Nuvei Corp

TSX:NVEI

Earnings Call Analysis

Company Optimistic on Long-Term Profitability

Management is bullish about the company's potential, emphasizing that quality businesses are built over time rather than quarter-to-quarter. They highlighted strong metrics across channels, organic growth, financial health, low capital expenditures, and high cash flow. These factors have contributed to the company's profitability, and they believe they're at an 'inflection point' with substantial opportunities ahead in global commerce, B2B, and SMB sectors. By Q4 of 2024, they aim to achieve their mid-term growth targets. The question of business seasonality was addressed, with an expected return to a 'normal year' cycle post the disruptions of the past few years, including COVID-19 and the World Cup.

Company delivers robust Q3 performance with upgraded full-year outlook

The company reported vigorous third-quarter results, achieving substantial growth in line with its objectives. Key achievements include a 72% increase in total volume, a 55% rise in revenue, and a 36% boost in adjusted EBITDA. Sequential revenue growth for Q3 accelerated by 550 basis points compared to Q2, reaching a growth rate of 14%. The global commerce segment showed particularly strong performance, with a 25% increase, indicative of an accelerated growth rate of 890 basis points. Attention to efficiency led to a sequential expansion of the adjusted EBITDA margin by 40 basis points to a robust 36.3%. Demonstrating prudent financial management, the company successfully reduced debt leverage to 2.6x and announced a dividend, signaling continued return of capital to shareholders.

Customer dynamics and competitive landscape

Discussions during the earnings call unveiled the loss of a top 10 customer, which impacts the third quarter and anticipates a full effect in the fourth quarter. Yet no customer stands above 5% of total revenue, softening potential setbacks. The company confidently positions itself in the mid-market to enterprise spectrum, distancing from mega merchants and mass-market peers, and aspires to leverage its unique competitive stance as a challenger rather than an incumbent burdened by margin pressures. Their cross-vertical approach, including areas like B2B, government, and software, is designed to augment their value proposition across multiple jurisdictions and provide significant upside for growth.

Cryptocurrency and guidance philosophy

Cryptocurrency, a previously thriving vertical, continues to manifest a declining trajectory, with the company experiencing a mid-to-high single-digit percentage drop from the previous year. Management conveyed a cautious outlook, underlining past one-off events that necessitated a guide down, now resolved. With a healthier visibility into Q4 and an intention to furnish a reasoned 2024 outlook in the next earnings call, the company expresses confidence in its internal execution, witnessing strong revenue growth, solid margins, and effective capital allocation. The overarching narrative is one of conservative optimism, with the internal machinations demonstrating vigor against a backdrop of cautious external guidance.

Earnings Call Transcript 2023-Q3

[Operator]

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

[Christopher Mammone, executive]

Thank you, operator, and thanks to everyone for joining us this morning. With us today are Philip Fayer, Chair and CEO; and David Schwartz, CFO. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Nuvei. Rebroadcasted this information in whole or in part without written consent of Nuvei is prohibited.Prior to this call, we published a shareholder letter for the third quarter. We encourage everyone to read it, if you haven't done so already. The shareholder letter contains commentary that otherwise would have been included during our prepared remarks to this conference call.Shifting to this new format allows us to spend more time on today's call answering questions. We decided to make this change in part based on feedback from investors. We hope you find the shareholder letter informative, and of course, we welcome your feedback.We would also encourage investors that the shareholder letter be read in conjunction with our press release, MD&A, and consolidated financial statements, all of which are available in the events and financial information section on our investor relations website, investors.nuvei.com.During this call, we may make certain forward-looking statements within the meaning of the applicable securities laws. Such forward-looking statements involve risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of the business or development in Nuvei's industry to differ materially from anticipated results, performance, achievements, and developments expressed or implied by such forward-looking statements.Information about these factors that could cause actual results to differ materially from anticipated results or performance can be found in Nuvei's filings with the Canadian Securities Regulatory Authority and on the company's website.Our discussions today will include non-IFRS measures, including but not limited to adjusted EBITDA, adjusted net income, and adjusted net income per share. Management believes non-IFRS results are useful in order to enhance our understanding of our ongoing performance, but they are not a supplement to and should not be considered in isolation from a substitute for IFRS financial matters. Reconciliation of these measures to IFRS measures is available in our earnings release and MD&A.We'll just have some brief prepared remarks here before opening up the call to your questions. In order to get to as many people in queue within the allotted Q&A time, we ask that you limit yourself to one question and one follow-up.And with that, I'd like to now turn the call over to Phil.

