Ladies and gentlemen, thank you for standing by. And welcome to the EVO Payments Fourth Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ed O’Hare, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning. And welcome to EVO Payments fourth quarter and year end earnings conference call. This call is being webcast today, and a replay will be available through the Investor Relations section of EVO's website shortly after the completion of this call. Please note that some of the information you will hear during our discussion today will consist of forward-looking statements. These forward-looking statements are based on currently available information, and actual results may differ materially from the views expressed in these statements, particularly due to the impact of COVID-19 on our business. For additional information on factors that may cause our actual results to differ from the views expressed in any forward-looking statements made today, please refer to today's press release and the risk factors discussed in our periodic reports filed with the SEC, including our 2020 10-K, which will be available on our website after the markets closed today. In an effort to provide additional information to investors, today's discussion also includes certain non-GAAP financial measures. An explanation and reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures can be found in our earnings release available on our Investor Relations website. We have also posted slides on our website detailing recent volume trends for the company to further assist with today's discussion. Today, we will discuss fourth quarter results and provide an update on the impact that pandemic is having on our business. Joining me on the call is Jim Kelly, Chief Executive Officer; Tom Panther, 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.

Thank you, Ed. Good morning, everyone. And thank you for joining us today. We kicked off 2020 with strong financial performance that was abruptly affected by the spread of the COVID-19 pandemic beginning in March and continuing through the remainder of the year. Despite the adverse impact of the pandemic, we had a successful year and took significant steps to improve our business by expanding our referral relationships, investing in key products and capabilities, enhancing our technology and taking decisive actions to reduce our expenses and leverage. These key accomplishments were made possible largely due to the dedication of our 2,000 employees across the globe who are forced to react to the numerous ways in which the pandemic impacted our industry. They remained resilient through the many challenges we faced in 2020 and continue to deliver quality service to our customers and partners. I'm very grateful for our employees' determination to make this a successful year. Now I'd like to provide an overview of our recent volume trends. While volumes rebounded in the third quarter, they began declining in mid-October as restrictions were reinstituted across most of Europe and in certain areas of the United States and Mexico to curb increasing infection rates. This resulted in fourth quarter volumes decreasing 1% sequentially and 5% compared to prior year. For January, volumes were down 11% from the prior year as the strict lockdowns in Europe continued to negatively affect consumer spending. However, in February, volumes have improved slightly to a 9% decline over February last year as distribution of the vaccine rollout is now underway, and some governments have begun easing restrictions. We are encouraged by the diversity of our business and the resiliency of our merchants across all markets, but until government restrictions ease, it is likely that our volumes…

Thanks, Jim. For the quarter, European normalized constant currency revenue declined 7% year-over-year, which reflects the impact of the reinstated restrictions across the segment, including sharp decreases in cross border activity. As you can see from the volume slide, our volumes demonstrated notable declines beginning in November, as lockdowns went into effect across our markets in the latter part of October. However, it's worth pointing out that these declines were much less severe than the April trough, as merchants and consumers have adapted their behaviors to manage through the lockdowns. This is evident in our contactless and Card Not Present volume, as well as our strong new merchant growth across most of our markets. During the fourth quarter, volumes were approximately 6% lower compared to 2019. This trend intensified through January, with volumes down 19% year-over-year as most countries remain completely locked down. However, in February, volumes have rebounded down to 11% as markets, such as Poland, have relaxed most restrictions. We are seeing that our other markets are starting to announce their plans to ease restrictions over the forthcoming weeks, coinciding with the vaccine rollout plans across the EU. Although the recent lockdowns have had an immediate effect on our European volumes and revenue, we continue to see positive business wins across our markets. Beginning with Poland, we saw a steady new business activity in the fourth quarter as we continue to gain market share and expand our tech-enabled distribution network. In our Direct division, we continue to sign grocery chains to further increase our penetration in this vertical, which now represents approximately 30% of our Polish business. In our ISV business, we enabled PKN Orlen, the largest energy company in Central and Eastern Europe, to roll out mobile payment application for their electrical vehicle charging station network. We…

