving our continued high free cash flow conversion, yielding us substantial dry powder to drive increasing shareholder value. Both our margin and cash flow remain a key focus of our business as we continue to prioritize investments in our products and services and M&A opportunities to further accelerate our growth and expand our global reach. With that, I will now turn the call over to the operator to begin the question and answer session. Operator?

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, press star and then the number one on your telephone keypad. We'll pause for just a moment to compile a Q&A roster. Your first question comes from the line of Tien-Tsin Huang. Your line is open.

Tien-Tsin Huang (Senior Analyst)

Thank you. Good morning, everybody. Just really strong results here, especially in Europe. I wanted to ask on that, Europe coming in well ahead of the Visa, Mastercard benchmarks on volume and transaction growth. What would you, Darren, attribute the outperformance to? How much is like you talked about easing COVID restrictions. How much of that is unique to you? It sounds like DCC played a role. Of course, new sales from bank referral and tech-enabled as well. Just trying to better understand the benchmark and on the outperformance side. Thanks.

Darren Wilson (President of International Segment)

Thanks, Tien-Tsin. I appreciate that. I think you answered your own question there. Absolutely. Q1 saw excellent new merchant sales across all channels, but specifically the tech-enabled division is doing really well in terms of ISV led opportunities and e-commerce. But the volume recovery, yeah, is really across all sectors. With the markets opening up, travel is back and travel being domestic travel, so people getting back to work, people staycationing as well domestically, but also business international travel coming back as well. So travel across the board, restaurants back trading now lockdowns or restrictions are lifted. Obviously, there's some inflationary effect of just underlying cost increases having some impact, but not at a level that's curbing spending. So that's encouraging trends as well.

The e-commerce business is maintaining the high level of growth rates we saw through the pandemic. It really is across all sectors or verticals and all channels. Encouraging trends consistently across most markets.

Tom Panther (CFO)

Just to add to that, if you recall in the comments, Tien-Tsin, that you know, the war in Ukraine, as horrific as it is, it had some economic benefit to the Poland business. Their revenue was up. How much was it? 40% to 50%?

Jim Kelly (CEO)

Well, volume was up about 50% revenue was up probably 18% to 19%.

Tom Panther (CFO)

That was a benefit. I had just come back from Europe. Actually, Tom and I were there a couple of weeks ago, and each of our markets showed very strong growth. The U.K. market with integrated Irish market, very strong start to the year. Spain as well was off to a good start. You know, we've lapped the Banco Popular stuff, and they were also heavily impacted by COVID. It was really across the board. Echoing what Darren said, you know, while we were over there, while we're not European, we haven't been there in a few years, it seems to be a very busy place these days. We're in Greece as well. The restaurants are full. It's a very good sign for, I think, for the coming summer months of travel.

Tien-Tsin Huang (Senior Analyst)

Agreed. No, it's good stuff. Just my quick follow-up, if you don't mind, moving to the upper half of your guidance, that's encouraging and different than your peers. I'm curious what trends are you seeing in April? Jim, given your comments around the summer, just how much are you weighing conservatism in that outlook versus, you know, maybe something that you're seeing differently here in the recent days and weeks? Thanks.

Jim Kelly (CEO)

You know, we stayed within the guidance. I think we just felt like we were off to a good start. Maybe it was somewhat informed by what I just described. The GMs across the markets, Latin America as well, and the U.S., I think is performing equally. You know, we stay within the range, and we were just trying to narrow our expectations, at least at this stage now. Clearly, the overhang is, you know, where does this war ultimately end up? That maybe we have felt the effects of that, but, you know, that's always our concern. Inflation, you know, where does that go? The potential of a recession. You know, there's definitely factors out there that could pull back.

Given what we've seen thus far, we felt comfortable to stay within the range and guide up a little bit from where we had started, a month or so ago when we gave our original guidance.

Tien-Tsin Huang (Senior Analyst)

Appreciate the prudence. Thank you, guys.

Jim Kelly (CEO)

Okay. Thanks, Tien-Tsin.

Operator (participant)

Your next question comes from the line of Ashwin Shirvaikar. Your line is open.

Ashwin Shirvaikar (Managing Director)

Thank you. Good morning, folks.

Darren Wilson (President of International Segment)

Good morning.