[Philip Fayer, executive]

Thank you, Chris, and thank you all for joining us this morning. As you've now seen, we reported solid third quarter results in line with our growth objectives. Highlights for the quarter include strong growth across the board with total volume increasing 72%, revenue increasing 55%, and adjusted EBITDA increasing 36%.On a performance basis, third quarter revenue growth was 14%. This was a 550 basis point greater than our growth rate in the second quarter. Pro forma per channel, revenue growth improved sequentially as well. Global commerce increased 25%, accelerating by 890 basis points. We continue to believe this represents a category that can grow.Our B2B, government, and ISV channel increased 16%, which represented 360 basis points of growth acceleration. And SMB declined 3.8%, which was 170 basis points better sequentially. We are driving efficiency throughout our business and expand our adjusted EBITDA margin sequentially by 40 basis points to 36.3%.On capital allocation, we continue to de-lever, repaying $36 million of debt and reducing our leverage by 0.2 turns to 2.6x at September 30, 2023. Our board has authorized and declared a cash dividend of $0.10 per share. It is worth noting that since 2022, we have returned $237 million to shareholders in form of share repurchases and dividends. With these results, we are raising our full year financial outlook for 2023.This concludes my prepared remarks, and we're now ready to take your questions.

[Operator]

[Operator Instructions] Our first question is from the line of Sanjay Sakhrani with KBW.

[Sanjay Sakhrani, analyst]

Pro forma growth across all the 3 channels accelerated. Could you talk about what were the drivers of that acceleration?

[Philip Fayer, executive]

Sanjay, yes, happy to. I think the first and foremost for us is the way we've been managing the business. So we've created Tiger Teams to look at how we engage with our current customers and how we execute on new customers. We've been able to bridge the gap to help them go from signing to live faster by embedding sales enablement and executive leadership into every single factor from client onboarding. And that has been seeing some great results, early momentum now across our core channel, which is our global commerce, our B2B government and SMB.In our global commerce channel, we've been activating the pipeline that we've been building. We have a very significant pipeline. And we've been monetizing across our regions of operation as well as naturally continuing on driving product innovation.In our B2B government and ISV business, we've been applying our playbook. This really was one of the theses of why we acquired Paya. And you guys are starting to see the results. And actually, up sequentially, mid 300s of basis points. And we see there's a lot more drivers there. When you unpack that, taking our B2B operators globally, cross-selling our value-added services beyond pure-play acquiring. And from a continued growth perspective, we find that there's opportunities around off-balance factoring and AP in our B2B business in particular.We're seeing momentum in government as we move from a direct sales channel to an indirect by allowing our citizens portal to bolt on existing software platforms. And then naturally on ISV is relatively new channel for us, but we're seeing great momentum in being able to offer ISVs, omni-channel global commerce solutions for them to service their customers in all pockets of the world.In our SMB channel, we're seeing progress as well, as you guys can see some great recovery. We're quite bullish about what this will do over the course of 2024. On one end, product innovation, like we talked about from a backend perspective, from simplifying clearing and settlement.On the second side, to be able to provide more tools to our resellers and ultimately on the third side, it's just driving some focus. And when you bring it all together, we've seen 14% pro forma growth, quite confident in our 2 high growth channels and quite confident in terms of bridging the gap in the SMB to bring us in line to our midterm growth targets next year as we continue driving the building blocks.

[Sanjay Sakhrani, analyst]

And if I think about the revenue growth into next quarter, and this may be a question for David, when you think about the slight deceleration from the third quarter, how much of that is related to conservatism versus the client loss? I'm just trying to think about the sequencing of the revenue growth and seasonality and such. So maybe David, you can help us with that.

[David Schwartz, executive]

Yes, sure. Sanjay, look, from a revenue perspective, let me start off thinking about just overall assumptions, I guess, for the fourth quarter. You think about from a volume perspective, we're seeing it's early in the month of November, but for the month of October and so far in the month of November, we're seeing good progress in terms of the trends that we're seeing on a volume perspective.Remember that Q4 on the volume side, there is a fair amount of seasonality. We've seen that in the past. So from a sequential perspective, we will see volume step up sequentially in the fourth quarter. But keep in mind that, volume doesn't necessarily yield the same from a revenue perspective. There is a lower yield in some of that volume.Keep in mind that, we do a fair amount of government payments as it relates to real estate taxes, donations also. So those are more large-sized transactions with fixed fees associated to them. So that results in a lower yield. You'll see that in the outlook that our outlook from a yield perspective comes down from the 63% this quarter kind of to the mid-50%s next quarter.And then from an EBITDA perspective, the outlook is really around that 36.5%, 36.3%. Very similar to what we saw in Q3. So we feel good about that margin. We continue to focus on margin expansion. We feel that we're at an inflection point from a platform perspective and that there's certainly, as we move forward, there's certainly opportunity to expand EBITDA margins and ultimately get to that long-term target of 505-plus.So overall, I don't think there's anything different seasonally that you'd see in the past in Q4. But again, and Phil highlighted from a channel perspective, the channels are performing quite well, each of the 3 channels. So continue to drive that growth that Phil just outlined.

