Nuvei (NVEI +0.00%) founder, chairman, and CEO Phil Fayer joins Fool Canada Analyst Nate Parmelee and Industry Focus Host Nick Sciple to discuss how Nuvei is working to achieve its purpose "to make our world a local marketplace."
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This video was recorded on Nov. 24, 2021.
Nick Sciple: Hey, everybody. Nick Sciple here with a quick Industry Focus programming update. With U.S. Thanksgiving falling this week, there will be no episodes of Industry Focus on Thursday and Friday as Dylan Lewis and I take some well-earned time off with our families. However, Industry Focus will return to its regularly scheduled programming on Monday, Nov. 29 with Jason Moser and "The Financials Show." Welcome in, everybody. I'm Nick Sciple here with Motley Fool Canada analyst, Nate Parmelee. Our special guest today is Phil Fayer, the founder, chairman, and CEO of Nuvei Corporation, a global payments business with a purpose to make our world a local marketplace. Philip, thank you for joining us.
Philip Fayer: Thanks for having me, guys.
Nick Sciple: Excited to be here with you. Just off the bat, want to unpack the purpose of the company to make our world a local marketplace. How is your company doing that on a day-to-day basis? What are the problems you're solving for your customers?
Philip Fayer: We're providing the tools to help our customers connect with their customers in every corner of the world. When you think about it, how we buy in Canada, the United States, we use our credit cards. But that concept changes rapidly as you enter different parts of the world and merchants need to normalize it. Today's a global marketplace. You need to push your wares, your services, your goods online to be able to connect with customers in every market, in every currency, in every mode of payment that is relevant to them without any difference. What Nuvei does is we unify all those solutions through a single integration so that you could focus on what's important in your business. We help normalize the experience of every preference and new market that you choose to operate with so that you can grow your sales, establish that market, and then utilize our tools. We've gone well beyond just acceptance. We've built our payout solutions, our risk services, our back-office, our reconciliation tools so that you could focus on your business.
Nick Sciple: Can you talk about how the business has evolved over time? Today, you talk about accepting, accepting tons of different forms of payments all over the world, but you didn't start out that type of skill. Can you talk about maybe the lifecycle from founding to where you are today? Just truly global business.
Philip Fayer: Yeah, I know it's been a fascinating journey. When I started the business back in 2003, the objective was just to help merchants accept payments. Ultimately, that foundation hasn't changed, but payments and fintech has changed so much, guys, over the last 20 years. If you think about the history of payments, since 1987 we came to draft capture, You guys remember little book that [laughs] when we're all younger people looked at the book, but then the electronic draft capture came, the knuckle-buster went away, but then payments stalled. Like it just chugged along on its way, proliferations are happening, more business start accepting it, and it started reinvigorating itself in 2010, 2012, was softer and payments were coming together and really fascinating things were happening across our ecosystem. We're really small business-focused, terminal-based focus, and our business made a pivot and we started looking at the different problems that were around. The different areas of how you had to scale and how businesses today had to touch the global economy.
Being an established business, we pivoted and we pivoted to focus on while still within payments, of course. We focused on global businesses and helping them operate in markets all around the world. It was a massive challenge for the company to pivot itself. Then more importantly, a fascinating approach because even in our roughly 20 years, we're still in the ground floor. We built our European business, we built out our North American business. We made an acquisition recently in Latem, but you're just scratching the surface, guys. There's still APAC and there's the whole the Middle East and there's still Africa, like we still have so much to do and so much to help our customers connect with there. It's really a fascinating journey and it's an evolution. I think what's really fun for every entrepreneur, every builder is the activity in the space. The amount of expansion of market capabilities for our customers. Now, it's the responsibility of every payment company to do just that because we're the keys to help our customers grow and we take that job very seriously.
Nate Parmelee: I was just curious, how often do you see customers coming to you because you're a player that does more than just the vanilla kind of MasterCard, Visa, Discover, AmEx processing. Actually, brings a full suite, particularly a lot of these localized payment types.