Ashwin Shirvaikar (Managing Director)

Very good quarter here.

Darren Wilson (President of International Segment)

Thank you.

Ashwin Shirvaikar (Managing Director)

I have a few sort of, you know, clarification questions, Europe-related. One, just to start, if DCC as an input is sort of normalized at, let's call it 2019 levels, how much incremental benefit would that bring you, and is that incorporated in your outlook? Then a similar kind of numerical question. I know this is a difficult one, but is it possible to size the benefit or beneficial impact from Ukrainian refugees?

Tom Panther (CFO)

Ashwin, good morning. It's Tom. On your first question, if you look at our expectations around 2022 to pre-pandemic levels, as I mentioned in my comments, we saw quarter-over-quarter a 20% increase in DCC. You know, some of that has to do with quarterly effects. I think full year is a better way to look at it, and we would see DCC up about 10% relative to full year 2019. That's what's factored into our thought process. Again, some of that's gonna be dependent upon cross-border activity and what we see. We're pretty bullish. Not sitting here in Atlanta, but talking to our GMs in the local markets, we're pretty bullish with the level of cross-border activity that we anticipate seeing.

That's gonna be international travel as well as pan-European travel. If you recall last year, we saw most of the travel confined to within Europe. Now we're seeing a lot more international travel. To your second question, minimal related impact from DCC associated with Ukraine in particular. Not to get too far into the weeds, but we actually have the benefit of having our GM from Poland in Atlanta this week. We had the opportunity to visit with Joanna. She was, you know, educating us on a little bit of the ebb and flow in terms of the way Ukrainian-issued cards are being handled from a DCC perspective.

There was a period of time where we were able to charge DCC on a Ukrainian-issued card, but more recently, the Polish government has pulled back on that and has suspended Ukrainian issued cards that have DCC. I don't know the percentage of our DCC volume that comes from Ukrainian issued cards, but I would venture to guess that it's.

Darren Wilson (President of International Segment)

It's pretty negligible, Tom. To the point, the margin, Ashwin, that we charged on Ukrainian DCC was very modest against standard DCC margins, typically because the government guidance in Poland was really not to penalize already pretty penalized individuals. Now, as Tom says, there's zero DCC margin on any foreign exchange product in the country, so bank transfers, let alone card transfers. Really there's no DCC lift from the Ukrainian side. There's obviously been some volume lift in terms of Ukrainians spending in Poland domestically, and that's within some of the Poland growth numbers. To be able to carve out specifically what was Ukrainian transactions against domestic, as we said, it's a de minimis part of the volume, so it's a negligible impact.

Tom Panther (CFO)

Ashwin, and for the rest of the group, I wanna clarify one comment I made when Jim was speaking 'cause I was looking at a wrong reference point. Volume is up just shy of 50%, and so is revenue. I referenced earlier 18%. I was looking at a different frame. I was looking at a different relative point. Volume and revenue are moving in consistent patterns.

Darren Wilson (President of International Segment)

You should stop correcting me. Remember I used to be a CFO.

Tom Panther (CFO)

I will learn from my mistakes.

Darren Wilson (President of International Segment)

We'll talk about it later.

Tom Panther (CFO)

I am humble enough to admit them when they occur.

Darren Wilson (President of International Segment)

You're gonna have to file something otherwise.

Ashwin Shirvaikar (Managing Director)

Thank you for that. Jim, you mentioned Europe also increased. Is there any update on timing that you can provide and, given just the, you know, very good quality of your balance sheet, are there, you know, other countries you're thinking of already, or?

Jim Kelly (CEO)

Sure. I guess in the first question, I don't have a crystal ball. I think if we're super lucky, it'd be the third quarter. It's probably more likely the beginning of the fourth quarter. The only reference point we have was Euronet's acquisition of Piraeus, and I think it took almost 365 days to the day to actually close. There's two in front of us. Maybe the hope is they get faster at it as they do more and more. When I had dinner with Paul, the CEO of the bank, a few weeks ago, you know, they didn't seem to have any greater insight. Given their position in the marketplace, and he and his team are very encouraged about the opportunity to get this thing closed and move on.

You know, potentially we can pull it back, a little bit.