[Sanjay Sakhrani, analyst]

Okay. Great. Is there any way to quantify that large client loss headwinds?

[David Schwartz, executive]

So what I'd say is that most of the impact happens in Q3. It wasn't a full impact in Q3. Q4 will be a quarter with a full impact. But like we said, it was a top 10 customer. We've talked about in the past, no customer represents more than about 5% of total revenue. So that can kind of give you a sense of size. But certainly, there's some impact into Q4, still of that customer from a sequential perspective and year over year.

[Operator]

Our next question is coming from the line of John Davis with Raymond James.

[John Davis, analyst]

Phil, I just wondered if you could touch on some macro and competitive landscape. Obviously, you had Addie talk about competition, world line, macro fear. So I just want to get your perspective on what you're seeing from a macro perspective, but also competitively?

[Philip Fayer, executive]

John, yes, it's been quite the topic du jour in terms of world line and Addie. From our perspective, I think it's important to understand where we sit within the ecosystem. And on one end, we are not necessarily touching the mega merchants. We're really focused on mid-market to enterprise. I think that's the first pocket, meaning that we're targeting different merchants from an Addie perspective. I think the second thing that is really important is that we're a challenger, meaning the incumbents typically have these stresses from the margin compression. We're a challenger.If you guys look at new base history coming from a single vertical focus now to supporting multi-verticals and multi-end markets and multi-jurisdictions, this allows us to naturally have a more dynamic opportunity. And we think that this is an upsize opportunity for us as our product continues to evolve, both of what we're doing on the authorization side, we're doing on clearing and settlement, and what we're doing just in general from the geography that we support. So we feel quite good from a macro perspective. We feel, while some of the companies you mentioned are world-class companies, we feel like we now have a great seat at the table. And we have upside, naturally from our end. Every incremental dollar that we process creates gross profit dollars. And because we're at scale today, those gross profit dollars fall, the majority of them, to EBITDA.So we really like what's out there today. We think this macro in terms of merchants focusing internally as well as still managing their growth is an opportunity for us. In terms of pricing and take rate, we have not actually seen that per se. What we are seeing is merchants moving faster and being more thoughtful in terms of how they monetize and connect with their customers. And that's been boding well for us because we're not just a pure play acquirer. We provide our modules as is required for our customers. And we're seeing them being thoughtful in terms of what they need in the different markets.In general, that is what we are seeing. We're seeing great momentum in our core channel in global commerce. We're seeing some great movement in volume. From a macro perspective, we're not seeing any significant deterioration from a consumer standpoint. And naturally, we are very different to our peers as we do have other end markets. And we've been very thoughtful of bringing our use cases into B2B, into government and into software as well.So our makeup of our end customers is different. The size of our customers is different. And I think the last part is we don't have a 100% wallet share. In fact, some of these new end markets for us, we're still very much the challenger with strong product offering. And that gives us upside.

[John Davis, analyst]

Appreciate all the color there. And just as a quick follow-up, can you help us with the crypto contribution in 3Q or what's implied in the 4Q guide? That'd be helpful.

[Philip Fayer, executive]

Yes, I'm happy to. We've seen sequential decline in the second quarter to the third quarter. So it's declined around a mid-single-digit from Q2 to Q3. And that's about the same. It was more mid-to-high-single-digit from a year-over-year perspective. So again, we've lapped it. We've lapped the larger part of it, but it is still a declining vertical for us.

[Operator]

Our next question is from the line of Darrin Peller with Wolf Research.

[Darrin Peller, analyst]

You know, it's obviously great to see the acceleration of the business. And it's interesting coming off, last quarter was one where investors were concerned on the guide change, and it was a second guide change. And so I really just want to make sure we understand the visibility that you have when you look forward. It was a nice acceleration. You beat numbers. Obviously, you guided conservatively after last quarter. And so help us understand your philosophy in guiding now and making sure that the next quarter is, properly set and what you really have going into it in terms of macro assumptions also?

