Good morning and welcome to the EVO Payments Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ed O'Hare, Senior Vice President of Investor Relations for EVO. Please go ahead.

Good morning and welcome to EVO Payments second quarter 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. 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 our earnings release; and the risk factors discussed in our periodic reports filed with the SEC including our most recent 10-K which is available on our website. 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. Today we will discuss our second quarter 2019 performance. Joining me on the call today is Jim Kelly, Chief Executive Officer; Kevin Hodges, Chief Financial Officer; Darren Wilson, President, International; and Brendan Tansill President, The Americas. Now, I will turn the call over to Jim Kelly.

Thank you, Ed and good morning everyone. Welcome to EVO's second quarter earnings call where we will review our results for the quarter and provide updates on our business performance, our platform migrations, and our recently announced acquisitions. For the quarter, constant currency adjusted revenue grew at 11% and constant currency adjusted EBITDA grew at 14% when excluding the card network incentive recognized in the prior year period. These results reflect our strong international bank partnerships, our growing integrated payments network, and our expanding sales efforts across all markets. I'd now like to provide an update on our business performance in Europe. Our Polish business continued to deliver solid results in the second quarter leveraging both our bank relationship with PKO and our strong direct sales team. We signed several large national customers including a pharmacy network and a grocery store chain. Additionally, we signed an agreement with a merchant which supports over 1,000 locations and is implementing Visa Direct for payouts immediately to the consumers Visa debit card. This application is Europe's first implementation of Visa Direct at a physical point-of-sale and we are excited to work with Visa and the merchant to launch this digital solution. On a side note we anticipate lodging Visa Direct in the U.S. during the second quarter of next year. We also expanded our sales team to include the Postbank branch network to support our new relationship with the bank which we announced last quarter. Additionally, we have renewed our agreement with the Polish Post to continue to provide card acceptance and mobile top-up solutions for its network of over 4,700 post offices and 3500 couriers. Our Tech-enabled division continues to deliver strong results as well. Earlier this year we expanded our Snap platform to provide e-commerce processing capabilities for in-market merchants and…

Thanks Jim. Good morning everyone. As Jim mentioned, in Mexico, we continue to make investments in our tech-enabled distribution to drive growth for the business. In July, TouchBistro a well-known point-of-sale provider for restaurants with a strong U.S. presence announced it was launching its integrated payments platform to restaurants in Mexico later this year and selected EVO to be its acquiring partner. At the end of last month, we also closed on our acquisition of SF Systems an ISV integrator platform based in Mexico to complement our Snap platform in the market. The acquisition extends our ISV capabilities and allows us to accelerate growth in the Mexican ISV market using its existing integrations. Turning to Chile, as was announced in May EVO signed an agreement to form a new 10-year exclusive bank joint venture with Bci. Chile is a new market for EVO and our first operation in South America. Recent regulatory changes have enabled greater innovation in the market ending the historical monopoly for payment processing. Local banks are now evaluating their digital strategies to compete in this evolving market and are looking for innovative solutions. Anticipating this change Bci conducted a competitive evaluation process last year and selected EVO based on our deep understanding of successfully building acquiring businesses internationally. This will be EVO's 16th international bank relationship, since we started our global expansion in 2012. As a result of the transaction, EVO will become the first independent merchant acquirer to enter the Chilean market by partnering with a leading financial institution. We are very excited about entering Chile and South America. Chile is a market-oriented economy with strong foreign trade financial institutions and public policy. There are over 600,000 merchants in Chile today and it is estimated that only 40% accept card payments. Additionally, the market has…

Thanks Brendan. We look forward to the launch of our business in Chile this year after obtaining regulatory approval. Our M&A strategy remains the same as we partner with international financial institutions and continue to expand our tech-enabling capabilities in new and existing markets. Overall, we are pleased with our results for the quarter. Kevin, will now cover the financials in more detail. Kevin?