Darren Wilson (President of International Segment)

In the subsequent applications. The first one took a year, the next approval took six months. The regulator's getting more used to these transactions and structures. Consequently, we are still targeting the end of Q3 for that respective approval.

Tom Panther (CFO)

On the second one, I appreciate you saying that our balance sheet looks really good. That's been a few years before I've heard that. You know, in terms of what countries, I think we're gonna stay with the theme that you've seen. While we are across much of Central and Eastern Europe by virtue of following large customers out of Poland, I consistently encourage Darren and the team over there to look for bank partners just as a bigger wedge into the marketplace just to have more presence in these very, very fast, high-growing markets. I think for Brendan and South America, that remains a high priority to find our way into other Central and South America markets.

You know, we look, as I said in the comments, we look to put the balance sheet to work and, you know, as the world is maybe passing the COVID-19, you know, dealing with the inflation and the other stuff that's going on right now, I think we'll see more and more opportunities pop up on the market.

Ashwin Shirvaikar (Managing Director)

Okay. Thank you. Keep up the good work.

Tom Panther (CFO)

Thanks, Ashwin.

Operator (participant)

Your next question comes from George Mihalos. Your line is open.

George Mihalos (Managing Director)

Great. Good morning, everyone, and thanks for taking my question. I guess first question, Tom, as it relates to the guidance and reiterating the 11% to 13% on the top line, given stronger, bigger FX headwinds, is the right way to think about it that on a normalized constant currency basis, you're basically growing kind of call it, you know, 14% to 16%, if that's what you're looking at sort of a 3-point headwind, but the constant currency growth is considerably higher?

Tom Panther (CFO)

George, you got that exactly right. Just look at Q1 as a data point. Constant currency was 23%, reported was 20%. If you look at the quarterly FX in Q2, Q3, and Q4 of last year, where the euro and the pound was in particular, it was, you know, around 1.16. Now it's obviously around 1.05. It's about on a year-over-year basis, 3 percentage point headwind to us. We did factor in what rates have done so far this year in that guide. We obviously can't predict where they go from here to date. As Jim said, we've been able to earn our way through it. If they hold, then, you know, we feel pretty good with where we are in that mid to high teen.

You know, keep in mind we only have three months in our rearview mirror, and there's a lot going on in the world, a lot of global macroeconomic inflection points with FX and inflation, COVID waning, consumer spending. Some people are talking about recession. You know, all of these are, some are positive, some are negative. You know, we felt like we'd be balanced for us to hold the line, signal where in the range we see things trending, and let another 90 days lapse before we revisit guidance. The other piece I'll give you just as a way of information, when you think about the construct of our business, about a third of an FX headwind or tailwind affects EBITDA.

While you get an impact to revenue, you also get an offsetting, not equally, but an offsetting impact to expenses. Not all of that flows through the bottom line. The other piece of information to help you think about this, obviously, using round numbers, 40% of our business is USD. Peso is 20%. Zloty is about 20%, a little bit shy of that. Euro 15. If you're keeping score, the residual five is in sterling in our U.K. business. While the euro has taken a beating, the peso and the Zloty have generally held in there, more the peso than the Zloty.

Although the Polish bank has been quick to raise rates, which I think has been helpful to the Zloty, so it hasn't taken as big a beating as the euro. Again, we take all of these things into consideration and that's where we landed. I'll end with where you started, and that is when we talk to our GMs in Mexico City and in Warsaw and in Madrid and in the U.K. and in Dublin, they're neutral to all of this. What they talk about is what they're seeing with their merchant portfolio, with their volume growth, what they're seeing with transactions, and those core health indicators of the business when you take the effect of FX out, are very encouraging.

George Mihalos (Managing Director)

Well, that's great. Really appreciate the color and the clear outperformance. I guess just on that point, two quick ones here. You mentioned obviously Poland up 50%, but it sounds like throughout all of Europe, your performance is exceeding your expectations. Then just quickly for Brendan, the 13% tech growth in the Americas. Do you happen to have a rough breakdown of ISV versus B2B? Thanks, guys, and congrats on the results.

Tom Panther (CFO)

I think you threw a couple in there, George, but yes, Europe overall is doing well. Poland was the leader of the pack, both in size. They have more of a tailwind from DCC, but all of Europe in terms of volumes, you saw on the slides that we distributed that year-over-year volume growth for Europe was up 40% compared to pre-pandemic 44%. It wasn't just an easy comparable. It was also up, you know, four handle relative to 2019. With respect to U.S., what you're seeing in terms of growth, ISV is leading the way. You know, it was mid to high teens. B2B not that far behind.