[David Schwartz, executive]

I can start off. It's David. So the last quarter, we certainly had some, call it one-off events that really resulted in the guide down. Those things have now, you know, we understand those. They're gone. We kind of learned, you know, on the delays and the limitation, we've learned a little bit there. So in terms of the guide that we gave last quarter, you're seeing the result. And, we're basically, you know, happy with the results in line and slightly above. So we're happy with what we saw in Q3. We're also pleased with what we're seeing in Q4.Like I said earlier, October and November trends are good. Obviously, we have more visibility into Q4 now than we did, you know, a few months ago. We're -- we want to take a position where we're trying to be very mindful of the macro at the same time. Like that's there's certainly some challenges there. We think that from a macro perspective, we're pretty well insulated, but it's, there's always some level of -- let's say, items that we want to think about as it relates to macro. So that's always top of mind, but we're trying to be mindful and be reasonable in terms of the guidance and the outlook that we're giving both for the quarter and for the medium term.And as we exit the year, there's, a couple of months left in the year, we'll be working, we've already started to work on next year and looking forward to giving, our 2024 outlook when we give our Q4 results in March. But overall, we're taking -- we're trying to be mindful, reasonable in how we give outlook and make sure that we're achieving what we set out to achieve.And internally, the execution has been great. I mean, we're really happy with how the business is performing from a revenue growth perspective. The margins are great. The cash generation is great. We're being, mindful around capital allocation. So internally, things are really performing. And, we just got to make sure that the expectations we set externally are reasonable and that we achieve them. And that's kind of the approach we're taking.

[Darrin Peller, analyst]

Phil, when we spent some time in meetings with you recently, it was pretty clear that some of the differentiation is resonating is really the vertical differentiation you guys have on the, especially on the digital side or the e-com side, despite competitive questions that even came up earlier in this call. So, I mean, can you just revisit, there are verticals like airlines and others that were pretty exciting that were coming in a much bigger way. Can you just revisit what's actually sort of insulated versus the competitive dynamics in the digital side? And then on a quick follow-up, just the improvements that you could make from here on SMB to get that flat to better?

[Philip Fayer, executive]

Yes. Great question. I think the first thing to keep in mind is our customers are never new customers, Darrin, right? So we're always entering the wallet share with our customers because of particular needs. So we're not servicing an Uber, for example, when they're just a startup. So customers are coming to us for a very particular need. And that is true across all the verticals as we continue amending and building innovation around helping our customers grow their business, do things better, execute on their own journeys.We focus on verticals that have the propensity to operate in multi-country, in multiple currencies and require multiple payment mediums. That is where we focus, predominantly cross-border or local to local, depending on, the business model that our customers execute on. And we think there's a lot of tailwinds across the board. So obviously starting from gaming, which is a no-nonsense, always on, no latency vertical that our customers are sometimes spending millions of dollars a day in marketing and we deliver. And we've taken that skill set into social gaming, into marketplaces, into travel, into retail, while building out our capabilities to improve authorization rates, lower the latency, provide greater conversions for them.So what we're seeing today is our focus on execution nationally in retail. What we're doing around travel with specific working with global airlines with respect to local acquiring and access to local domestic interchange around the world by utilizing our platform. And then naturally looking at the overlap between our solutions that we require from a multi-vertical perspective, very much like B2B. We think about virtual card issuance that's relevant from both a loyalty perspective to a payout perspective to an accounts payable perspective.So in general, from a roadmap perspective, we have made meaningful inroads into airlines. I mentioned last time that we're supporting for the top 20. We think there's a lot more to do there specifically of how other acquirers have treated airlines during the pandemic. We think that that has left a bad taste and they are seeking alternatives with greater technology. So we think we're well positioned there.Retail ultimately was a low single digit vertical for us and we've been meaningfully accelerating our position with customers like Shein and Timo and Capshie amongst many others and naturally a very significant pipeline as we help our merchants go from market-to-market. And the same is true of strengthening our position in the markets that we have leadership position in, like gaming.So we're very bullish of our end markets. We try being industry experts where we operate in global commerce. And I think we mentioned this in the shareholder letter, right? The days of companies just needing a vendor are long gone, right? They need partners. They need people that pull up a chair. There's always challenges and opportunities and I think that's where my team Shines to be able to be that partner for our mid-market enterprise customers. So that is on the vertical side.On the SMB, you and I chatted about this when we were in Boston. We've seen some sequential improvements of SMB. We think there's more to come. Naturally to achieve our mid-term targets, SMB has to be between a zero and minus 5%. So we feel very comfortable with what we set out from our mid-term growth targets. That being said, we think there's opportunities to improve in SMB and a lot of that is going to be driven by one, applying the resources of our global capabilities. So today with our Omni, we were able to expand our SMB footprint and expand the tools that our sales channels can consume. But I think the second is things that we're seeing right now in Canada as we implemented our back end. Darrin, we're doing interchange prediction, meaning that we see now interchange prices on a per transaction basis, which is what's required from our global customers. But that allows us to have great tentacles for, for example, instant commission funding and instant payment for ISV and ISO partners and reseller partners. So there's a lot of tentacles of improvement from a product perspective. Specifically, we look at this macro where we're able to change the lives of both our resellers and then customers. So there's more to come. We think there's opportunities to continue improving and all of that comes back to utilizing our product stack, our technology to drive feature functionality to execute on both our customers and our resellers in the case of our SMB channels journeys.