Thank you, Jim and good morning everyone. As Jim mentioned, EVO delivered a strong quarter of top and bottom line growth. For the second quarter, normalized adjusted revenue grew 11% on a currency neutral basis with acquisitions contributing four percentage points of that growth. FX negatively impacted revenue by 260 basis points in the quarter. Based on current FX rates most of the adverse FX impact compared to 2018 occurred in the first half of 2019 although the euro and Polish zloty continued to weaken versus the prior year. Results are normalized for a card network incentive in the prior year period. As previously discussed, our revenue is now reported net of card network fees, which were $27.5 million in the second quarter. We report adjusted revenue excluding this deduction to aid in comparability with 2018. In the second quarter, we delivered double-digit currency neutral adjusted revenue growth in our largest international markets including Poland at 10% Spain at 11%, the Irish and U.K. market at 24% and Mexico at 13%. As indicated on our previous call, growth in Poland was impacted in Q2 as a result of the annualization of the cashless program and the migration of a large customer at the end of Q1, which affected growth beginning in the second quarter. Growth was further impacted by merchant renewal pricing in Q2. We expect these factors to impact Polish growth through Q1 of next year. While revenue in Spain grew at 11% in the quarter, we initially had higher growth expectations earlier in the year, which were impacted by the Santander consolidation efforts as Jim previously mentioned. On a currency neutral basis, normalized adjusted EBITDA increased 14% to $39.3 million. Currency neutral normalized adjusted EBITDA margin increased 82 basis points to 26.2% compared to the prior year period…

Thanks, Kevin. I will now turn the call over to the operator to begin our question-and-answer session. Operator?

[Operator Instructions] Our first question comes from Tien-Tsin Huang with JP Morgan. Your line is now open.

Hey good morning. Thanks. I wanted to ask on Bci just the cost to stand that up. I know that there's no back book involved here with Transbank keeping that. But I'm just curious how quickly, I think you mentioned four years I heard that. But just the cost to stand it up and how quickly we might see it flow into the P&L.

Okay. Good morning. I think the four years was in Ireland we reached 25% market share over a 4-year time period. Here as we mentioned in the comments, as Brendan mentioned, we're going to leverage our Mexican infrastructure. So we have a group of over 400 in Mexico. And similar as we do in Europe where we have -- Poland is kind of the back office for Europe it's kind of a hub-and-spoke structure, we intend to do the same for South America. So Bci initially will just be sales some product and account support. Overtime, we'll likely put some first-line customer service into the market. So there clearly will be some cost. I think most of the cost will really be around sales expense standing it up in advance of the revenue coming in. But as Brendan went through the statistics in the market, organic growth in that market just because of it's so under-penetrated for card issuing and merchant acceptance is over 20%. So our expectation is that we should see pretty rapid growth. If you want me to estimate, I would say, two years. But we'll likely see some losses and we'll call those out during these calls. And we would have been happy to buy a back book. Unfortunately there wasn't one available because it's owned by the central processor. But we're very, very excited about this opportunity; wanted to get into South America which we've talked about on numerous occasions. But we also think there's lots of growth in the market. We think we have an excellent partner who's very focused on technology. As Brendan mentioned they have a product already in market similar to like the Venmo on P2P which does some payments online as mentioned with Amazon and e-commerce businesses. They'd like to see that in the face-to-face world as well plus all the capabilities that we can bring and our Mexico team in particular that's had great success into that marketplace.

Yes. No, I was glad to see it. I know you mentioned South America being a focus. Is there more to do behind this one? Or do we need to give this time to develop and provide a proof point for others that you can stand something like this up?

Yes. I think that's a really good question. For us because as we described our M&A strategy our objective is to form a long-term relationship with financial institution and benefit from their distribution and they benefit from our monoline capabilities. So it's not as easy as going to a private equity firm and buying a business. You have to cultivate a relationship. Typically these financial institutions, if not typically all the time run a process. So you have to wade through the process the contracts all that stuff. So yes it -- Bci took over one year from start to finish. But our expectation are a number of the Spanish-speaking countries in particular in South America, I think will look at Chile and also Brazil, but look at Chile and how it's opening up; obviously the same in Argentina. So my expectation is that, you'll see us in other countries in other countries in the not distant future, but we don't have anything that's actionable immediately.

Okay. No. Congrats on that. Real quick, if you don't mind the third question. Just on the North America margins, Kevin is that a sustainable level for the second half of the year? Thank you.

Yeah. No. As we said on the call, we've introduced some cost efficiencies in the market already just the actions we've taken in last year. So yes, we're sort of seeing that steady as she goes as the EBITDA margin for the back half of the year.

Great. Thank you.

Thanks, Tien-Tsin.

Thank you. And our next question comes from Bob Napoli with William Blair. Your line is now open.