Thanks, Darren. For the quarter, the Americas normalized constant currency revenue declined 4%, which reflects the steady improvement in our Mexican business, coupled with modest declines in our US business due to the pandemic. Beginning with the US, volumes for the quarter were approximately 8% below last year and remained at around that level through February. Our merchants are demonstrating the ability to adapt to the changing consumer behaviors, which is demonstrated by the continued increase in our contactless and Card Not Present volumes that we have experienced since the onset of the pandemic. In our B2B business, we continued to demonstrate strong double-digit revenue growth as we signed new merchants and converted existing gateway only customers to our acquiring platform. We also integrated our PayFabric gateway to SAP's digital add-on solution to continue the build-out of our Delego acquisition, which we lapped at the end of September. In our domestic e-commerce business, we continue to grow and diversify our referral partner network and developed key relationships within the retail and health care verticals. Turning to Mexico. We have continued to see steady improvement in this market since the April trough. In the fourth quarter, volumes expanded 2%, and we have seen similar trends so far this year. These solid trends were helped by our diversified merchant portfolio, which includes large corporate customers that spanned across multiple verticals. In 2020, despite the negative impact of the pandemic, our merchant portfolio for this business grew mid-single digits, which further demonstrates the strength of our business. In addition, our performance in Mexico was supported by strong e-commerce revenue growth of 17% in the quarter. Before I turn the call over to Tom, I would like to provide a brief update on Chile. Although we previously anticipated securing regulatory approval by the end of 2020, we continue to await authorization to launch our business. The regulatory approval process has been extremely thorough due to EVO being the first international merchant acquirer in the market and has also been slowed by the pandemic in the summer vacation season in Chile. Operationally, we have completed all of the necessary actions to launch the business. Since our last call, we have finalized connectivity to the networks, leveraging our Mexican platform, continued building our leadership team, secured our business facilities, worked with the bank to develop a sales pipeline of existing BCI customers and developed a sales and marketing campaign for the broader Chilean market. Our partner, BCI remains extremely excited to launch the business, and we look forward to expanding into this high-growth region. With that, I will turn the call over to Tom, who will cover the financials in more detail. Tom?

Thanks, Brendan. And good morning, everyone. For the quarter, EVO's constant currency revenue declined 5% compared to the prior year when normalizing for certain payment network incentives and non-volume-related fees in the prior year for both Europe and the Americas. On a constant currency neutral basis, normalized adjusted EBITDA increased 9% and margin expanded 500 basis points to 38%. Including these incentives and fees, constant currency revenue declined 10%, adjusted EBITDA declined 6% and margin expanded 158 basis points. Sequentially, fourth quarter volumes and revenue were flat, while adjusted EBITDA and margin improved 11% and 380 basis points, respectively. These solid results are despite the continued compression in revenue spreads, which have been impacted by the shifts in merchant and transaction mix, coupled with declines in cross border activity. We remain confident that as the pandemic abates and economic activity rebounds, our spreads will return to historical levels, and revenue growth will accelerate. With respect to our segment performance, in Europe, year-over-year, constant currency revenue declined 15%, and adjusted segment profit declined 20%. However, on a normalized basis, revenue declined 7%, and adjusted segment profit increased 4%. In the Americas, year-over-year constant currency revenue declined 7%, and adjusted segment profit declined 1%, while on a normalized basis, revenue declined 4% and adjusted segment profit increased 6%. The mid single-digit normalized EBITDA growth and 400 basis point margin expansion in both of our segments reflects the targeted costs that we have eliminated from the business, while gradually growing our merchant portfolio. Adjusted corporate expenses for the quarter were $5 million, which declined approximately 15% from the prior year. Adjusted net income of $21 million for the quarter increased 3% compared to last year. Adjusted net income per share was $0.23, which declined $0.02 compared to the fourth quarter of last year,…

Thank you, Tom. In 2020, we strengthened our balance sheet and improved our margins. Our business remains well-positioned to capitalize on the global economic recovery and the accelerated adoption of digital payments. We look forward to continuing to expand our distribution through existing sales channels and acquisition-related opportunities in 2021 and beyond. I will now turn the call over to the operator to begin the question-and-answer session. Operator?

[Operator Instructions] And your first question comes from Georgios Mihalos with Cowen.

Great. Good morning, guys. And thank you for taking my questions. Wanted to start off…

Good morning.

Just - yeah, good morning, everyone. Looking at Europe and some of the bank consolidation that we've seen there, how are you guys thinking about that as there was a net positive or negative? I know it sounds like from your commentary, you're more encouraged by it this time around than maybe what we saw in the past, but just kind of wanted to get your updated thoughts there.

Good morning. I would say that we are very encouraged, as you could see. We mentioned - or Darren mentioned in his prepared comments that one of the banks that we're aligned with in Spain has already announced a merger, so I think the same experience will see likely in other markets. If you look at our history in Europe, when we first entered the market in, say, '12, '13 time frame, banks were looking to raise capital. And then as time progressed, banks were really looking for digital solutions. And so it was less to do with I need to raise money. It was more to do with I need to raise our capabilities to meet the needs of our customers. So I think, coming out of the pandemic, which is our expectation, as we said in our comments, in the back half of this year, and we're already starting to see the shoots of inbound inquiries from banks in the European market and other markets, that are either looking for one or both of what I just described. So expectations are, we will see an uptick of that. And given our positioning in the market, across really the business in essentially all markets across Europe and strong footings in a number of those markets with leading financial institutions, I think it positions us very well to have a successful year on the M&A side in '21.