[Operator]

Our next questions are in the line of Dan Perlin with RBC Capital Markets.

[Daniel Perlin, analyst]

Phil, I just wanted to ask you about the kind of $100 million of annualized revenue you identified last quarter for the enterprise clients. Obviously, we're not going to see a bunch of conversions over the holiday season, but I'm really more interested in the conversations that you've had with those clients and then kind of your level of conviction that that can still kind of close over the next 12 months. Obviously, you've got a lot of great momentum in the business. So I suspect that that's not going to be an issue, but any color there would be helpful?

[Philip Fayer, executive]

Great question. I think the biggest thing I could leave you guys is just the overall momentum. So we saw this year versus last year was client conversions were running behind last year, not because the pipeline was smaller, just ultimately from time from signing to closing. So the biggest thing that we've done internally is created Tiger Teams and we've changed the way we operate and I run the business to make sure that we have a really clear set of visibility in terms of the opportunities and how we can help as an organization to drive those conversions.And what's happened since doing that is quite interesting. So we've gone from being down year-over-year to being 15% up year-over-year from a new business perspective. We look at our overall sales conversion. So we're starting to see really good progress on that.But ultimately, there's also this comment around macro and naturally end market. So we have signed and want some great large enterprise customers. They're scheduled to go live in 2024, late 2024, which is very different from other customers and saying, I think I have an issue in Brazil and I need to go live now.So it's a matter of us having learning experiences between the different verticals that we operate in. Some of them are planned implementations and some of them have to go like yesterday. And these are things that, as an organization, we have improved dramatically and something that we're going to continue focused on.In terms of overall timing, I think certain verticals are continuing on the regular pace that we've seen over the last 3, 4 years. New verticals are just longer. And so it doesn't mean that we're going to see the $100 million lap immediately next year plus net new. I think just in general, Dan, the way to view this is that everything has been pushed out and we're going to get back on cadence now that we've pushed it out. And we'll start being on that regular cadence on a quarterly basis from a new business activation.

[Daniel Perlin, analyst]

Just one quick follow-up. It's a metric. I might have missed it in all the materials. But I found it to be helpful over the past couple of quarters, which is really your organic global e-com, constant currency X crypto growth. So by definition, I think last quarter was 34%. I'm just wondering if you are providing that for this quarter.

[David Schwartz, executive]

We haven't provided that metric for the quarter. I think there's -- we're trying to simplify our disclosures and improve disclosure and such you see kind of in the shareholder letter. I guess, some of the metrics to point out, organic growth at 16%, organic growth at constant currency at 13%.Keep in mind what we mentioned earlier, that the revenue from digital assets did decrease sequentially both year-over-year and quarter-over-quarter by kind of mid single-digit percentage in both cases.And then the other metric I'd point to is the 14% pro forma growth rate. I think those are kind of the key metrics. And then all the improvements that we have made and continue to make from a channel perspective that you've seen, that will drive us forward to our medium-term target of 15% to 20%. And that's something that we'll obviously give our 2024 in early next year. But thinking about exiting 2024 that medium term target of 15%, 20% is kind of the way to think about it.

[Operator]

Our next question is coming from the line of Jason Kupferberg with Bank of America.

[Unknown Analyst]

Hey, this is Kathie on for Jason. I just wanted to ask if you're seeing any difference in trends by region most recently, particularly in EMEA, given everything going on in the Middle East there.

[Philip Fayer, executive]

Not specifically, no. We've been seeing consistent volume trends, as we'd expected between October and November. So we have not seen any different trends to highlight. We're seeing great momentum in North America. If you look at the region disclosures that we've made, so good growth in North America. EMEA had 17% growth last quarter and then naturally good momentum that we're seeing in APAC. Certainly smaller, but great momentum. And in LatAm as well.

[Unknown Analyst]

Okay. Got it. And I just wanted to ask, I mean, margins obviously came in nicely this quarter. Can you just talk about where the incremental growth margins will come from going forward? I know you guys have made some progress with the North American processing being in-sourced. Are you seeing more opportunities in headcount or tech efficiencies, et cetera?