Thank you. Just wanted some clarification initially on the guidance, the 10% to 12%, I mean very, very good quarter. It seemed like you could have raised guidance. And I know you mentioned some Spain, some challenges there. But on the guidance, first of all, why not increase with the strength you've had. And then, on the revenue growth the 10% to 12%, how much of that would be FX neutral organic?

Yeah. So the 10% to 12% would be constant currency. The acquisitions kind of this year are impacting the overall growth by a few percentage points, but those will annualize in the second half of the year. We're not anticipating in the guidance kind of the acquisitions that have not closed. So, Chile is not in there. Portugal's not in there. And I think to your first question about why not raise in guidance I think it's for the reasons we called out. It's really Spain. We wanted to make sure that we were giving you all some color around some of the headwinds that we're seeing in Spain with the bank's consolidation efforts. As we called out the 75 basis points to 100 basis points that we see in the back half of the year really related to just lower merchant referrals coming from the bank and higher attrition. The other markets are doing well.

Thank you. And just on the M&A front, I know you guys are always active, and it seems like you've been very successful with the deals that you've done. Is there a pipeline? I know your leverage 4.2, and you've been doing small tuck-ins that seem to be really synergistic. Are there other of those tuck-ins? Or are you actually interested in larger transactions as well?

Yeah. I think the short answer is we'll look at all opportunities to be able to expand in our existing markets and new markets. The smaller ones that you mentioned like SF Systems ClearONE, the way I view that is that is a way for us to accelerate our growth over the long term as these markets in particular outside the U.S. converge on integrated payments as we've seen here in the U.S. So this, as we've said on several of these calls, ClearONE has over 100 ISVs that are connected to it. And I think we're 60% or 70% of the new business that comes through that platform, which is roughly over 100 merchants a week are coming through ISVs that we are now acquiring for. So it is -- and it’s really -- that component of our strategy is building organic growth, making sure that we're not dependent entirely on a financial institution or market and really just diversifying in a market. But at the same time, like a Bci, our interest was to expand and is now successfully into South America. There are some markets where there is not a large national payment processor that owns the merchant contracts where financial institutions like in other markets own those contracts. So we are -- I would say, half of our time and the GMs in each of the markets that we operate, Brendan and Darren, that's a big part of their incentive as well as their responsibility to me is to look for new opportunities. And I would say the pipeline, being a public company, is makes it a lot easier, because people know who we are. You can go pull our 10-K and read about the company; whereas a private organization it is or business is much more complicated. So, I think the pipeline is as good as it's been. We also are respectful of the fact that we were committed to delever the company from the IPO, which we have done from 6 down to what 4.2 now?

4.2.

And we'll continue to trend down. The tuck-in acquisitions that we've been doing are relatively small. I think just because they're small in size -- as Brendan mentioned, we would picked up TouchBistro in Mexico; it's a big win and we'll continue to do those type of transactions in markets. So yes, big transactions, small transactions; I don't think it's necessarily the size. It's really just fitting the strategy.

Great. Thanks. Thanks, team, congratulations on solid trends.

Thank you, Bob.

Thank you. And our next question comes from Jim Schneider with Goldman Sachs. Your line is now open.

Good morning. Thanks for taking my question. I was wondering if you could go a little bit further on Chile and with the Bci deal. Do you have any comment on the kind of competitive nature of that deal? I assume you've been working with them for a long time. But I think one of your competitors is also in the market with a processing contract with one of the large banks down there. So I'm just kind of curious, how you see that market; whether you see there being further opportunities for opening that up. And I guess how fast do you think that is going to take off as we head into 2020 and you start to board new merchants? Thank you.

Yeah. Thanks. Good question. And this is Brendan Tansill here. So as it relates to Chile, what we saw out of Bci is relatively typical for a bank that's evaluating -- establishing a partnership from an international acquirer like an EVO. So they engaged a third-party consultancy and ran an RFP. It was sent out for bid. And for bid there was no consideration paid because there was no back book of merchants as Jim mentioned. But it was bid to the extent that we had to go down there present our capabilities. We had to spend a considerable amount of time with the senior management of the bank to ensure social and cultural and strategic alignment. There was some reverse due diligence of our facilities here in the U.S. So we hosted them at, at least two of our facilities here to get them comfortable with how we operate our business here domestically. And then after a number of discussions with them around how we would envision the joint venture operating and how we would envision the governance working, they ultimately selected us as their partner. And the only real work to do after that is to execute a contract that we call Marketing Alliance Agreement, which is the document, by which our two organizations align themselves. And then I guess the Shareholders Agreement as well. As we've been clear we own 50.1% and they own 49.9%. So that was the selection process. As it relates to ramping, there's still regulatory approval to be achieved. So we would expect that to come sometime here in the fall. That's about as specific as they've been with us, so it's as specific as we can be with you. And then I think in my comments, in the earlier portion of the…