Great. I appreciate that color. Very thorough. And just Tom, two quick questions as we look at the financials. I caught that you would expect revenue to be down slightly in the first quarter. But if we just look at the volume trends, say, January through February, kind of down 10% in aggregate. Just curious, what does that sort of triangulate to from a revenue perspective? Meaning, what's sort of that revenue impact given the volumes being down there? And then just a quick follow-up. How should we be thinking about FX for 2021? I'm assuming that's a bit of a benefit. Thank you.

Yeah. Hi, George. Good morning. We said before that there's strong correlation between our volume trends and our revenue trends. I think, as we said in my prepared remarks, we'll see volume - revenue also decline relative to last year's quarter. It's something that's hard to peg in terms of exactly where the spread is going to be, but I think that 10% year-to-date decline is something to anchor off of. March, as you know, was when the pandemic started to hit, particularly in Europe, so the comparable related to March, maybe a little bit easier. So I think that, that modest decline would be in that range of where you see the volumes. With respect to FX, if you look at where the banks are projecting the dollar, we do expect it to be a tailwind in 2021. It has been a little bit of a tailwind, particularly with respect to the euro and USD. Peso, not as much. The peso has been a little bit more volatile. That's to be expected with Mexico's sensitivity to oil. But overall, I think we would expect FX to be a tailwind given where kind of the European Bank is versus where the Fed is. I think the trends that we see will continue, and that's what the general consensus is out in the marketplace.

Great. Thank you, guys. Appreciate it.

Thanks.

Your next question comes from Ramsey El-Assal with Barclays.

Hi. Thanks for taking my questions this morning. I wanted to ask about how the pandemic may or may not have impacted the sort of bank partnership pipeline. Is the appetite on the side of banks right now whose merchant processing volumes are likely subdued right now? Are they looking more aggressively at trying to perk up that business? Or has there been sort of a delay in decision making about wanting to partner with someone like yourselves to accelerate growth there?

If you remember, I guess, back to our last call, I had made a comment around that, that these bank partnerships, at least the ones who are - and most of the industry do are in the duration of 10 years. We have one that goes out 20 years. So I think on both sides of the equation, both us and financial institution, the inability to travel, the inability to interact with the leadership team for them to us and vice versa, I think that definitely has chilled some of the enthusiasm for banks to - because going into '20, we had, I think, a pretty strong pipeline of banks that we're talking about this, and then everybody hit the brakes when COVID reared its head. So I think coming out of it, we'll start to see financial institutions, as I've said on the prior question, that we're already starting to see inbounds where bankers are getting engaged. And I think bankers would like to see this start up again. That's how they make a living. But I think for financial institutions, just because we went through COVID, I don't think, stopped their interest to solve the digital issue, which was the driving force in the last, say, 5 years. But you're going to see some instances where banks are going to need to raise capital, and this has historically been a business that they've been willing to part with their full ownership and either do it as a JV or some form of an alliance.

Okay. Thank you. And a follow-up for me is on margins and the margin outlook in 2021. It came in a little bit below our model. We were expecting margins to look around 37%, sort of like what they look like in the second half of 2020. And first of all, super appreciative, by the way, that you've provided guidance, which many of your peers haven't. So keeping that in mind, any particular drivers to call out? Any more of the COVID-related cost savings, for example, that might be flowing back in, in '21 relative to expectations?

Hey, Ramsey, it's Tom. So just to kind of square up on the numbers, I think margin for Q4 was around 38%, so I don't - we may actually need to catch up after more on just where you're seeing margin for the quarter. I think with respect to Q4, it was a relatively clean quarter as we restored salaries in the back half of the quarter. The first two - the second quarter and the third quarter were a bit noisy, as we were going through some various transitory expense reductions and then reinstating some furloughed individuals and things like that. So I think those quarters, we were trying to normalize for some of that activity, but I think the 38% for the fourth quarter was a pretty clean number. Now I don't think you can just take that and roll it forward because there's natural seasonality in our business, and then there's also the impact clearly of the pandemic, particularly what we saw late December and extending on into January. So I think you'll see some ebb and flow of that margin on a quarterly basis. But on a full year basis, as we said in our outlook, that we would expect margin accretion, despite some of the first quarter headwinds of 200 to 250 basis points. So I think, I think that puts us in around 35%, 36% for the year, as I said, despite a little bit of challenges in the first quarter, while we patiently wait for governments to reopen their markets.

All right. Got it, Tom. And apologies if I misspoke, and I intended to say 37% in the second half rather than the fourth quarter, but you noted. And I appreciate your commentary there. Thank you.

Yeah. Very good.

Your next question comes from Tien-Tsin Huang with JPMorgan.

Thank you. Good morning. I just wanted to ask on the confidence in the spreads returning. Does that infer you're structurally not seeing any change in pricing and yields, and this is just a mix issue? I know your SMB versus enterprise mix in some of the European countries vary, so just trying to get a better sense of that expectation.