[David Schwartz, executive]

From a margin perspective, yes, we're quite pleased with our -- both the gross margin and the adjusted EBITDA margins, business that generates 80% -- plus or minus 80% gross margin gives a lot of flexibility, and especially when you think about the platform that it's built on. And yes, at the -- look, the gross margin level, there'll be puts and takes as it relates to just kind of what we launched from a new product perspective. The way to think about it, though, is every incremental gross profit dollar has a high propensity to fall down to the bottom line and generate incremental EBITDA.On the clearing and settlement, you're right. There has been very good progress in that regard. And we continue to make progress there. There'll be more progress into 2024, rest of this year and into 2024, specifically in North America, where we'll in-source. And so that creates -- it certainly creates cost efficiencies and cost effectiveness, which I think was the core of your question. But the other thing that it drives is it drives a greater connection to our customers, because we can do certain things that we weren't able to do in the past, because we were reliant on a third party, improved settlement time, as an example, report speed of reporting, allows us to do things quicker and to implement things quicker for our customers.So there's a lot of, I'd say, intangible or non-quantifiable benefits, more than just the cost savings that it drives from an in-sourcing perspective. And then if you think about on the OpEx side, we have a great platform. We have the people. There's certainly always enhancements that we make, but we feel really good about where our OpEx is today, where the margins are today. We think we can expand from here.The other area on SG&A, we've pointed out in the past is on share-based compensation. That continues to decrease as a percentage of revenue. And that is a large item.The other area I'd point out is commissions. So as if you think about our channel distribution and you think about the global commerce channel in specific, and that's being the highest growth channel, most of the commissions are driven by our B2B, GOV, ISV channel.And so as the global commerce channel grows, again, commission as a total percentage of revenue also has some opportunities there. So there's -- and there's many, many specific cost initiatives that we have internally that both affects gross margin as well as OpEx. And similar to how we're driving new implementations that Phil talked about earlier, we have a similar cadence with respect to costs. And we have a regular cadence internally with a Tiger team as well, where we're driving through a lot of the initiatives that we identify. And the fact is we keep identifying more as we kind of go down and hit the larger items and the lower-hanging fruit. There's still more that we see. So we're driving margins as we go forward.

[Operator]

Our next questions are from the line of Matt Coad with Autonomous Research.

[Matt Coad, analyst]

Wanted to double click on your commentary around the retail vertical earlier. I thought that was pretty interesting. Wanted to better understand the land and expand opportunity here. So you have some great clients in Shein and Temu. How do you kind of expand that wallet share over time?

[Philip Fayer, executive]

Great question. What's interesting about Shein, Temu, [ Capshie ] and a lot of these merchants is that they are global brands, and they too have their own journeys of expansion. So, for example, with some of them, we're looking at new countries in particular regions. We're looking at new alternative payment methods. We're always looking with them and piloting with them trends with respect to authorization rate improvement.So we are not a vendor to them. We are a partner with one in particular is been a big driver to help us in terms of cascading and driving better authorization rates in the U.S., which is a very interesting project for us. And then actually using them as key pillars since they are what some of the most recognizable names as you kind of enter with the market leaders and helping us gain credibility as we continue building out our retail capabilities around the world.Within that as well on retail, which is really important, is the Omni application that we're building. So we're launching that into 3 markets so that we can provide multi-channel journeys for our end customers. But we started at the top with retail with some great brands that they themselves are growing. We're seeing opportunity within those to capture more wallet share, transparency, we are still small on the wallet share. So there's a lot of opportunity we think to continue expanding our relevancy with these big brands, both from a country, from a capability and then from a payment application in terms of what we provide to them.So retail is something that we are just entering. We're lapping somewhat of our first 1.5 years in retail. And we think we're starting to build some really strong momentum.

[Matt Coad, analyst]

And then just for my follow-up here, the growth and the margin expansion that you guys talked to, free cash flow improvement should follow. So just curious, the incremental dollars of free cash flow that you'll get, how are you thinking about that from a capital management perspective?

[Philip Fayer, executive]

I think your base case is that we're going to continue focusing on debt repayment and to deliver. We're quite excited just the performance of the business, right, from when we acquired Paya sub 3x, just under 3x to today to 2.6x. That is kind of the cadence that we'd like to be at 2x or less. We think not that it's going to open up opportunities.The entire backdrop is changing. And from our perspective, in terms of building blocks and opportunity around M&A, we think the second half of next year will yield some quite compelling opportunities, both domestically and globally. And we want to remain opportunistic. So our base case will be continued to focus on debt repayment, lower interest expense and then have the ability and flexibility and optionality to execute on potential M&A. But naturally, we have so much optionality with our cash flow and our balance sheet, and we'll execute on that as is appropriate and remain opportunistic.

