Management’s presentation not only reviewed each of the company’s three channels (Global Commerce, B2B, Government & ISV and SMBs) but also, in conjunction with the information provided in the 3Q23 Shareholder Letter, should increase investor confidence in Nuvei achieving its mid-term financial target for 15%-20% annual revenue growth in our estimation (3Q23 pro forma revenue growth was 14% y/y compared to 9% in 2Q23).
Phil Fayer (CEO) presented. Our rating remains Outperform.
Other takeaways include:
Business breakdown. The company will continue to provide the business breakdown it disclosed in the 3Q23 Shareholder Letter which breaks down the business into 3 segments, generally by distribution channel, including: Global Commerce (56% of total revenue), B2B, Government and ISV (18% of revenue) and SMB (26% of revenue).
Macro trends, diversification and seasonality. Management reiterated that October and November trends remain stable, while Nuvei’s diversification has improved. Historically (pre-2019), ~70% of the company’s business came from US SMB card present transactions and ~30% was ecommerce; following an acquisition, these percentages switched but the ecommerce piece was concentrated in online gaming. Now the Global Commerce business is 90% ecommerce and significantly less dependent on online gaming. Seasonality, furthermore, has flattened out as Paya’s seasonally strong second quarter volumes counteract seasonal weakness in the core Nuvei business. There will, however, continue to be seasonal fluctuations in take rate driven by volume mix, especially in 4Q, which tends to have more higher-ticket, lower fee-transactions like tax payments and charitable contributions.
Global Commerce is the fastest-growing segment, represents the company’s the pre-Paya core and generated 25% y/y pro forma revenue growth in 3Q23, an 890bps sequential acceleration. Management believes that investments made around distribution, including sales, commercial and implementation teams, are gaining; additionally, it has re-calibrated its expectations for the implementation time on $100M of incremental revenue from enterprise clients. Helping the sequential acceleration, furthermore, was a turnaround in in-year new business revenue, which began the year slowly, but is now running 15% above last year’s level; this further supports growth expectations into FY24 as revenue from a new client will typically double in the first full year.
B2B, Government and ISV is a segment that came from the Paya acquisition and generating a high-teens growth rate, while being more global than NVEI’s SMB business (16% y/y in 3Q23 revenue on a pro forma basis and accelerating 360bps sequentially). The initial focus on this segment will be international expansion as Paya was primarily only in the US and B2B as it does not require significant investment. The company has already had large ERP software providers come to them about integrating for B2B. The Government portion of the business should benefit from the continued shift of payments away from paper forms as it offers its ~2,000 clients a consumer portal to facilitate these transactions. Finally, the company intends to expand the ISV business internationally as it is currently focused on the US mid-market.
SMB. While this segment reported a (4%) y/y revenue decline in 3Q23 and competes in the very competitive US POS market, the y/y rate of revenue declines improved sequentially and management believes that its platform and the shift to in-house back- office processing will improve revenue performance (for flat to even positive y/y comparisons) and margins.