We've talked before about e-comm being a little bit of a laggard relative to kind of that three-pronged mix of tech-enabled. The businesses that we're investing in, you know, we see them you know in that low-teen, low- to mid-high-teen kind of consistent growers. Quarterly, you're gonna see some unevenness. I think I'd be cautious about looking at things on a quarterly basis, particularly sometimes in these businesses where onboarding can be a little bit lumpy and things like that. Overall, ISV and was the highest grower, and B2B not far behind.

George Mihalos (Managing Director)

Thank you.

Operator (participant)

Your next question comes from the line of Kartik Mehta. Your line is open.

Kartik Mehta (Executive Managing Director)

Good morning. Maybe Darren or Jim, just on Greece, I know you said that you think it'll close in the fourth quarter. I'm wondering how much work can you do with your bank partner before it closes, and so that when you do close it, you're kind of up and running and ready to go?

Darren Wilson (President of International Segment)

Thanks, Kartik. We've got a full team on it from EVO, and the bank is similarly doing exactly the same with senior exec steering committees underway. The next two months will be at a very granular level, documenting all the bank processes, procedures, and products with a view to understanding exactly what they do, what the nuances are, what the kind of individual customer solutions are for major corporates, et cetera. Then mapping those to a business requirement set of documents for our build onto our Poland platform, and then commencing that build.

Our goal is to not only be ready for new merchant onboarding as soon as we can after close, but also ready for platform migration as well as the existing portfolio in Greece. There's a lot of work streams underway. There's been multiple visits there already. There's multiple visits planned over the next few weeks to really accelerate in the next two months, a lot of documentation exercise.

Jim Kelly (CEO)

While we'll have a lot of that work done, we'll still work with the bank for, I think, the TSA is for upwards to three years. Typically, you know, that's a contribution that the bank makes to the joint venture, just like the cost that we incur to stand up our side of it is our contribution to the joint venture. You know, we hope by next year, you know, this time, we've got it all dialed in. You know, it'll be, I think, well-baked by the time we close.

Kartik Mehta (Executive Managing Director)

Just, Brendan, on the B2B side, I think Tom said, you know, I think mid-teens growth there, so that business continues to perform well. Is there a backlog of business there? You know, how you might measure the success of that business for 2022 and maybe what your outlook is for the year?

Brendan Tansill (President of Americas Segment)

Yeah. I mean, in terms of a backlog, as an example, one of the high priority items that we've been working on is, you know, we acquired circa 70 SAP customers at the time that we bought the Delego business in Kitchener, Ontario. As you recall, you know, Delego specifically provides integrations to SAP ERP solutions. These are very, very big accounts, and, you know, they are a captive audience that are ripe for conversion. We've been aggressively pursuing those guys and the opportunities there. You know, adding a handful a year would prove to be enormously additive to the contribution margin of the overall business. We also have a portfolio of resellers that we've been signing. I think we signed 22 resellers in the last quarter, and those resellers all have back books of business.

You know, the first order of business when you sign a new partner is not necessarily the next new merchant that the partner signs, but more a back book of business that again represents a captive audience where we would try and sell the merchant on our integrated payment solution.

You know, I think in terms of like, you know, we sell to partners more so than individual merchants, and then the merchants sell, you know, a bundled solution. We talked a little bit about this yesterday at our board meeting. If we signed 22 a quarter, you know, that to me would represent a very productive year. I'm focused on partner wins as much as anything else. You know, I think, you know, as we also talked about in the quarter, we finished a new integration with Acumatica. You know, I think two encouraging things came out of that.

We got that Acumatica integration done in four months, and as Acumatica was reviewing the quality of the code and the development work that our team, in particular the Suzhou team, did, they were enormously impressed. You know, I think the timelines that we achieved with them were, as I understand it, nearly unprecedented with the other partners that they've worked with. Acumatica, as I said in my comments in the call, has a portfolio of 250 resellers now that we're gonna be, you know, actively pursuing for new relationships. In fact, we've actually already boarded a couple of Acumatica customers and, you know, Acumatica has, I think, been impressed with how smoothly this has all gone.