[Operator]

The next questions come from the line of Bob Napoli with William Blair.

[Robert Napoli, analyst]

Good to see the solid quarter and guidance. A question on Paya, I guess, an integrated payments. How is that acquisition performing versus your expectations? And what are your thoughts around being able to leverage the integrated payments strategy from Paya and from elsewhere within Nuvei over the next few years?

[Philip Fayer, executive]

Great question. We are super pleased with Paya. For one, wonderful people. We share the same values and culture. We hit the ground running. You can see, ultimately, Paya is our B2B government and most of our integrated payments business. And we are accelerating the growth of the business. We're creating more dependency on Nuvei's technology stack, and we're executing ultimately not just expectations, but I think we've exceeded expectations with respect to where we're at right now.We firmly believe this channel can and will be at 15% to 20% grower. We're naturally now above that from a performer basis, and there's a lot more to come, with each providing very unique tentacles for continued growth, and B2B, we're going to be baiting factoring off balance sheet naturally with a partner. We're going to be driving applicability around our card issuing for virtual card issuing and then expanding into the AP side as well. So there is a lot of tentacles and then naturally kind of our bread and butter on the B2B side with respect to Paya is bringing and internationalizing these relationships. We've kickstarted that now with Canada and going to be taking these partnerships around the world. So we're very pleased with Paya. The performance of the business has been strong. We've been executing thoughtfully on the cost side, and we're actually very pleased both from a technology and the gap that we are able to plug from what Paya had, and more importantly, from the relevance from our own use cases to Paya and customers.In terms of integrated payments, you'll see us spend a lot of time here, Bob. We wanted to naturally focus on kickstarting our government and B2B business, which is what we've done, being really thoughtful in terms of minding management time. And now we're turning our focus around integrated payments. It is the slower growth out of our B2B government and ISV channel, but we think there's a lot of pent-up opportunity where we're focused on right now naturally is plugging in our Omni into that offering, into the 3 markets that we're servicing that. And then driving our ISV capabilities to the use cases that we have in the markets that we support.We believe integrated payments will be that last piece of the puzzle to accelerate this channel to the high end of what our internal targets are around the integrated payments vertical for us.

[Robert Napoli, analyst]

And then just maybe -- I'm not sure if it's a fair question, but what's changed since last quarter, I mean, as far as visibility? I mean, certainly, the tone in the quarter, is the -- what is it that seems to have led to more stability, clarity overall in your business?

[Philip Fayer, executive]

I wouldn't say -- and that's a good question. I think it's a fair question. I wouldn't say, it's toner or visibility. I think the biggest thing in payments is that it's never built just quarter-to-quarter. We report quarter-to-quarter, but customers live and they have their own journeys that we're trying to manage our way through. We were quite bullish last quarter as well. It's just a matter of client activations and timeframe around activations. And then naturally what ends up happening around the end markets that we're operating in.And so I think we're really bullish, right? If we look at our own metrics, be it per channel, organic growth, the health of our financial profile, the fact how quickly we're delivering our ability to continue executing, and the fact that we have low CapEx and a very, very high cash flow profile allowing us to be thoughtful in terms of where we're investing. And more importantly, that the investments that we have already made have hit an inflection point, we like where we are.And we think our core global commerce channel has so much opportunity ahead. That one is a bit chunkier in terms of when it comes in and out. We think we now have some great stability and momentum in B2B, and we're executing on the SMB side. So I wouldn't call it a visibility question or a tone. It's just a matter of great businesses are not built overnight, and they're not necessarily measured quarterly.We understand your job is to measure quarterly, and we totally get shareholder sentiment with respect to the quarterly side, but we really do love what we have going on, and we think this is a platform from a profitability perspective to be at a multiple of where we are now. So we still think we're on the ground floor above.

[Operator]

Our next question is coming from the line of Todd Coupland with CIBC.

[Thomas Ingham, analyst]

Phil, I wanted to have you comment on how much you think is in your control as you think about '24 and getting back to your mid-term guidance of 15% from 13% or 14%? And talk about what's in your control and what needs to happen and what might be a factor out of your control.