That's helpful color. Thank you. And then maybe as a follow-up. Kevin, can you maybe just talk about the EPS guidance? You outperform pretty significantly versus The Street and our own expectations in Q2. So I guess I'm just wondering if the North American margin performance is sustainable as you mentioned earlier, is there anything we should be thinking about in the back half of the year that would pose a headwind to earnings growth. Thank you.

No. We, obviously, talked about what we've been seeing in Spain that most significantly impacts the revenue but drops into the EBITDA and the EPS as well. We sort of called out the color on revenue because we do have -- we're trying to make up the difference on the EBITDA side. And so we've got the teams kind of putting in place some initiatives there. And then just on the EPS side, we do have the impact of the April follow-on offering, increase in number of shares. You would have seen not going from Q1 to Q2. That, obviously, continues for the rest of the year. And then we do get some benefit from the lower depreciation just as a result of the lower CapEx that we've been seeing, the first half of the year.

Thank you.

Thank you. And our next question comes from Andrew Jeffrey with SunTrust. Your line is now open.

Hi good morning. Appreciate taking the question. Jim, I wonder if you could elaborate a little bit on what you're seeing in U.S. e-com and maybe some of the initiatives or steps you're taking to improve growth there? And then just broadly when you look at your e-com strategy globally, could you may be position EVO versus some of the other players in the market? What really differentiates your go-to-market? And what do you think, gives you a competitive advantage, as you try to take share?

Okay. So on the excuse me on the first point relative to the U.S. nothing significant has changed relative to what we've said on prior calls. We're looking to round out the team. As we've mentioned, we've brought some of our capabilities that, originated internationally, mainly our gateway into the U.S. to be able to offer that as a solution for as opposed to using, third-party gateways. I would say, beyond the U.S. I think we called out in Mexico, as well as Europe, that we use a common gateway. So this is the one that we acquired around the same time we acquired Snap. It was not necessarily one that was well-known in terms of the Stripe's, Adyen's, Worldpays. But in terms of capabilities as you know, less capabilities. And our differentiation is the same differentiation, that a Bci gives us or any of the other 16 international banks, that we do business with and Deutsche Bank here domestically is their distribution. So, to the extent, that they have merchants that need e-commerce, which they do, we're the chosen, exclusive provider. So those businesses will come to us directly. I think so in particular, in e-commerce, where it's been around for quite some time. Many of these larger companies already have integrations to third parties. And to the extent they do, we'll still be the acquirer. But we may have a competitor platform in between. And to some extent, we would prefer it to be ours. But it's not necessarily a game changer. Our strategy is about building distribution, not necessarily building e-commerce distribution versus face-to-face versus ISV. But to build distribution through the financial institution networks that we currently have. And we will continue to expand. And then, take all our capabilities. And make those available to the customers.

And do you think that, you can gain traction in those initiatives this year? Or are we thinking about 2020, as being the period in which, you're likely to see that part of your business accelerate. And contribute more to organic growth?

Yeah. It is today internationally accelerate -- it is a big part of the growth or component of growth, in the international markets. Domestically, though I would say, we'll need another year to shift what was, a business dependent on third parties referring business, to us to a business that's more organically generated. So, I'm not expecting any change for this year and likely not for next year either, in the U.S. piece.

Okay. I appreciate it. Thank you.

Yeah.

Thank you. And our next question comes from George Mihalos with Cowen. Your line is now open.

Congrats on the results. Just wanted to ask as we look at the transaction growth this quarter in North America obviously it spiked very nicely; just curious if you could provide some color on that. It sounded like you had a lot more momentum in areas like Mexico and the like. But what drove that? And how should we be thinking about that transaction growth going forward?

It's Brendan here. Thanks for the good question. So what you saw out of Mexico and North America transaction growth was we assumed the debit business for several of our largest corporate customers in the quarter. And that switch from an alternate provider to EVO's Mexico business resulted in very significant transaction growth.