Philip Fayer: It's all the time and it's fascinating me because if you look at the ecosystem, today, you can be really well-serviced within the borders with your local provider. Your regional provider could do a really good job, but the minute you want to go north and south and the minute you want to go around the world, that's when your requirements change. What's amazing about our platform and our technology is that it's available a la carte. We're able to solve really complicated needs or really simple needs that are relevant for you at this time. By the way, I'm sorry, my son is very loud in the backward.
Nate Parmelee: That's no problem. [laughs]
Philip Fayer: If you guys need to accept Alipay or WeChat Pay or Boleto, or whatever that you guys need to accept, it helps us start the relationship. As merchants' requirements change, their solution stack with us get to change and something that's really interesting, you think about the flexibility of our technology, a merchant may have cash management with a bank in the UK and a requirement to use a credit card services and bank in the U.S. because they're loan services, but when they start looking at our technology, we can integrate all that within our flow so that still technically, you could collapse multiple vendors per country, utilize your local solutions, and have a single provider for your global capabilities. That's what's so important about detaching payments from technology and then driving the value add. If you look at the power of our platform, you're talking about 500 different forms of alternative payment method. Plus where we do 45 local acquire where we are the enabler of card brand payments. Plus we connect to hundreds of banks around the world. We really try to encompass all the solutions that our merchants may require based on their business model.
Nate Parmelee: Do you know off the top of your head which customer, you don't have to name the customer of those 500 options? How many at the most?
Philip Fayer: I'll answer to this way. Our objective is, no matter which way, even if a customer of one of our customers does one transaction, it's one transaction that we saved. Because our entire ethos is to help our customers connect with theirs, it doesn't matter if it's one, if it's 100, or it's 1,000, it's for them to create relationships with their customers and that's what drives us. Ultimately, if you think about it, we added cryptocurrency acceptance this year. We see lower volume, but it is topical. Alternate payment methods in some markets you have credit card penetration that's less than 70 percent. With credit card basic acquiring, you're only addressing 30% of the market. You need the alternative payment methods. The whole scope is a flexibility that's right for that particular business.
Nick Sciple: You've mentioned a few times, your customers and the customers that you're serving. You talk about having a verticals based approach to how you go to market. Can you talk about some of the verticals you're serving and what those customers look like.
Philip Fayer: One of the things that we've driven is, we want to build solutions for very specific problems. We found that to drive the most value, it's hard to be everything to everybody. that's just our philosophy. Want to do really well, we want to be experts in our sphere and we want to be able to have, not just the technology but the people around, they know what you're doing. We end up looking at creating curated verticals that we focus on, that will but all of them have some foundations. The first one is and simple this one is, we're going to be around. That's a big topic when you end up thinking about shift the business. The second one is they have tailwinds and we want to help them execute on the tailwinds The third is they have to operate globally. We focus on very specific verticals. Ironically to us, we started with the hardest one. The business derives its roots in our technology group to online gaming. It's been a fascinating journey. Online gaming, U.K. went to mainland Europe, went to Eastern Europe, massive growth of TAM. Now, of a sudden the U.S. has opened up. more and more states are accelerating. Canada's adding.
You have Mexico, you have Colombia, you have Argentina, you have Brazil. You've seen an unprecedented growth. These companies need solutions to be able to run their global business. They need a lot of our technology stack. Payment in, hundreds of different forms of payment and hundreds of different currencies, fully reconciled, pay out. When you guys have your winnings, you want to receive those winnings instantly, net settle to the merchant. These are really important factors because if you're moving money around as these operators, I can't pay you guys instantly, which creates the relationship. We have this entire cycle of instant payment then all of our back-office tools to get a better authorization, to decline it, to cascade it, the things that help them. We've taken that and we built that out onto other verticals that are really relevant. Social games, you used to pay to play, that's pretty simple, but has evolved. It's evolved to watching you play, to betting on you play to e-sports has come around so social games itself is fascinating. Actually, we're watching with great interest the Apple and Epic battle of how that's going to change the gaming ecosystem. You think about marketplaces. We published an amazing white paper to show the power of marketplaces, but if we think about a marketplace, we think it maybe about Amazon, but there's hundreds of marketplaces that are popping up, they are vertical-specific. They need merchant onboarding. They need all the pay-ins and need a full reconciliation. They need payouts to their small merchants and they need the back-office tools. Really, fascinating around that. Obviously. Online retail, digital goods, financial services, and travel. Those are their building blocks. We think they're all experiencing some really interesting tailwinds. We think they're all growing their addressable market. We think that they are a good platform for us to continue building out our global footprint.