[Philip Fayer, executive]

Great question. I think the biggest thing that I would leave here is that we have the building blocks, the people, the technology, and the world-class sales organization to execute. And that's exactly what we're focused on. You can see that as we look at the sequential improvement in Q3. We really do love the conversations that we're having with customers. We have some pretty meaningful conversations in flight. Naturally, those take time. And it's a matter of understanding that taking the time, right? Those are the things that we're working hard on. And for that, we have changed the way I operate the business in terms of being really, really focused, pulling up a chair and making sure that my entire ELT is extremely focused on the 5 pillars, which are our current customers, our new customers, product innovation, cost efficiencies, and our people.And those are the things that are in our control, and we're going to be continuously focusing on those, and they give us visibility. Great building blocks that we have today, and our focus is on delivering, so that we exit Q4 in the range of our mid-term growth targets in Q4 of 2024.

[Thomas Ingham, analyst]

As a follow-up, how should we think about with, I guess, combined with Paya, the seasonality in 2024? I know you're not given specific guidance, but what will be the rhythm of the business sort of Q1 to Q4? Any qualitative discussion there would be helpful.

[Philip Fayer, executive]

It's been very interesting when you think about seasonality in our business, Todd, because over the last 3 years, historically from Nuvei, excluding Paya, there's been noise, right? '21, you had COVID. In '22 comparison, we had World Cup, which was a significant event, both in Q3 and Q4 when you compare Nuvei in '23 to '22. And the next year, we'll have more than a normal year.So from a Nuvei perspective, it's actually going to be a normal year. And then you have the dribs and drabs of each of the verticals that we are getting momentum into. So Q1, we have football season in Q2, you have to build up for the summer season in Q3, you have travel. And then Q4, you have the holiday specials. We're trying to build our end market exposure to have naturally some focus on each of them. That's kind of what Nuvei has been building out. We like where we sit.From a normal year perspective from Nuvei, you typically have Q1, a ramp into Q2, a slight flattish down into Q3 and a step up into Q4. Paya slightly different. We've seen in Paya -- if you look at historically, Paya had a softer Q1 and an acceleration Q2 and then flattish Q3, Q4. What's changed for us around Paya is just the momentum of new business and the pipeline that we have.I mentioned it last quarter that we had a 27% increase in stick count in B2B. That will be an opportunity that we'll see processing next year. So we actually think our emerging channel, which is our government B2B and ISV, will see some step ups predominantly driven by new business.

[Operator]

The next question is from the line of Joe Vafi with Canaccord Genuity.

[Pallav Saini, analyst]

This is Pallav Saini on for Joe. First off, on the emerging business, last quarter you added 2 new ERP platforms Infor and SAP. Can you maybe give us an update on the progress there? And any update on Microsoft Dynamics?

[David Schwartz, executive]

Great question. Yes, we have activated Infor. That is already in process and part of our onboarding. The team's doing a great job at not just -- if you think about the steps is first you integrate and partner with ERP and then you drive through the VAR network. We've seen great progress around that. SAP is still early and Microsoft are expecting this quarter or early next quarter to activate.The great thing here, guys, is we now have access to about 3 million end merchants in all parts of the world and that's what we're executing on. So each ERP typically runs through its journey from integration to activation. But what we found aside from ERPs is that there's some overlap between the VARs underneath that we may or may not already have relationships with.So it's an interesting environment that we want to make sure that our use cases and our technology is applicable and accessible for every one of the VARs that end up touching those 3 million merchants and that's what we're focused on.

[Pallav Saini, analyst]

And it would be good to get an update on the gaming business in the U.S.

[David Schwartz, executive]

Yes, I would say on the gaming business, we're continuously moving forward with new states. I think just last week we had Maine. We're progressing in terms of each of the states that come up. We've done a great job in Ontario. We're waiting to see what happens around Alberta in North America as well. But there is nothing to flag from the gaming business. Obviously, we welcome Caesars. We've helped bring one of our European customers, 888, into North America, and we're continuously head down focused on helping our current operators in market go from state-to-state. Our foreign operators enter the market and our current operators in the U.S. exiting the market in terms of global.I think the most interesting that I believe is gaming has become a global vertical and it's not just what's happening within the 4 quarters of the United States. It's what's happening in every single market. Lots of tailwind and interest in South America. Actually, still continued momentum in North America and we still see continued momentum in Europe. So, a significant TAM with still, even though we have a great position in gaming, but a lot of opportunity for us to continue expanding and growing.

[Operator]

At this time, we've reached the end of our allotted time for questions-and-answers. I'll turn the floor back to Chris Mammone for closing remarks.

[Christopher Mammone, executive]

Thank you, Rob. Thanks again to everyone for joining us today. Please reach out to the IR team with your follow-up questions. We'll be on the road in the next few weeks. We're planning to attend Investor Conferences hosted by RBC, Wells Fargo and UBS, among others. We hope to see many of you during those appearances. Bye for now.

[Operator]

This concludes today's conference. We disconnect your lines at this time. Thank you for your participation.