Which is to say, you know, you look at the 22 partners we just signed, the 250 partners that are in the Acumatica channel, you talk about the 70 very large accounts at Delego, and I think there's a lot of fertile grounds for us to be hunting. Then I guess one final thought for you, which is to say, when we say we build an integration and it takes four months to complete, this is not like a screen scrape, which is what you would see some of our competitors do. This is a native integration where the payments acceptance resides within the ERP, and it completely automates the receivable collection process.

It shortens your working capital cycles, it limits your loss ratios, it limits the number of headcount that you need in the receivables department. You know, we call this a native integration, and I think, you know, not all integrations are created equally. These are more complex and time-consuming to build, but I think we feel and our customers tell us that they're infinitely more user-friendly and applicable. I think that's why we see us winning the type of business that we're winning. I think that's why we're experiencing the growth rates that we're experiencing.

The challenge in front of me and the two folks that run our B2B business is to continue to sign up another 22 partners every quarter and then continue to turn those partner relationships into fertile referral pipelines.

Kartik Mehta (Executive Managing Director)

Well, okay. Thank you. Congrats on a very good quarter, Jim.

Jim Kelly (CEO)

Thank you, Kartik.

Operator (participant)

Your next question comes from the line of Bob Napoli. Your line is open.

Cris Kennedy (Research Analyst)

It's Cris Kennedy in for Bob. Thanks for taking the question.

Brendan Tansill (President of Americas Segment)

Hi Cris.

Cris Kennedy (Research Analyst)

Can you give us an update on Chile and kind of how that's progressing relative to your expectations?

Brendan Tansill (President of Americas Segment)

Sure. Chile relative to expectations. We are in a very good spot as it relates to our sales cadence with the bank. Their CRM called Everest and our CRM called Mercury are now completely integrated, which is to say that the bank can board merchants seamlessly through their systems, and it feeds into ours, and the boarding process is now completely automated. We went from a business that was boarding, you know, obviously zero merchants at its infancy, and today, you know, we did, I think, 1,300 last month and 1,400 the month prior. This has now become a very, very active sales pipeline for us.

We are also focused obviously on some large corporates, which are chunky, and can take time, and in particular, we're in a conversation with two of the very largest merchants, and when I say very largest, two of the top five in the entire country. I'm very optimistic, and I thought that we were likely to have those already in the fold at this point. We are remaining in pilot today. That's why I didn't talk about them in my remarks. We're in a good spot. We're also, I think, building a very capable team down there, and are probably a little bit ahead of where I expected to be on the hiring front.

I think we now have 40 folks locally. The integration of our Pago Fácil gateway is going extremely well, and that gateway will be processing through our EVO Mexico platform imminently, so that whole process is run incredibly smoothly. The Pago Fácil gateway continues to be a vibrant source of new e-commerce business for the market as well. Overall, I feel exactly about the opportunity set as I did before. The market remains strong, the economy locally remains strong, and you know, in the case of BCI, we have an incredibly engaged bank partner that is very committed to the success of the JV.

Cris Kennedy (Research Analyst)

That's great. An update on the potential revenue contribution from that initiative this year. Thanks a lot, guys.

Tom Panther (CFO)

Cris, it's Tom. You know, obviously we're ramping, this one's a little harder to predict as Brendan said, time of onboarding and things like that. Our expectation is by the end of the year, the business is a $10 million run rate business. The margins would be probably around 25%. That's not the long-term margins of the business. We're adding costs down there to continue to support the growth that we're seeing, particularly on the customer-facing and merchant support side. I think longer term, obviously the revenue will outpace the fixed costs that we're having to add at the outset.

That's kind of right now where we see it is kind of at a $10 million run rate and a 25% margin as we exit the year.

Cris Kennedy (Research Analyst)

Great. Thank you.

Tom Panther (CFO)

Thank you.

Operator (participant)

Your next question comes from the line of Andrew Jeffrey. Your line is open.

Andrew Jeffrey (Managing Director)

Hi, guys. With reference to the B2B outlook, is it fair to say that Acumatica could potentially accelerate that growth, or is there a ramp?