Nate Parmelee: Just curious quickly on travel, how are you seeing that now that things are starting to open up and pick up?
Philip Fayer: Travel is less than two percent roughly of our book of business. It's something that we really love some travel companies. The issue for us, on one end, it's super relevant for our technology stack. On the other, it's really the financial health and wellness of many of these businesses. It's a matter of how much risk appetite that certain businesses want to take. We've been very cautious on travel. We're really bullish. It's not when people are going to travel again. Actually, it is exactly when. It's not if you've brought your job again, but it's when. We definitely want to be able to continue engaging. We've done some really interesting partnerships in the travel space. We think there's a lot more to be had. Well, we've seen around the ecosystem is just because of the exposure and future delivery. Travel merchants have really gone through the ringer over the past year and a half, normally fighting their own business, but also managing their payment ecosystem. We believe it's a good opportunity. We're selective today, but as a world returns to some form of normalcy, it'll be an area of significant growth opportunity for us.
Nick Sciple: One thing we haven't talked about, so we've talked about how you've expanded the business, accepting lots of different payment methods, different verticals you're addressing, but one of the ways that you've been able to facilitate that and grow the business is through acquisitions, have been a very acquisitive company throughout your history. What do you look for in an acquisition? What is your acquisition strategy?
Philip Fayer: Yeah, this is something that we're really proud of. First of all, multiples have been through the roof of late, and from our perspective, we book M&A into three categories. Really, how do we help capabilities? How do we help our customers connect, convert, and drive more business? How does it expand our geographic reach? The third is, how does it give a scale or licensing or things that help reduce our go-to-market time? Initially, we've been very focused on capabilities. We've been looking at early stage companies that allow us to integrate them into our workflow, and drive more value to our customers. We bought Simplex on the risk management side, which is a risk as a service. A wonderful platform. It allows us to pull the seat to the table into the digital asset space, which we're really excited about as part of our financial service vertically. We think about NFTs and crypto as a whole, in terms of the momentum that these industry see. The risk as a service allows us with AI technology score transactions and allow our customers to use risk management within our ecosystem instead of a third party. We really like that.
We bought Mazooma for bank to bank payments that allowed us to provide the most comprehensive suite of acceptance in North America. Coupled with that, we launched a proprietary basis of SEPA and direct bank payments in Europe, and we bought Paymentez, which fits the geography bucket this last quarter that helps us expand our footprint across LATAM, which is a really important market for us. Those are the three spheres for us. What's interesting from our business and then others is that, not only do we have high revenue growth, we're also highly profitable, and so you have a low CapEx, high free cash flow business, and exceptionally strong balance sheet that gives us optionality that we are executing on.
Nate Parmelee: Would you ever look at a deal that brought in a new vertical or is that not something you're really interested in?
Philip Fayer: Guys, the way we do it is we have our direct M&A team, so we look at geography and capabilities that are relevant for our verticals, and then we identify the targets that make the most sense. M&A is a journey. There's personalities, there's price expectations, there's culture. There's a million other things besides that and we're looking at things that help our customers. Because of our profile, we're not solving for growth requirements. Many of our peers are ready to solve growth issues rather. From our perspective, it's not that at all. We're really looking at, how do we help our customers? How do we make sure that when they are ready to execute next year or the year after in these markets? We are primed and ready to help them do so. That's what drives us and I think that's what creates these relationships that we have with our clients. In terms of new verticals, I think we'll always remain entrepreneurial. That's what makes businesses. It's feeling and being part of, and being committed to your customers and driving solutions throughout that. We'll always be entrepreneurial. But the truth is our core verticals have a lot of runway and a lot of opportunity that we still haven't executed on, and we'd rather be focused than just being widespread. Why not be experts in our domain is exactly what our customers expect of us. As we feel that we've really dominated is not the right word, but really executed well in that particular vertical, we'll add some others. But there's a lot left for us to do.