Yeah. Yes, Tien-Tsin, this is one of the areas I'm optimistic that it's one of the hidden tailwinds that we will benefit from, that when things do reopen, we'll see not only a volume improvement that will drive revenue, but also a spread of rate improvement that will drive revenue growth. If you look at our quarterly trends over 2020, you saw a pretty significant rotation down as two things changed – three things, I'll say. One, just cross border activity. That became obviously virtually nonexistent. We saw a little bit of a rebound in the third quarter, but it was short lived before the markets locked back up. So I think cross-border is something that is probably going to be one of the later - one of the things that's later to return, at least based on what you've read from the government. They're going to reopen internally before they reopen borders, but I think that will be something that will help us. But the merchant mix is something that we clearly saw big box, large retail, grocers, things like that, high volumes, but lower spreads just because of their pricing power. And then the other thing is transaction mix. We've seen an increase in debit card volume where we make a little less spread, both US and international. I think that has a lot to do with the stimulus money that's sloshing around and people using debit as a means of payment. But the confidence comes from a belief that the rotation away from cash to card is permanent from a consumer behavior perspective. So I think you're just going to see more of the economy run on the rails. And I think we also continue to believe that those SMEs are going to come back and that you're going to have the benefit of just a stronger, broader merchant portfolio.

Yeah, Tien-Tsin, we also saw that - as Tom mentioned earlier, we saw that in -- over the summer months, a very strong rebound as the initial lockdowns opened up. So it's not as much just a -- that's what we think. It's something that we've actually seen. So as Europe starts to thaw from the pandemic, we're going to see a very good rebound to the company.

And one just other comment there. And - but you specifically called out pricing, and no, we are not seeing pricing pressure. We continue to see pretty good retention rates with respect to our merchant portfolio. And so from a core pricing perspective, that seems to be holding in line.

Right. So basically, it will - that with the world reopening, it will swing back, and you'll see a normalization in the yields, and I would imagine it comes at a very high incremental margin. Just I guess my quick follow-up, Tom. You gave some -- these normalized figures. I think I wrote them down with the pass-through fees. Is that - anything to consider as we walk through the - what is in 2021 from some of these -- some of the passenger fees? Just want to make sure we've modeled properly.

No. I mean, you even heard in the - it's been a few weeks now since Visa and Mastercard release, but you heard them reference the fact that their incentive costs were down. Well, there's the other side to that trade where some of the incentives that we earned from the brands in the fourth quarter were down. And so I would love to be able to say that a year from now, when we're talking about the fourth quarter of 2021, we've seen that return. We've seen our ability to expand the brands into various of our markets and onto the merchants platforms. It remains to be seen in terms of how that activity returns. So for now, in our outlook, we're not really counting on that for 2021. We'd rather that be something that provides us an added boost if it returns, but we're not counting on it to come back in '21.

Perfect. Thank you so much.

Your next question comes from Ashwin Shirvaikar with Citi.

Guys, hello? Can you hear me?

Hello, Ashwin. Yeah. We got you.

Okay. Hey, so I wanted to find out tech-enabled as a percent of total mix perhaps by segment of country. And through the pandemic in generally, I think you've seen step-up in this - that part of it has performed better. How do you think the mix evolves through the course of '21?

Well, Tom can take this specific breakdown. But yes, the tech-enabled business, our B2B business performed, I would say, compared to the rest of the market exceptionally well and continues to do well. Our ISV business domestically is oriented a lot to hospitality, so obviously, for the portion that relates to hospitality, that's been adversely affected. But the rest of the ISV business did quite well. Our - turning to Europe, for example, our UK business, which is predominantly ISV oriented probably was one of the best performers that we had. Our Canadian business as well had actually a breakout year, probably the best year it's had in terms of its tech-enabled business. So we definitely had very strong pockets across the markets, Mexico as well as a big push into that channel. If you recall, we bought a company, I think, almost 2 years ago, SF systems, and the team came across, and that has anchored us to pursue that market. So I would say, without question, that performed somewhat, irrespective of the impact of the pandemic. The big box business, as Tom was outlining, in our major markets, likewise, did very well. As the markets came - come back, seeing what we saw over the summer, I think it all comes back somewhat equally. I think the businesses that have largely been shuttered or have minimal business, those will open up. I think there'll be an initial strong -- very strong rebound, and then it should settle in to a rhythm that we would have historically seen. I think the one benefit the industry is going to see is the muscle memory now to use card over cash, whether there's a concern of the spread versus just - it's easier to use card. I think our industry will clearly benefit. And we saw that in numbers again over the summer, where our volumes, even with, say, 15% of our merchants closed, because of the pandemic, our volumes were at or above where they had been in the prior year. So the only difference there is people are spending more on cards than they did the prior year. So we'll expect to see the benefit of all that, as these vaccinations impact government decisions on how they're going to treat their citizens. But Tom, can you give you a breakout.