Hey! Good morning guys and congrats on the results.

Good morning. Thank you.

Just wanted to ask as we look at the transaction growth this quarter, in North America obviously it spiked very nicely; just curious if you could provide some color on that. It sounded like you had a lot more momentum in areas like, Mexico and the like. But what drove that? And how should we be thinking about that, transaction growth going forward?

Hey. Gorge good morning. Its Brendan here and thanks for the good question. So what you saw out of Mexico and North America transaction growth was we assumed the debit business for several of our largest corporate customers, in the quarter. And that switch from an alternate provider to EVO's Mexico business, resulted in very significant transaction growth.

Got you, okay. That's helpful. And then, just a question Jim, building off the e-com questions I think you said for Way2Pay, you're processing for 70% of the merchants there. Do you have a similar number four Snap overall? Where you're sort of providing the gateway and doing the processing?

I wouldn't have it off the top of my head, as to total number of merchants that are on there. But yes, we could call that out on another call. Or we can do that at a later point in time. We were just highlighting our Way2Pay. And one of the questions we had earlier in terms of these smaller tuck-in-type acquisitions. Way2Pay's been very successful, in Ireland. It's now moving over to the U.K. And it's kind of for us a bit of a hybrid between software and e-commerce capabilities. So we were just referencing the fact that, this before we acquired it, was just simply a gateway and now we're picking up substantial part of the schools or sports organizations that are utilizing the service we are also the acquirer same for ClearONE. And you'll see the same for SF Systems. That is strategy I think we developed with Snap. And expanded to Sterling and are continuing to locate these types of assets. Internationally, they're relatively small. And they are oriented to clicks, as opposed to the acquiring fee. And that's as Brendan was describing Chile, that's the business that, we're in. We're maybe the last of the mono line acquirers that are public companies. And our focus is to get as close to the merchant as possible and to try to eliminate as many intermediaries between us in the merchant as possible.

Okay. That's very helpful. Thank you.

Thank you. Our next question comes from Ramsey El Assal with Barclays. Your line is now open.

Hi, guys and thanks for taking my questions. I wanted to ask about the impact of Easter timing in the quarter. Was it a perceptible driver of growth? Or did it play out the way you thought? We had it in our model as maybe a little bit more of an impact.

Yeah. It would be entirely a guess. As we were putting the script together that was one of the questions actually I asked of Kevin to try to -- and that's why we put it in the script. So we were at 13% for Mexico. And that's a market that we probably saw it more notably. But it was probably 1% to 2% to the extent we can guess how many people spent the month before or the month after relative to Easter. And that would align with what our expectations were for Mexico. Likewise for Poland, there's some other noise in the Polish numbers, as Kevin mentioned, but you're probably 1% or 2%. If you went back to the scripts last quarter, we were down I think at 8% or 9% for Mexico as a corollary.

Okay. I wanted to ask also about the sort of broader DCC opportunity. I guess for some of these newer deals that have yet to roll on whether it's Bci or EuroBic or maybe even Postbank. First of all, any of the new distribution sort of lend itself to DCC with footprints that are maybe heavy in kind of tourist locations airports, casinos things like that? I guess that's the first part of the question. And then second is just more broadly how penetrated is your existing book with DCC? Is there incremental opportunity there to kind of ferret out new locations? Or is it sort of what you have today is kind of the steady state of DCC in your business?

Well, I've only been to Chile a couple of times, so I can't speak to the tourists. But last time I was down there was around Christmas time. And there was a lot of Americans heading down there to get on a boat and go to South America. So apparently that's the thing to do at Christmas in Chile. Not South America. Excuse me. To Antarctica. I would say that every market has the opportunity for DCC and we would make that available as a product. I think we've also seen because of all the heightened attention on DCC in Europe last year that there was probably some level of pullback by consumers potentially because we saw some level of slowing as Kevin has said on a couple of calls. I don't know that there's more penetration opportunity in the existing books. The Polish business was already very well advanced with DCC. It's an in-house capability. We don't use a third-party. We set rates and can change rates during the day. And we've been effective in rolling that out into the Spanish market for instance and into Ireland. We do have a new book in Europe, Liberbank. So there is activity in increasing DCC capabilities, because the legacy national processor called SECA there just has less capabilities on the DCC side. So it is part of the playbook wherever we go, but I don't know that it's something that would be overly material in the near term.