Nick Sciple: When you talk about forming relationships with customers and expanding, what's the sales process look like for a new customer? What's the life cycle to go from, hey, we just signed on this customer, so this is the customer that's reaching maturity for us?
Philip Fayer: Yeah, it's a great question. A few years ago we were under-distributed. We had great tech but it was all word of mouth that clients came to us. Since then we've done meaningful investments in building out our sales force. We've more than doubled it in the first half of this year than we had last year and we're making some investments. We talked about bringing for roughly 200 fold headcount that we had originally budgeted for '22 into '21 because of the momentum. We want to be everywhere our clients are in time zone, in language, and close to them to help them build out. We've done a really good job in Europe and in North America. We've now extended that with our acquisition of Paymentez in LATAM, and there's a lot left for us to do. Ultimately, it's direct sales force by vertical, coupled with solutions engineers, integration experts, and account managers that help bring the expertise. What's fascinating Nick, is that a customer could be born out of New York, meaning they're located in New York, but they need us in Asia, they need us in LATAM, they need us in Europe, or they need us in other different parts of the world. Where they are born is not necessarily what they need. It's a matter of bringing the expertise around to help them execute on their plan. That is that philosophy that sits with us. We land, meaning what is your need today? It's not an all or nothing, I need this little bitty service or I need it all. Obviously, we'd love to have it all, but if it's that little bitty service, we earn our keep, which means we'll onboard them, we'll work our butts off and create the relationships, and drive them into our road map to make sure that we can help them and we grow with them.
Nick Sciple: Maybe you could maybe walk us through an example there. Online betting and you mentioned that's a market that you're heavily involved with, certainly the past few years following the Supreme Court decision, that market has started to mature. Can you maybe using that as an example, we'll talk about how you've matured with your customers and maybe where that market is headed in the future where you could continue to mature with them?
Philip Fayer: Yeah, it's important to know that no vertical is greater than approximately 20 percent. We're really well-diversified from a vertical and a virtual perspective. But if you think about it, we announced about MGM, and I talked about this in our earnings call, which is a partnership with Entain group, which has been a long-standing European customer. That's a great example of utilizing your current relationship and helping them expand it into a new market. We're really excited about that. I think that is true ultimately all around the world because a big part of our growth comes from the momentum within our own customers. How does that really work? It's this growth loop if you guys think about it. You onboard new clients with particular needs that they have, they become existing customers, and then our account management team analyzes our payment flows, looks at where they're at, how do we help them really to provide a consultancy when we do the monthly business reviews with them, where we understand their pain points. It allows us to grow as we add more features and functionality. Because we're a development shop, we'll add every quarter some meaningful product capabilities and as we add new geographies.
Ultimately, there's always a conversation to have about where are you? How can I help you? What are your pain points? How do I take your pain points as part of my road map? That loop continues because if you look what we did last quarter, we added issuing. We're going to spend our payout business with issuing capabilities, which is going to be really powerful. That's a TAM expansion for us and it's an opportunity for us to simplify the operations of our business. We've now launched our payout business in North America, which is a really important part of our business. Naturally, we acquired Mazooma that adds the greatest wallet share to people for credit, debit or non-credit products for instant payments. We've really expanded that suite and every time a new feature comes on, Nick, it's relevant for our customers. You end up having conversation saying, "Hey, I have a new feature within the platform, is this relevant for you?" Then because we consolidate often what 4, 5, 6, 7 different vendors do, it allows us to have pricing flexibility as well. Overall, that growth loop continues and as we add more geography, and as we add more capabilities, our product make expands and that expands with our customer.
Nate Parmelee: Listening to everything that you're saying and all the growth in the acquisitions and everything, sounds like people are a very important part of your business. But also as an acquirer, it can be hard to integrate cultures and bring people together. How do you go about that? Because it seems like they're critical to your sales process.