Sure. Ashwin, on the numbers for the company, tech-enabled represented about 35% of revenue for the year. That's up 300 basis points, 3 full percentage points from last year, so we continue to see some good growth there, and that's across all of our markets. US is the lion's share of that 35%. Obviously, a more mature tech-enabled business, particularly with the B2B presence, which is nascent in Europe, but that growth in tech-enabled for the company was at the sacrifice of some decline in our traditional business, which one would expect as that's just naturally a trading portfolio at a very gradual rate. So as Jim said, we're excited about the growth momentum and hope to see that continue to accelerate.

Got it, got it. And then as we try to kind of build up the model, you guys have talked obviously a lot about transaction growth and how that works. Could you talk about sort of merchant counts perhaps as another part of the mix or perhaps an indicator of share gains?

Sure. Yeah. In the merchant count, we saw relatively stable merchant count across the portfolio, but the undercurrent behind that is we saw really good attrition -- retention levels. The level of closures was well down relative to prior years. That may surprise you in the middle of a pandemic, I think that demonstrates the resiliency of our merchants and also their desire to focus on other things than on the -- who their processor or merchant acquirer is. On a flip side, that did put a little bit of pressure on the ad side, where the level of new merchant growth was less than what we would have anticipated in a normal market. We still saw good net year-over-year growth in both Mexico and in Europe. US has had, as I mentioned, with the traditional portfolio, you always have that driving headwind. But overall, we felt pretty good with the merchant portfolio given the operating environment remaining pretty stable. And we think as things reopen, as storefronts have an opportunity to maybe get back to normal that there will be an opportunity for some good new business activity on a go-forward basis. But right now, merchants have higher priorities to focus on.

Understood. Appreciate the insight. Thanks.

Thank you.

Your next question comes from Robert Napoli with William Blair.

Thank you. And good morning.

Hi, Bob.

A question on the - I guess, as you look out over the next 3 to 5 years, which portions of your business - I don't know how you want to break it out by country. I mean, Poland and Mexico, obviously, each 20% of the business, they were coming in. But prior to pandemic, a little more than that maybe. Then your e-commerce, your B2B business, what is going to be the drive - what is the right growth rate as we come out of the pandemic organically? And which markets, as you sit here today, do you think are going to be the largest organic drivers?

Okay. Yeah. I think the 2 that you mentioned, Poland will continue as would Mexico. Probably, Mexico is somewhat underpenetrated compared to Poland in cards on a relative basis. And I think another driver will be our push into Latin America. As Brendan mentioned in his comments, when we were on the call in the third quarter, our expectations were that we would have Chile up and live by this point. A combination of the pandemic and it's their summer season, so holidays, their equivalent of July and August, just kind of got it in the way. But we see Chile, while it's a relatively small market, it will be a very fast grower. We're aligned with a very large financial institution in the market. So I would say those two from acceleration should have a very strong organic growth. Our B2B business now is -- and will continue to be our fastest grower in the US in the aggregate and will, at some point, eclipse and deaden the impact, as Tom was talking about traditional. We see the - or I see the B2B business and our ISV business as kind of the two leaders for our US business over the next 3 to 5 years, as you mentioned. And then across Europe, I think our investments now in tech-enabled, enabling our - the ISVs across the European markets will also help accelerate the growth in already fast-growing markets, really in each one of our markets and less reliant on the banks. And the reason we focus on the banks is it's a great way to get into a new market for a company that's not currently in the market. And then our strategy is to accelerate that growth through our e-commerce and tech-enabled capabilities.

Thank you. Can you just give a little more color on your B2B strategy, Jim? I mean, how do you fit into the market? I mean, I think you're mostly on the AR side with the acquisitions you've made. And is that something -- are you looking to -- so if you give a little color and then how you plan to grow that organically and or inorganically.

Sure. You know what I'm going to do? I'm sitting right next to Brendan, who has that direct responsibility, so I'll let Brendan tackle it.

Great. Hey, Bob.

Hey, Brendan.

So on B2B, today, we are exclusively on the AR side, so your supposition is correct. We - as a byproduct of our acquisition of notice about 3 years ago, we inherited a B2B gateway that we branded PayFabric. And the way that we leverage PayFabric is to integrate our payments capabilities into ERPs. So we initiated our ERP strategy by dealing with sort of the big guys. We've now have a solution for SAP, Oracle and Microsoft. NetSuite, while it's owned by Oracle, it's a separate technology stack. That would be the one large player that we do not have a solution for today directly. And then there's a long tail of smaller ERPs that we integrate to, either by way of acquisition, by buying an integrator or by building a proprietary integration again through that PayFabric gateway. So we embed our payment acceptance technology into these ERPs, and then we set up referral relationships, both with the ERP companies themselves. So they sell their software to a large merchant. And as part of that sale, they say, do you accept credit card and would you value that payment acceptance to be embedded in your ERP. The merchant says yes, and then they refer that merchant to us, and we would close it. And then there's also a reseller network in the ERP community. There are companies that service software consiglieres. They offer a variety of solutions to merchants. And they good, better, best type of thing. And we have relationships with those guys as well. And they would call us and say, hey, listen, I just installed XYZ solution, and they would either sell our payment acceptance directly or they would refer to us, and we would close that sale. In all instances, these guys will get a…

Thank you. Appreciate it.