Great. Thanks so much.

Yeah.

Thank you. And our next question comes from Ashwin Shirvaikar with Citi. Your line is now open.

Thank you. Good morning folks.

Hey, Ashwin. Hey. The first question I guess for Kevin. Hi, Kevin. Relative to our expectations the EPS beat seemed to be due to lower depreciation which you mentioned in answer to a previous question relative to lower CapEx in the first half. Wasn't clear to me was whether that lower CapEx is a sustainable. And if so why?

Yes. So as far as, yes, it's sustainable. So what we've seen this year is lower CapEx compared to 2018 largely around point-of-sale terminals. We spent a lot of money last year in CapEx $50 million nearly, $50 million CapEx really around some key initiatives to develop the cashless initiative in Poland. Now that it's annualized, it's more regular. We don't have to make as large of an investment this year, just in terminal purchases. And then we've also just seen lower terminal requirements needed in some of our other international markets. Outside of CapEx or outside of point-of-sale terminals, we've also annualized some of the IT investments that we made last year particularly in the second quarter of last year in North America. We haven't needed to repeat those in 2019. So we've been tracking more a new run rate of CapEx. I think our Q2 CapEx was pretty close to what we spent in Q1 and we're sort of anticipating that for the remainder of the year as well.

Yeah. Ashwin really has been a very big focus this year going into this year about getting CapEx down and being more aggressive maybe than we had in the past. I think last year we just convergence of the cashless program as Kevin said and some office refurbishments expansions. And as we do make acquisitions, there's going to be maybe not as much CapEx, but there's going to be more cash spending. So our focus this year is to improve cash flow. And I don't know that we expected it to be as strong as what we've seen thus far this year. But we've taken a very good look at the balance of the year. We think this will continue into the fourth quarter.

Okay. And then that comment on lower terminal requirement is something changing in your relationship as it relates to the terminal manufacturers? Or is it some would be maybe newer relationships like the TouchBistro coming on? What's going on in that market?

I would say, it's two things. One the cashless ate up a -- we bought a lot of terminals. I have on the thousands – Darren, how many thousands do we put out in Poland?

Over 45,000.

I would say by me – by management on being more careful on when we time purchases. As a privately held company, we would sometimes buy up on a better price and I think some of that spilled into last year. But there's no shift in terms of strategy. In TouchBistro as an example it is not necessarily going to change. In terms of size, it's not going to change the spend -- for terminals in Mexico. This will go up. I mean it's not going to be overly material. But it'll go up as we go into Chile because I think Chile's got a similar model as most of these markets do where the bank was historically or in this case Transbank was providing terminals.

Got it. And Jim, I know this questions been asked before with regards to the three large acquisitions that have happened in the industry and the impact on EVO from those. And you kind of mentioned in the past that really you're not seeing much of an impact. I just want to get sort of a down-the-road update. Are you beginning to see any actions as these deals start to close? Anything to watch out for that's really playing in different markets?

So personally, no. I mean know that they all just closed or are about to close. I think Global's still not closed. Global TSYS is not closed yet. Anytime you have a transaction the magnitude of these which were quite surprising I think to everybody at least to me they were and particular the speed at which they occurred -- plus when we make these type of transactions, we're announcing the synergies and synergies translate to people. So I think on the positive we see people who are open to leaving. There are really good -- there's talent in every one of these companies. So for us I think there are opportunities on the talent side. From the customer network we're very oriented domestically and these are mainly domestic transactions. We're very oriented to the dealer network for ISV sales. So I've heard anecdotal stories from those conferences about disruption within organizations as to who's going to be in charge and what does that mean downstream? So I think anytime you put change nobody likes change anytime there's change in the marketplace I think that provides opportunities for people that are not experiencing that change. But I haven't seen aggressive pricing or different type of proposals at this stage. That hasn't occurred.

Got it. Understood. Thank you, guys.

Yes.

Thank you. And our next question comes from Jason Kupferberg with Bank of America Merrill Lynch.

Hey. Great. Good morning, guys. I just wanted to see if we can go a little bit deeper on Mexico and Poland. I mean you gave us a great overview of the numbers there for the quarter. But just kind of at a higher level longer-term view what are you seeing right now just from a macro standpoint, penetration rates on the consumer and the merchant side market sharing competitive landscape? Would just love some color on those markets.

I'm going to have Darren take the Poland question and then I'll have Brendan take on Mexico.