Philip Fayer: No question. In every business, it doesn't matter. Just ours, like the heart of every company, is people, people, people, and this is something that we're really proud of for us as people first, profits after people first. We exercised that during the pandemic when some folks were running for the hill and people being laid off. For us, we immediately went back to people saying, don't worry, no layoffs whatsoever. It was at the time of IPO. In our Canadian IPO, we gave every one of our employees $100,000 of stock options at the IPO price to create wealth. I think there are other elements of, be transparent, be honest. Every time we beat a quarter guys, people get 2 and 1/2 days of additional vacation, reward the process together, and then lastly, create a plan for folks to create wealth, right? I think all of them together make it super interesting, have a great culture, and allow people to make great opportunities for wealth and package it all together. We still think we're at the ground floor, so it's allowed us from a talent attraction perspective, from an acquisition perspective, people to integrate and to row together in the same direction because we're all owners of the same stock. Really the third is, our mission is really powerful guys, we want to make the world a local marketplace by helping our customers connect with theirs. That's a really powerful mission that is not abstract, so the heart for people to get behind it because it just makes sense.
Nick Sciple: When you talk about the growth opportunity for the business, we're still on the ground floor, that's reflected in some of your targets. You've got guidance out there or targets out there for 30% medium-term revenue growth. Those numbers get really big, really quick. You run that out for five years, that's 3 and a 1/2 x increase in revenue. What gives you confidence about that type of explosive growth going forward the next several years?
Philip Fayer: Well, you know what's fun is, sometimes people forget where we've come from to look at where we're going. You have to take a good look at what we've done sequentially every quarter since being a public company, and naturally, obviously large and large numbers come into play. But then also look at what we've done meaningfully from a product perspective at a time expansion perspective that allows us to have that foundation. I think that puts us into a really unique space, like this is obviously organic growth. When we end up looking at some of our peers in the global space. When we first IPO, some of them were five times larger than us. We bridge that gap or growth we think is market-leading, and when you end up looking at the technology releases that we've done, the market expansion opportunities. The fact that LATAM in Asia, which are two very big markets, are still under-penetrated and we're executing really well on that. North America that has tremendous amount of Tailwind in our expansion and growth in Europe. It empowers us to have given the midterm targets for us. There are really 2 first ones on the midterm as we continue reinvesting the business and expanding our distribution channel in our in our investment in corporate development and marketing. Right behind that isn't actually post-investment period, which is just as important, is the expansion of our EBITDA margins from the low 40s, which we're disciplinary reinvesting to the business to an excess of 50 percent.
What's fun guys is, and this is something that I've always found so interesting is, Nuvei is an amazing business, with amazing momentum and incredible market cap, and incredible financial profile and yet we remain somewhat unknown. This is something that you end up thinking about as we use the momentum of our Toronto listing and our Nasdaq listing and we add more resources into marketing which we are doing right now. Ultimately, it all bold well to being on the ground floor. What we're seeing today is we're part of more RFPs than we ever were in the past and there's more for us to go get. There's more for us to be part of the conversation of when you're thinking about an audience or a stripe, you should be thinking about Nuvei too. These are opportunities for us to inject ourselves in these conversations and to be part of these discussions, because we compete really well with it. We're really excited and what empowered us to answer your question is, we always go bottoms up. We looked by a customer, by feature, by geography what the opportunities are, and we feel pretty confident of, one, the momentum that we have seen the business. We talked about that in our Q3 earnings call, the momentum that we've seen into Q4, and how we're entering 2020 with really strong opportunities. We're excited where we sit.
Nick Sciple: One of the things you mentioned on that earnings call is that you're continuing to accelerate some investments in growth, you mentioned that difference between the growth period and then the investment period. Given that you're accelerating some of these investments, is the market growing even faster than you expected, or why accelerate these investments?