Your next question comes from Bryan Keane with Deutsche Bank.

Hi. Good morning, guys. Brendan, I also wanted to ask on - just on Mexico. Is the improvement in Mexico something economic there? Or is it something you guys are doing? And is it a way maybe we could look at maybe other countries on how they might recover as well as we get through the pandemic?

Good morning and thanks for the question. On Mexico, the resiliency there, I think, is as much a reflection of our merchant base as it is anything else. We -- the banking market there is 4 big banks. There are really two that are clearly the market leader, BBVA and Banamex. We're obviously in partnership with Banamex. And Banamex's merchant base is the biggest of the big. And therefore, our merchant base is the biggest of the big. And when Jim and Tom, earlier in the call, referred to a mix shift where the big box retailers were winning, and that was negatively impacting our spreads because those guys generally have greater pricing power, Mexico is a clear example of that. So our biggest customer in Mexico is Costco, as an example, but we also process for Cinépolis and for Soriana and for a bunch of the top 10 merchants in the market. And so again, yes, it helps with respect to volume and resiliency. It creates a bit of a headwind with respect to spread. As to whether or not that same strategy will be applicable to other markets in the region, I think it would really come down to what bank do we partner with and how large are the merchants at that bank tends to service. In the case of BCI, in my prepared remarks, I commented that we've been working hard with the bank to establish a sales pipeline. And I can tell you, the early read on that pipeline is the merchant base will skew similarly to what we've experienced in Mexico. And they have - they facilitated the introductions to merchants of that ilk, and we feel good about our positioning when we get that CMF approval. I think the other thing, though, is these upmarkets are incredibly immature. And you are going to see, as Jim said, faster organic growth just because of the lack of maturity there, and that will create some degree of resiliency as well so.

Got it, got it. That's helpful. And then, Tom, just thinking about the cadence of revenue growth throughout the year. Obviously, when we look at trends, the negative impact from the pandemic was biggest in that second quarter, but also just thinking about the rollout of vaccines and probably a stronger second half. Just any comments on the balance on how to think about the growth?

Yeah. Obviously, there's a lot of uncertainty out there. If we could predict that, we would be doing something else probably. But given that, what we see and what our intuition and judgment tells us is that, as we mentioned in our remarks, Q1 is going to be impacted adversely by the continued lockdowns and as well as some of the weather-related challenges that we've had, particularly in the US I think that has also impacted that 10% year-to-date. So we think that will thaw literally over the - and March will be stronger from what we saw relative to January and February. And then from there, our expectation is that Q2 is a healthy lift. But when you look at the timing of what governments are signaling, and I hope they're being conservative here, so that it's always easier on the population to dial it back than to tighten the grips further. But what you see in terms of our European markets, particularly in the UK and in Ireland, is that a full release of restrictions not occurring until pretty late into the second quarter. Now our prediction is that in the meantime, there will be some stage to bring back some level of commerce because the infection rates are just dropping precipitously there, and we're hopeful that, that continues, both because of vaccine rollout as well as just maybe some level of just innate herd immunity occurring with this being in the environment for over a year. So a modest pickup in the second quarter and then a healthy - really healthy rebound in the second half of the year. I think we can all attest, with respect to our kind of own personal experience with this, people are itching to get out, and they're itching to travel again. They're itching to get to restaurants and enjoy some of the things that were available to us pre pandemic. And so our expectation is when you reach that level of stability and government support, the second half of the year has the opportunity to be really a strong economic growth and just overall market conditions. So I think we'll see a little bit of increasing slope and then - and ratchet it up in the third and fourth quarter.

Got it. Helpful comments. Thanks for taking the questions.

Thank you.

Your next question comes from Jason Kupferberg with Bank of America.

Good morning, everyone. This is Cathy on for Jason. So I know you guys provided 2021 guidance, which was helpful. But I also wanted to see if you guys could share your 2021 expectations by region. For example, which regions are you expecting growth to return faster in, which markets are still lagging? Thanks.

Thank you for the question. I would - I don't know that we can break it down any finer than what we've outlined thus far. I think where you'll see - where we will experience the greatest rebound is Europe. Europe has had, and we showed in the slides, the greatest impact relative to lockdowns. And so as those are relaxed, and as Tom just mentioned, if the governments are overshooting what they really expect, and they're going to loosen it up faster because the vaccinations are having a more positive impact on infection rates, then I think we'll see the possibility is before we get to the second half, so in mid- to late second quarter, we may see a bounce back a little earlier than expected. I think in all our internal slides, as we look at infection rates, et cetera, by country, which everybody else can see, it's public data, the slides indicate that in all markets, even markets that seem to be somewhat behind on vaccination, the cases are dropping. So I would anticipate Europe would have the most dramatic impact. The Europe - US seems to be ahead in many respects in terms of number of people vaccinated. And just given our access to a variety of different pharmaceutical solutions, maybe the US, as well, will have a stronger rebound in the second quarter. But right now, I think it's out of our ability to be any finer than what we've estimated thus far.