Great.

Thanks, Jim. In Poland we're really starting to see the kind of more Western Europe adoption of ISV leading into CEE. So the growth in integrated solutions, tax reporting solutions much like the cashless initiative the government is very interested in eradicating the black economy and the growth of e-commerce. So the digital agenda is seeing increased kind of volume transitions from pay-by-link, bank account, off-line, cash-type transactions to card and digital. So that penetration it's the early days yet, but we're certainly seeing a good step-up in the digital technology-enabled opportunities, which we're very focused on with the assets we have in other market integrated to our Poland platform so good opportunities.

And then switching to Mexico. It's Brendan again here. So the market is still largely controlled by banks. BBVA remains our number one competitor. And BBVA has been very clear both specific to Mexico and then across their portfolio of markets globally that they will continue to run acquiring as an in-house service. I would say the same. Global obviously just entered the market with HSBC. But HSBC is a smaller financial institution in the market. Where we see growth in Mexico is really around e-commerce and then of course ISVs. So on the e-commerce side as I've indicated to you guys in the past e-commerce today accounts for roughly 10% of our volume, but that grows at 50% a year. So it's small today, but it's exciting in terms of growth. And we see that growth as highly sustainable which is why we've made the technical investment to export our gateway capabilities from Europe to Mexico. And then similarly around the ISV piece, it's precisely why we made the acquisition and investment in SF Systems to bring the integration capabilities in-house. And as we said in the release there, it's not just the technology. It's also the personnel and the development capabilities to support additional integrations as new ISVs come to us. And so on my last visit to Mexico, it just so happened that we happened to be hosting the TouchBistro management team at our office as I walked through the front door. And we had the opportunity to connect a little bit about why TouchBistro and EVO happened to be partnering together. And I think that the team there felt comfortable with our focus on ISVs, the investment that we had made to acquire SF Systems. We've got a ring-fence sales force in Mexico, dedicated solely to the pursuit of new ISV relationships. So we feel like through -- focus through technical investment and capabilities that we can continue to take share in ISVs in the e-commerce piece and that the share shift that you see here in the U.S. from traditional direct acquiring with a terminal next to a cash register to a integrated solution and an online solution for omni-channel merchants that's where we can really see accelerated growth and take market share in the market.

Okay. That's all helpful. And just a quick follow-up I know you mentioned likely losses for a couple years on Bci. Can you help us size that?

I think we'll have more color as we get to closing. We're still having to stand up a technical infrastructure in the market. So I think we're probably a call away from being able to give you that insight.

Fair enough. Thank you.

Really we're not anticipating -- I'll give you a parallel I guess to some extent Ireland. Maybe we lost €2 million or €3 million total over the two or three years that it took to get to breakeven. So it's not a large number. Remember too thought, here we're only at half of the business. So half of the losses will be covered by Bci. And we're half of the profit as well.

Thank you. And our next question comes from Kartik Mehta with Northcoast Research. Your line is now open.

Hey, good morning. Jim, you talked about Santander and maybe some of the issues you're facing in Spain. What can you do, is there anything you can do or other partners that are out there that might help you offset some of the losses from that portfolio?

Yes. So good morning, Kartik. Santander acquired Popular. Popular was the relationship we have or had previous to that acquisition. The relationship extends to 2030. It's exclusive them to us. They've announced that they accelerated their consolidation as I mentioned on consolidations. They've set a pretty large target for cost reduction and they've closed a number of branches. So unfortunately, that's out of our control. We have a strategy to do I think exactly what you are alluding to which is expand around that relationship. So Liberbank was one example; that acquisition was last year. And Portugal which is not closed obviously not Spain. But it would be the same management team that would look after it. Again, that one has been announced; it's not yet closed. And we continue to be active in the market. But Santander, it's a great team there. It's a very good relationship. It's the biggest bank in Spain. So we're unfortunately going to have to weather the storm I guess so-to-speak through their migration or consolidation and we will remain active looking for other relationships in the market.

And then I think you talked about SCA in Europe part of PSD2. Does that create any opportunities for you in Europe in terms of revenue or the ability to take market share, anything that that might help as a catalyst for growth?

I'll let our European in the room take that call. Darren?

Hi, Kartik. Thanks for call.

You too.

