Ladies and gentlemen, thank you for standing by, and welcome to the EVO Payments Second Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Ed O'Hare. Thank you. 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, 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 most recent 10-K 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 for the second quarter 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 our second quarter performance and provide an update on the impact COVID-19 is having on our business. Joining me on the call today 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, and good morning, everyone. As we discussed in May, our second quarter results were adversely impacted by COVID-19 when a significant number of European and North American merchants were forced to shut down due to widespread government restrictions on movement and commerce. Despite these challenges, we were able to generate $30 million in adjusted EBITDA, which is down only slightly compared to the first quarter. Compared to the second quarter of last year, constant-currency revenue declined 19%, driven by a 21% volume decline. Constant-currency adjusted EBITDA declined 17% in the quarter as we implemented the expense reductions announced in March. These actions enabled us to expand our margins by 82 basis points to 32%. In addition, our focused cash management strategy allowed us to end the quarter with a leverage ratio of 3.1x, unchanged since our last call. Our ability to withstand the severe impact of COVID in the second quarter would not have been possible without the hard work and contributions of our employees. They have all sacrificed by adapting to working from home and reallocating workloads while also focusing on their health and families. I'm extremely proud of our employees for their continued dedication to the company, our customers, and our shareholders as we continue to navigate this pandemic. Now I would like to provide a brief overview of the volume trends we are currently experiencing across the company. As we mentioned on our last call, the overall company volume decline peaked in April and began improving in May, a trend which continued through the quarter. In July, overall volume was slightly above 2019, which reflects the benefit of the accelerated cash-to-card shift we are seeing in all our markets as consumers and merchants pursue digital payment solutions. I'm pleased to see our volumes returning to 2019 levels despite the continued decline in global economic activity, which is reflected in certain of our markets and industry verticals. However, the pent-up demand in these areas of our business should provide additional growth opportunity as business activity returns. While we are encouraged by the recent trends, there remains significant uncertainty regarding evolving government restrictions, the extent to which stimulus is impacting customer spending and a potential second wave of the pandemic. We are actively managing the performance of our business by regularly monitoring our volumes, expenses and cash flows, which enables us to respond to this unpredictable environment. On a positive note, it appears that the pandemic is serving as a long-term catalyst for greater utilization of digital payments across both Europe and the Americas. For example, across all our markets, we saw contactless transactions increase significantly and continue to sign new merchants, many of which did not accept cards previously. Together, these trends demonstrate an accelerated adoption of digital payments that could provide a lasting benefit to our business even after we emerge from this environment. While we took decisive measures to prudently reduce expenses during the quarter, we have continued to invest in our business through new product development and the expansion of our partner relationships to benefit from the accelerating payment-adoption trends we are seeing. We're well positioned to capitalize on growth opportunities through our existing sales channel and potential acquisitions as business activity resumes and our financial performance continues to improve. I will now turn the call over to Darren to discuss our European business. Darren?

Thanks, Jim. For the quarter, our European segment recognized a 25% decline in revenue on a currency-neutral basis, which reflects the significant impact of the pandemic and related government actions, including widespread lockdowns across all of our markets. However, as you can see from the volume slide, our European payment volume steadily improved in May and June and are now up approximately 9% compared to 2019. This improvement was initially driven by strong results in our Polish, German, and Czech markets, which were some of the earliest markets to reopen. Despite some ongoing restrictions, Ireland and the U.K. showed strong growth in the latter portion of the quarter. While volumes in Spain remain down 40% compared to last year, given the limited travel taking place in Europe, we have seen a marked improvement from the trough of over 70% since the country began to reopen. Excluding Spain, European volumes are up 21% year-over-year. Volumes are above the prior year for nearly all of our industry verticals, except travel, lodging, and restaurants, which represented approximately 17% of our pre-COVID segment volume. However, these industries will provide additional growth opportunities as business activity continues to resume. Our European business' ability to withstand the impact of COVID was helped by both the accelerated cash-to-card shift as well as our diversified merchant portfolio, which spans a wide variety of verticals and includes many large and multinational customers. Providing further indication of the health of our business, our merchant activation rates are now flat compared to pre-COVID levels, inclusive of new merchant adds during this period. However, it is important to note that not all of our active merchants have returned to their pre-COVID processing levels. Despite the adverse impact of COVID on our volumes in the second quarter, we are seeing positive consumer trends across our European business, including an increase in contactless transactions and the adoption of virtual terminals, driven by the continued cash-to-card acceleration. We've also seen strong e-commerce product sales and growing referral activity since the pandemic first hit our markets in March as our sales teams have quickly adapted to meet the changing needs of merchants during this time. As Jim previously mentioned, our strategic initiatives and sales team's efforts enabled us to deliver these results and also expand our product offering, maintain strong customer service and deliver surprisingly robust sales activity throughout the quarter. Turning to M&A. We remain active on the M&A front as we look to expand our distribution and capabilities. Regarding our entry into Portugal, conversations with EuroBic have restarted as their proposed merger with Abanca has ended. The timing of finalizing a transaction is dependent on a number of factors, but we remain focused on expanding our presence in this market with a bank partner. Lastly, EVO was recently recognized for its outstanding 2019 customer service. There are a number of awards across Europe, including the achievement in customer excellence in Ireland and the quality international award in Poland. I am very proud of these teams as well as our other European employees for not only these awards but for their continued hard work and dedication during this challenging time. I will now turn the call over to Brendan who will provide updates on our Americas segment. Brendan?