Brendan Tansill (President of Americas Segment)

I mean, look, I think it's early days. I think what, you know, as it relates to the Acumatica integration. You know, I think where you could see some acceleration is specifically coming out of a lot of our Microsoft resellers also sell Acumatica business, and these are merchants or partners with whom we already have a very active relationship, and so to the extent that we can get a greater share of their wallet because our addressable market is, you know, represents a larger portion of their customer base, you know, I think there could be some near-term wins there, and that's why we've, you know, already onboarded a handful of merchants in the channel, you know, in the early days of the integration.

I think the second source of acceleration is potentially what we actually learned coming out of this, which is that building ERP integrations is a very viable strategy for us. We've been focused on buys. We bought Nodus and Delego, as I've talked about on many of these calls. I still think there are things for us to buy, and we remain actively hunting for similarly situated businesses in new ERP ecosystems or furthering our penetration to existing ERP ecosystems. There are some very large ERPs with very large addressable markets that where buying is less an option.

What we've seen out of the product team in Anaheim and the development team in China, I think confirms our view that building is a completely viable strategy, as I just said. I think in totality, you know, we're building a layer cake. You know, we're broadening a distribution funnel, and every incremental ERP represents more net new merchants. You know, I think in the aggregate, you'll see accelerating growth in the business more broadly.

Andrew Jeffrey (Managing Director)

Great. My follow-up is just talking about e-commerce competitiveness, what makes EVO stand out in the U.S. market?

Brendan Tansill (President of Americas Segment)

Sure. We've been talking about B2B a lot. The same technology that supports our B2B business also supports our B2C business. It's a gateway that we inherited through the acquisition of Nodus that we've branded PayFabric. We feel like the technology is really best in class. I actually, this morning when I was walking into the call, the gentleman that runs business development for our B2C e-commerce is an early arriver, and we caught up about the pipeline and a couple of the wins that he's recently had, and I asked him the exact question that you're asking me, why EVO? It's service and technology.

You know, the integration, the documentation that we hand these partners as they're integrating to our gateway, it's proven to be completely seamless and very low lift for these guys who have very limited development resources, so time and effort are at a premium for them. We go to market with them and represent incremental revenue for partners that today don't recognize material revenue out of the channel. We work hand in glove with their sales forces, as they sell their product, we sell ours. You know, we have on-site meetings with them. We align on marketing collateral. We expose our marketing resources directly to them in a very open way. The feeling of partnership, I think runs deep. In any event, we're leading with service and technology.

In the early days, based on wins that I'm seeing thus far, that's proven to be a winning strategy.

Andrew Jeffrey (Managing Director)

Thank you.

Operator (participant)

Your next question comes from the line of Bryan Keane. Your line is open.

Bryan Keane (Managing Director)

Hi. Good morning, guys.

Brendan Tansill (President of Americas Segment)

Hi Bryan.

Bryan Keane (Managing Director)

I guess the first question for Brendan, just how's the U.S. business doing ex B2B and e-com versus your expectations, just thinking about integrated and direct?

Brendan Tansill (President of Americas Segment)

The ISV business, I guess. You're asking me to talk about ISV and direct specifically? Is that correct?

Bryan Keane (Managing Director)

Exactly. Just, you know, what's the trajectory for that, and is it tracking? I know that's been an area of focus to turn that business a little bit as well.

Brendan Tansill (President of Americas Segment)

Sure. The ISV business had a very good first quarter. We've done some changes in the sales organization there, and the energy around the building has never been better. I've sat in on a couple of business reviews in the last couple of months with the operations team, and we seem to be firing on all cylinders there. We have an annual operating plan that's very metric-focused, and it focuses very specifically on things like gross adds and attrition and all of that stuff. We have been, you know, right on plan in terms of gross adds each of the last several months. The attrition numbers are low. We've stood up a new retention team that's highly focused on saves, and they seem to be hitting plan.

The partner quality we had a big conference with one of our most important partners down in Orlando last month. The conference was super well attended, and I think, you know, I spoke to the founder of the business there, and he was super encouraged with both the way his business outlook looks, which, you know, is super germane to ours, and then through the support and partnership that he's getting from EVO. That's anecdotal, but, you know, that's, you know, that sort of informs my view. Look, I think the ISV business is great. It is heavily skewed to restaurant. You know, as restaurants have now obviously been reopened for some time because of the COVID pullback, you know, we've been a beneficiary of that.