Okay. That's helpful. And just a follow-up, just could we get an update on the e-comm or integrated channels? Like what does it look like exiting 2020? And what are your expectations there for 2021? Thanks.

All right. Well, I'll let Darren take Europe, and then Brendan can cover the Americas. So Darren, do you want to go?

Thanks, Jim, Thanks, Cathy. Yes, the e-comm and, generally, the Card Not Present channel has inevitably grown significantly in Europe given the lockdowns and the consumers willing to spend and, more importantly, merchants being agile and adaptable to accepting alternative channels for payments. So some of our merchant count, merchant growth ads has been one and truly sustained by cross selling, up selling, e-commerce and integrated solutions. The focus continues, as messaged throughout this call, on the digital channels in Europe and the tech-enabled solutions. There's a lot of focus in every market. And whilst the UK was quoted as kind of being, I guess, more closer to the US in terms of significant growth of ISVs, we are seeing that incidence across all markets. So there's a doubling down of effort through all the markets, and we'll be in strong double-digit percentage growth through the tech-enabled channels and getting to 40% -- 30%, 40% of our volume coming through the Card Not Present or the integrated channels in Europe as a directional statement. I'll hand over to Brendan.

Yeah. Thanks, Darren. So in the US, we'll speak about the US and then Mexico. In the US, the story is really B2B. I mean, I think Jim highlighted it. But today, it's nearly 40% of revenue, and we didn't have a B2B business prior to 2017. And in 2017, it was immaterial to the aggregate company. So - and that's in large part organic. So that is an incredibly exciting story. And for the reasons that I highlighted in the earlier question, I see no reason why that growth would decelerate in any way. The opportunity respectively is equally exciting. On the ISV side specific to '21, the business, as Jim mentioned earlier, is oriented towards hospitality. So ass restaurants reopen, the business will rebound. And then on the e-com side, our e-com business has obviously benefited. The broader industry has benefited on the e-comm side as consumer behavior has moved to at home versus walking around, and our business is no different. Our e-com business is largely indirect. As we've discussed on prior calls, we're in the journey of evolving our business from an indirect to a direct business, and we are seeing some activity on the partnership side, with our pipeline looking increasingly exciting across a number of verticals, pet and health care, in particular. So I'm optimistic that the improvement in the e-com business will sustain itself. And then specific to Mexico, there is no B2B business in Mexico today. The ISV business is very early on. That said, as Jim said, the SF Systems acquisition gives us dedicated technology resources and dedicated sales, and we have launched successful partnerships like the one that we highlighted on an earlier quarter with TouchBistro. So I'm confident that we will be market leader there in the ISV segment. But today, to be a market leader, it's not particularly impactful to our overall financial results. The e-com situation, that's absolutely not the case. Our e-com business is low teens percent of the overall business, but has grown anywhere from 20% to 45%, depending on the year. So it - and that, again, that should sustain. And we have -- we are looking to enhance our technology offering on the e-commerce side as well to make us less reliant on third-party vendors that would eat into our economics. So more to come there.

Very helpful, guys. Thanks for taking my questions in the end here. Take care.

Thanks.

Your next question comes from Kartik Mehta with Northcoast Research.

Good morning, Jim. You talked about banks starting to open up and maybe potentially that providing an opportunity to do some M&A or partnership. Do you think that takes until we're kind of through with COVID-19? Or do you think the movement happened and there's an opportunity before COVID-19 is kind of all done?

My sense is that the process is beginning now. We were much less so during the height of COVID just because everybody's uncertainty. And I think if I were running a bank, I think you'd want to see all the cards or most of the cards before you made decisions on what you wanted to do. And as I said, I think most banks, going into COVID, were considering how the world was evolving relative to banks, branches closing, digital becoming much more important, whether they were going to invest in merchant directly or they were going to find a partnership. So I think it was already in -- if they didn't have such a relationship, I think they were already thinking about it. And it was just a question of build or buy. COVID, I think, slowed that down. And I think for us, too. These deals tend to be -- most of them, pretty sizable investments of time, resources, opportunity, cost, money. So we also wanted the opportunity to meet them and get to know them as opposed to just do it entirely over a Zoom call or something of that nature. So I think with the restrictions loosening, travel, our expectations that, that will loosen, I think banks will -- especially if they need to raise capital and they're looking for digital, I think we're going to see some activity in '21, and that will extend into '22.

And then just as a follow-up. Brendan, you talked a lot about the B2B success you're having in the U.S. Is there an opportunity in Europe to do something similar? Or are the partnerships that you have right now in the US, and you need to do something in Europe, it's different in Europe to really get that business going?