Philip Fayer: Well, from our perspective is we think there's a lot more opportunity for us to talk to and execute on. In Q3 we had 116 folks to Nuvei. We still think there's many more regions for us to strengthen. Ultimately, if you end up looking at it, we built out our team in North America. The team that we hired in Europe is starting to get it to that amazing inflection point where we've added to our resources in Latem. These are meaningful expansions to the addressable market for Nuvei. We're turning our attention obviously to Apec as a whole and those are very big markets for us. For you guys to appreciate it, imagine breaking it down by population. You end up looking at North America, South America, and Europe from a population perspective and how much is more to go get. You get to your more than 3 and 1/2 x, that's addressable to us. It is exactly what we want to do, and ultimately this is not a sprint. This is a marathon and we're doing it tactfully, block-by-block, but we think the momentum is really exciting.
Nick Sciple: Again, on that along those lines. We have the destination, whether we'd like to grow 30 percent a year over the medium term and achieve some of those long-term revenue targets. But again, it is a long-term race. Quarter to quarter as investors, what are the things you would point us to, to monitor your progress against these long-term goals?
Philip Fayer: I think every quarter will set our outlook. I would guide you back to the Outlook. Outlook will give you a good baseline of what we see the next quarter. I would guide you back to what consensus is and what our analysts who are all in the business get to and then as investors familiarize with the markets that we're serving. Ultimately if you piece it all back together, from a profile perspective, we think Nuvei is class-leading. Obviously, I'm humbly biased for that one, but we like where we sit.
Nate Parmelee: I had a quick question on Crypto and adding it in this past year. Was that something customers we're coming to you asking for or is this one where you saying, we see it obviously growing, I'm sorry, take share in other places, but let's just go there and be there so that we're ready?
Philip Fayer: I think every payment technology company needs to pull a chair around the Crypto and digital asset space. From our perspective, we looked at it in three buckets in our innovation lab, how to accept it, how to paint it, and how to use it for merchant settlement. Those were the thesis is that we had. We've now augmented that with acquisition is Simplex where we do risk in KYC, which is a huge stumbling block for many of these operators that we're able to provide that. Then nationally, not just provided for a single industry but provided for all. There are many leavers. Nathan, when you end up thinking about where we could take Simplex, there are a lot of leavers for growth in that business itself that we're really excited about.
Ultimately, we think that now we have a chair, we have influence, we have relationships with most of the providers that are within this space, and allows us to be really close and drive our road-map to execute on future opportunities. These industries are still relatively new. Our fun fact is, look at NFTs, from a billion-and-a-half in Q2 to almost 10 billion in Q3. We're just scratching the surface, now many of them are digital, but sooner or later you'll start seeing some physical NFTs are coming through and they all need our capabilities abide. KYC, you get an instant digital asset. How do you drive a flawless experience through that? We're really excited about what's happening in the sphere. Certainly, as a payment technology company, we pulled the chair and we're really supportive of it. We think we're just at the beginning of our involvement within crypto as a whole, digital currencies, and digital assets as a whole, and we're making really thoughtful investments to be part of the ecosystem.
Nick Sciple: Phil, it's been a fantastic conversation. We've been talking about Nuvei here, going on 27 minutes and some change. Talked about, if you go to market strategy some of the verticals you serve. For an investor or someone who's listening to this podcast and it's going to take something away from this conversation. What would be say the three bullet points you'd want them to take home from listening to this podcast.
Philip Fayer: First of all, thanks for having me guys. It's who we are and what we do. We're really proud of what we do and how we help our customers connect with their customers. I think it's the breath of technology that we provide and the fact that we're really expanding the addressable market both in geographies that we service and in the support of our verticals that they are growing, too. All that drives for what we think is sustainable long-term growth. We're really excited where we are and we thank everyone for tuning in today.
Nick Sciple: We're excited to continue following what you and Nuvei do going forward. Really exciting growth story and hope to have you back on sometime in the future.
Philip Fayer: Thank you guys.
Nate Parmelee: Thanks for being here.
Nick Sciple: As always, people on the program may own companies discussed on the show and the Motley Fool may have formal recommendations for or against the stocks discussed. Don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for mixing the show, we feel fair and Nate Parmelee, I'm Nick Sciple. Thanks for listening and Fool on!