You know, inflation is something to watch there. Is there a point at which inflation starts discouraging folks from going to the restaurant? I'm certainly not seeing it in my personal life. I live in New York and go out to restaurants, and they seem to be, you know, mobbed. You know, that was, you know, Jim's and Tom's experience, you know, walking around Europe, and it's been the same in my travels around the U.S. I've been on planes quite a bit recently, and it's everywhere I go. As the restaurant sector goes, so will our ISV business. Then, you know, I think we are making inroads in some new sectors that hold great promise for us.

You know, specific to direct, we reorganized our direct business and gave it all to our team up in Montreal. The team in Montreal has put up exceptional results for the entire period during which we've been working with them. To be clear, the Montreal business has been selling into the U.S. for, you know, more than 15 years. It just happens to be located just north of the border. But they have been putting up, you know, more than 600 MIDs a month, which in our lexicon is a pretty phenomenal success. But you know, the direct channel is always. It is what it's always going to be, which is, you know, there are roughly 7 million card-accepting merchants in the U.S.

You know, I think rough numbers, a third or 40% of them have an integrated solution today. Integrated is taking an increasingly large percentage of the aggregate pie. Integrated is growing at the expense of what we call direct, which is terminal next to a cash register. If you still have 60% or 65% or 70% of 7 million card-accepting merchants focused on a terminal and a cash register, that's a very, very large population of merchants that represent potential wins for us. The good news for our business here in the U.S. is it's relatively small when compared to our peers. There's a lot of business in the direct channel in that addressable universe more broadly that aren't our customers today that we can go get. We've got a very competitive solution.

We price fairly. We deliver what I consider to be best-in-class service. While I don't think that's ever going to be a bellwether of the US business, it's it's an enormous source of cash flow for the company that allows us to then reinvest in super high growth markets like what Darren is focused on, you know, in his comments on Greece or, you know, what I've been talking about with respect to our activities in Chile.

Bryan Keane (Managing Director)

Got it. No, that's a helpful update. Thanks for that. Just one follow-up for Darren. As open banking takes place in Poland, what's the change in economics to EVO for open banking? Just thinking about a card transaction versus an open banking transaction.

Darren Wilson (President of International Segment)

Sure. It's a real opportunity, Bryan, in terms of open banking really is taking place for the online side is where we're seeing the trends coming initially. An open banking transaction at point of sale, so card present, has much more kind of physical friction over tapping and going with a card payment. It's a real opportunity upside. Essentially, we're taking a routing cost for the bank transfer capability. Economically-wise, it's an upside opportunity in that today in that online space, essentially the payment is either cash on delivery or a Pay by Link method, which is pretty clunky back to again a bank account transfer.

In the cash and the Pay by Link, we typically wouldn't partake in the economics, whereas an open banking transaction, we do because we're the routing agent for our partner bank. It's a slick user experience, which is why it's getting traction in the online space. We will partake in more of the economic pool as we see kind of the transition from the old legacy Pay by Link or cash on delivery type models. We see it as a tailwind yet to be seen what the consumer adoption will be and how rapid it will be, but it's we're seeing significant potential growth there.

Bryan Keane (Managing Director)

Great. Thanks for taking the questions.

Brendan Tansill (President of Americas Segment)

Thank you.

Operator (participant)

Again, if you'd like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line Ramsey El-Assal. Your line is open.

Ramsey El-Assal (Equity Research Analyst)

Hi, guys. Thanks for squeezing me in here. Appreciate it.

Brendan Tansill (President of Americas Segment)

Hi Ramsey.

Ramsey El-Assal (Equity Research Analyst)

I had a question on Poland and how we sort of think about Poland, incorporating Poland into our models. I think the Q1 impact was more towards the end of the quarter. The question is, do you expect more of a lasting step-up in volumes given the influx of, like, new populace there as we move deeper into Q2 and beyond? Or is it—should we think about it more as, like a one-time kind of wave that will subside, you know, in the not too distant future? What are you seeing, I guess most, you know, in the most kind of recent quarter to date view?

