Nuvei shrugs off crypto-meltdown but margins squeezed

Despite the collapse in high-margin crypto trading, Nuvei surprised investors with a 30% increase in Q3 payment volumes. “We are pleased with our results for the quarter, which exceeded the financial outlook previously provided,” said Philip Fayer, Chair and CEO.

The Canadian payment processor has been on a four-year journey. It began as a North American operator focused on SMEs and transformed itself into a “leading global omnichannel payment technology platform” through a number of acquisitions, notably Safecharge Group, the UK listed high-risk operator which brought strong online credentials and a solid customer base. 87% of payment volume is now eCommerce.

Nuvei’s total payment volume was up an impressive 30% in Q3 to $28bn. Volume growth would have been 38% at constant currency but expansion has come at the expense of declining margins. As the mix moved away from crypto, take rate fell 15bps to 0.70%. Compared to the same quarter of 2021, $6.4bn incremental volume has brought only $13m additional revenue – a take rate of just 0.21%. 

Management shrugged off the macro worries that have dogged FIS, Fiserv and others. “There is so much opportunity from wallet share expansion, new client wins and new geographies driven by our innovative technology that has the potential to offset any slowing in consumer discretionary spending,” said Fayer.

Total revenue grew rather slower than payment volume. Turnover was up 7% to $197.1m (+13% at constant currency) “despite total collapse of the digital asset market, which was around 13% of our revenue,” according to David Schwartz, CFO. “Same-store sales in digital assets were down almost 70% year-over-year…  We think today, our exposure to digital assets is appropriate.” This is a hit of roughly $75-100m annual revenue and makes last year’s $300m purchase of Simplex, a crypto-fiat gateway, look rather mistimed.

Fortunately, strong growth in other sectors more than offset the decline in crypto volumes. Revenues were up in online gaming (+21%), social gaming (+16%), travel (+86%) and online retail (+141%).

An impressive 80% of Nuvei’s growth has come from a greater share of wallet with existing customers – opening new geographies and adding new products. According to Fayer, the economic situation has seen merchants focusing on improving authorisation rates by simplifying their payment stack. This plays into Nuvei’s strengths although management admits the sales cycle is lengthening. Some new marquee clients were also announced. These include Virgin Atlantic, Entain and Epic Games.

The regional breakdown showed a mixed picture. 

  • US revenue was up 9% to $83m as a very strong eCommerce performance (up 40% to $25.6m) was offset by a 1% decline in the much larger SME segment
  • EMEA grew 4% to $105m, impacted most strongly by the collapse in crypto revenues
  • Asia Pacific and Latin America grew quickly but remain comparatively small. AP was up 67% to $1m as Nuvei activated scheme licenses in Singapore and Hong Kong. Latin America was up 29% to $7.6m reflecting the benefit of Paymentez acquired for $24m in 2021

Cost of revenue was flat at $38.4m. Processing fees held steady despite the higher volume indicating a shift in mix towards domestic transactions.

Gross profit rose 9% to $158.8m.

SG&A grew a chunky 41% to $149.2m reflecting significantly higher headcount – up 266 year to date at 1626. Employee compensation increased 42% and share compensation schemes more than tripled to $33.8m. Management said this was about enroling people working for newly acquired businesses into Nuvei’s share-based payment plan.

Higher costs outweighed revenue growth to cut operating profit from $39.6m to $33.8m 

Adjusted EBITDA, the company’s preferred measure of profitability, was flat at $81.2m with EBITDA margins falling 280bps to 41.1%.

Turning to product news, Nuvei has increased its core processing capacity to “in excess of 2,000 transactions per second” and launched “Nuvei for Platforms.” This will give the business capability to support marketplaces for the first time.

Nuvei has a conservative balance sheet with $250m net cash which is likely to be spent on yet more acquisitions. Management is very positive about the future. Fayer explained “It’s not just about 2023, but 2023, we’re pretty bullish about it. But it’s really about the next four or five years that keeps us really, really excited.

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