Kartik, I think, as you mentioned there…

Hey, Darren.

I'll take that. Hi. And so the B2B opportunity in Europe is nothing like the potential at all of the U.S. at the minute, simply with the EU regulation on consumer debit credit of 0.3, 0.2, respectively, the scheme incentives for interchange or scheme fees to discount commercial or purchasing card, either a level 2, level 3 data or whatever it may be, it's just not there. There's no motivation to do that. So selling that only on kind of an accounts receivable integration without some price incentive on interchange is a very challenging sale for the minute for business entities to kind of buy a B2B product as it would be seen in the US. So that said, the schemes now, it is probably one of the biggest white spaces left in Europe for card opportunity. Brendan quoted the numbers for the U.S. Think of it as 0 on card almost in Europe relative to that sizable opportunity as well. So I can see it coming in time strategically, but no -- subtly not yet, but watch the space as, inevitably, the schemes find mechanisms to untap that market.

Thank you very much.

Your next question comes from Thomas Blakey with Truist Securities.

Hey, good morning. It's actually Andrew Jeffrey for Tom.

Hi, Andrew.

Good morning. Appreciate you squeezing me in here at the end. Just one for you, Jim, and I appreciate the slides and the volume trends are helpful. When I look at your vertical market exposure, I mean, I think it's easy to understand, both in the U.S., but really, I'm looking at Europe, where your leverage recovery is going to be. Is there anything you can do, want to do, should be doing to influence that mix? Or is that sort of beyond your control? I'm thinking about, maybe less so in Europe, but also in the US, just the technology change and the pace of change in hospitality and restaurants in particular, and I wonder about your strategic positioning against that just broadly.

I would say every market has its own characteristics. Many of these we've bought into, as Brendan was describing Mexico, it's very tilted toward the large merchants as is Poland. Ireland, for example, where we're aligned with the leading bank, Bank of Ireland, this was a startup because that business had already traded hands with one of our competitors years before. And there, we're more of an SME working up to the larger merchants because larger merchants have already got a processing partner from 20 years ago. And so mix is going to again be a reflection of the characteristics of how we enter the market, who we entered the market with and where the opportunities are. I would say, even given that though, the US as an example, we acquired Sterling. Sterling was heavily oriented to hospitality. The two GMs that run that business have been working to expand - not that hospitality is bad. It's completely the opposite. It just wasn't so great during the COVID time period. But extend to either vertical opportunities domestically, one, just to diversify the base, but to take advantage of a space where our capabilities are - can be deployed as successfully as hospitality, but it was just the model of the company we acquired to be oriented to hospitality. And the same for Darren in Europe. Darren's - his business, in particular, is very oriented to financial institutions because that's really how we got into the market. But if we look at the UK market, as I said earlier, it's almost on 80% ISV driven. And the guy who runs it, Andy White, has done an excellent job in making a business of something that didn't exist for us or - 5 years ago. And it's probably our leader in terms of new business generated in a market, and it's in a variety of different vertical markets. So I think the opportunity to continue to diversify is very rich in Europe. And then, likewise, as Brendan mentioned, still very small in Mexico, but we anticipate being a leader in the ISV space. And we've already invested pretty heavily in it. We've got a number of resources dedicated to it and the technology capabilities. And we intend to do the exact same as we enter the Chilean market and, hopefully, other Latin American markets.

I appreciate it all. Better get a cup coffee.

Thank you.

Your last question comes from Mike Del Grosso with Compass Point.

Hey, guys. Thanks for squeezing me. And a lot of my questions have been asked and answered. But I want to touch on one that came up actually about 6 months ago. You talked about bringing your European e-com gateway assets to the U.S. Wanted to see if there's been any update there or how that's been progressing? Thanks.

Yeah. We did mention that. We actually brought it to - the intention was the US and Mexico. We saw Mexico as a bigger near-term opportunity for, I think, obvious reasons. We're much later to the e-commerce space in the US I mean, this has been going strong for a very long period of time. And Mexico, as Brendan mentioned, has a much bigger opportunity. And the business we acquired, Citibank's business was dependent on third parties. And therefore, that platform has been enabled in Mexico, and we'll continue to build out its capabilities in that market. As it relates to the US, because we shifted resources to Mexico versus the U.S., we've also made the decision to use the same B2B platform that we own, we acquired when we bought it. It's called PayFabric that we refer to internally as PayFabric. It already supports B2C. It has areas that we need to build out. So we'll likely have PayFabric be the backbone for direct e-commerce in the US, and the expectation is that we should have something up by the end of this year.

Great. Thank you.

Okay.

At this time, there are no further questions. I will now hand the call back to Jim Kelly for closing remarks.

Thank you, operator. And thank you all for joining our call this morning and your continued interest in EVO.

That concludes today's conference. Thank you for your participation. You may now disconnect.