Tom Panther (CFO)

Ramsey, it's Tom, and I'll be glad to, you know, phone a friend here from Darren or Jim for any help on this. You know, I think we're at an inflection point, so it's hard to predict. We've clearly seen an uptick because of what's going on in Ukraine. Whether or not those 3 million people that have moved into Poland stay there permanently remains to be seen. When you look at the destruction that's going on in Ukraine, it's unlikely that they go east anytime soon, even if the conflict subsides.

I think our prediction, our expectation, is that Poland would continue to be a very strong market for us. As I said, you know, the zloty makes up a little under 20% of our business. Our bank partner there, we have extremely strong relationship with. They have over 30% market share. All of those factors, I think, point to us being, you know, pretty strong on the market. See if others wanna add on any comments.

Darren Wilson (President of International Segment)

Beyond Poland, though. I don't know that we know how many people stay or return and when this will end. I think as long as they're there, I think culturally the two countries are fairly well aligned. I think the Polish people in particular have been incredibly welcoming to bring them into the country and find them jobs and, you know, put them and be able to continue to live while that conflict continues to go on. I was in Ireland, seeing the Bank of Ireland, I don't know, three or four weeks ago, and they were commenting also about the number of Ukrainians that have come into Ireland. This is not a Poland-only event. People are, you know, either based on families or opportunities in other markets in Europe.

I think it's gonna be embedded in Europe for some time. Beyond that, Ireland, we just reopened our office this year, and Ireland's been closed for two years. Remember, as the U.S. opened up, all of us wanted to kind of get back to life as we knew it, and that's gonna include travel and spending money. Part of what we feel is occurring in Europe this year is some of the bounce back that maybe we experienced in the U.S. earlier because the lockdowns in some markets lasted longer than maybe what we were used to here in the U.S.

Just to complement that, what we've seen, Ramsey, in the first quarter is kind of record new merchant sales. We're seeing merchant growth. Talking to our merchants, in their planning, they're maintaining their forecasts for the year. They're not forecasting a downturn with a short-term lift of Ukrainians in and then out. Then also when you look at some of the volume mix we're seeing, as I said, it's domestic spending, but also some. What complements and supports the DCC traffic is Germans crossing the border and buying gas in the many gas stations that we have. In the business, we have four of the top six gas companies, petrol station companies in Poland. That's kind of just steady recurring transaction that kind of is indifferent to the Ukrainian factor.

We're pretty confident that not only the volume trends are strong and not dependent solely on a Ukrainian factor, the underlying cores, underlying verticals are steady. Also the new merchant recruitment, which is coming through the bank partner as Tom outlined. Both kind of traditional merchants, but more importantly, the tech-enabled e-commerce opportunities. The unattended is toll roads or vending. All the tech-enabled channel growth is where we're seeing the positive uplift in new merchants and transaction growth. The fundamentals are strong.

Ramsey El-Assal (Equity Research Analyst)

Okay. A broader set of drivers there. That's super helpful. Appreciate it. One follow-up from me. Jim, could you talk about the roadmap in terms of expanding into new geographies? I guess given the early stage of the Chile business, the pending JV in Greece, is it too early to start thinking about moving into new regions or is. I know it's a tough macro environment and geopolitical instability. Is that causing you guys to kind of hit pause for a little bit? How do you think about that?

Tom Panther (CFO)

No. I think the only time we hit pause was the second quarter of 2020 when I said that it was hard to form these relationships. Yes, I got a lot of feedback on that comment. It's hard to form these relationships. Greece is a 20-year exclusive relationship, so to be able to put one of those together, you actually need to be with the people, have lunch, dinner, and get to know each other beyond just negotiating contracts. Now that travel and fortunately the mask mandate, at least for the time being, is lifted, I think travel is gonna only accelerate.

Banks who went through this, the last two years without really digital solutions and don't have an easy pathway to build it in-house, which is almost always the case, are gonna be looking for partners. We're not slowing down at all. It's a constant focus of the entire executive team to look for opportunities in new markets. We have a team dedicated full time pursuing that, and they're very enthusiastic about the opportunities that we're currently seeing already come up in the market.

Ramsey El-Assal (Equity Research Analyst)

Got it. Thank you very much.

Jim Kelly (CEO)

Okay, thank you. That's it. Okay. I'd like to thank everyone for joining us this morning and your continued interest in EVO Payments.

Operator (participant)

This concludes today's conference call. You may now disconnect.