Thanks for the message. Yes, SCA, in question, yes, SCA is an evolving picture as you well know in terms of where the EBA is going to land ultimately on its guidance for implementation. There are very many entities in Europe that will not be ready for SCA. And SCA is obviously covering payless transactions as well as e-commerce although the major elements are on the e-commerce side. So whatever partner isn't ready and they may not get the extension from a local regulator I think clearly that affords opportunity. That said, the industry statistics are at the minute that 20% to 30% of transactions could effectively be rejected, which is what's putting pressure on the EBA, but also local regulators. France has already called for a two-year delay; Italy, similar; Nordics applying delays in implementation. MasterCard is proposing kind of an 18-month roadmap. So there are various countries or entities proposing delays on it. So I think it's such a moving piece that I couldn't say there's a big short term loan growth because I think that 14 September date is just going to extend. So but whatever the opportunities in terms of ensuring partners and our merchants are seamlessly integrated into a Snap or APG e-commerce proposition that gets them SCA compliant then clearly we have opportunities for windfalls there. But I think the runway is still lengthy to see where this will play out over the next 18 months to two years.

Thank you, very much. Appreciate it.

Thank you. And our next question comes from Joseph Foresi with Cantor Fitzgerald. Your line is now open.

Hi, I just want to get a sense of -- can be hear me, Okay. So I just wanted to get of -- I think you talked about 75 basis points to 100 basis points headwind from Banco Popular and were also kind of onboarding or waiting to onboard Chile and I guess Portugal. Maybe you could talk about sort of the relative headwind versus the possible tailwind. Do you expect those to be offset? And if so when do you expect Chile and Portugal to start to contribute? How should we think about those presently and going forward?

Okay. So I think Kevin has covered on Spain or specifically the Popular Santander situation. In terms of EuroBic, there's no headwind on EuroBic. That's all going to be tailwind. So it's a back book. We're going to buy half of the back book so there'll be immediate revenue coming in once that transaction closes. We are I guess aggressively pressing both the regulator to the extent we can do that but more the bank to finish off what's necessary. It took us almost a year to close Popular years ago when we first bought that business. So it's not unprecedented that they take this long. It's longer than I had originally expected; and that's why we updated the expectations. So that's a positive. And from a revenue standpoint, Bci as well is going to be very favorable. I think the component is how much cost do we have to spend to attain that revenue? The referrals are going to come in from the financial institution. The only cost will really be the sales piece because the back office is really just going to be spread over the Mexican business. In our company there'll be some charges but that's not something that you would otherwise see. But as I said earlier standing up a sales force hiring a sales force they'll get paid ahead of the revenue. Our revenue comes in transaction-by-transaction so it builds over time. So I would expect over a two-year time period we should see a breakeven. And as the business gets bigger and is more profitable, then we'll likely move some of the front-line customer service to Chile, even though culturally language wise it's a very good match. Still people like to talk at least if they have a customer service question to somebody in the country. But that's probably two to three years out and we wouldn't do that until the business was more than breakeven.

Got it. Okay. And then my second question is just, around sort of framing the argument or the discussion long term. Can you talk about any updates on your long-term outlook on annual margins and the potential to expand there and obviously also on the debt side and the debt leverage? I just want to get an update on both of those. Thanks.

Okay. I'm not sure that they really changed from last year when we went public. We've been laser-focused on margins and I think we've exceeded our expectations of how much we could move margins up in a relatively short period of time from pre-IPO to where we are today. To some extent size matters, I think that's a place that size matters because more revenue spread over a fixed cost base or largely fixed cost base is going to drive margins up. So we are hyper focused on expansion .As I said earlier in markets that we're currently in South America as an example into new markets. Asia Pacific remains an area of interest. Many of us coming from Global were there when we set up the HSBC in 11 markets so we're very familiar with that region as well. So, as we get bigger not just through organic efforts but through acquisitions and not the acquisitions that you've really seen to-date, but more sizable acquisitions. I think you'll see the margin tick up more than the 50 to 75 basis points that we've historically been talking about. In terms of leverage, our interest is to continue to pay down the debt. We had said somewhere between two to three times that that would take time to get there. We're moving largely in that direction. But again, as we see opportunities, we're not going to forego the ability to move into a new market or expand into an existing market with a great bank partner or great opportunity. We'll just take a look at the capital structure at that time.

Thank you.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back over to Jim Kelly for any closing remarks.

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

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program and you may all disconnect. Everyone have a wonderful day.