Thanks, Darren. For the quarter, the Americas segment revenue declined 15% on a currency-neutral basis, which reflects the decrease in processing volume this quarter. However, our volume was somewhat offset by the performance of our B2B and e-commerce businesses, which have withstood the recent crisis relatively well compared to our other business channels. Our payments volumes in the Americas have continued to improve since May and are now down approximately 8% from last year. However, in recent weeks, we have seen some de-acceleration as the recent surge in COVID cases has caused both the U.S. and Mexico governments to reimpose certain restrictions. Similar to our European business, our year-over-year decline in volume has been primarily driven by the travel, lodging, and restaurant industries, which represent 16% of our pre-COVID volume in the Americas. Although lagging our European segment due to the timing of COVID, I am also encouraged by the steady improvement in our active merchant count, which continues to approach pre-COVID levels as well as the accelerated demand for digital payments. In the U.S., we are seeing positive customer sales trends within both our direct and tech-enabled divisions. In our direct and ISV divisions, our business leaders have been working with our partners to quickly enable our merchants to accept card-not-present transactions, which include payments over the phone and online via our virtual terminal. Additionally, as a result of our coordinated efforts across both our sales channels and through our relationships with third parties, we signed a large e-commerce referral partner in June, which will benefit our business going forward as we return to a normalized environment. Our B2B business continues to withstand the pressures of the current environment relatively well, with second quarter volume down 8% compared to 2019. Although the decline was expected, we experienced an increase in B2B product sales among new and existing customers as many businesses transitioned to working from home, which required additional capabilities to enable more integrated and automated workflows. Further, the addition of several new software referral partners and ERP resellers to our platform expands our distribution and enables us to capitalize on this emerging business opportunity. We expect our B2B business growth to continue as small and large businesses deploy our dedicated B2B gateway, PayFabric, for accounts receivables and move away from paper-based transactions. Turning to Mexico. As you may recall, this was the last of our markets to feel the effects of COVID and the corresponding government restrictions. While volumes in this market are currently down approximately 13%, we have a diverse merchant portfolio that includes many large merchants that are helping to stabilize the decline. Related to our JV in Chile, we have completed the system requirements to process transactions in the market. We are working through the regulatory compliance phase of this deal and expect to receive approval to begin operations and process transactions by the fourth quarter. Finally, I am also proud of the work efforts of our employees at this time, which has enabled us to continue to navigate this unprecedented environment. With that, I will turn the call over to Tom who will now cover the financials in more detail. Tom?

Thank you, Brendan, and good morning, everyone. For the quarter, EVO's constant-currency revenue declined 19% compared to the prior year. FX negatively impacted revenue by 420 basis points as the U.S. dollar strengthened against the peso, euro, and Polish zloty compared to the prior year. On a currency-neutral basis, adjusted EBITDA declined 17% while margin expanded 82 basis points. Compared to the first quarter, EBITDA declined slightly and margin expanded 360 basis points as we actively managed our business through the crisis. Our adjusted EBITDA reflects the negative impact of the widespread government lockdowns, offset by the positive effect of our expense reductions. As we stated on our last call, these expense reductions were driven by a combination of staff and non-staff-related costs. After normalizing for certain nonrecurring expenses, total SG&A declined approximately 25% compared to both the prior quarter and the second quarter of 2019, delivering on our commitment to align our expenses with the anticipated decline in revenue. With respect to our segment performance, in Europe, constant-currency revenue declined 25% and adjusted segment profit declined 42%. European adjusted EBITDA reflects the timing of the government-imposed lockdowns, a delay in implementing certain personnel actions due to government regulations, and a sharp decline in cross-border activity. In addition, the SG&A cuts were partially neutralized by our continued investment in our high-growth European business leading up to the pandemic. Of note, in June, year-over-year EBITDA grew as consumer spending and cross-border activity began rebounding and our cost initiatives were fully in place. Turning to the Americas. Constant-currency revenue declined 15%, and adjusted segment profit increased 1%. Our adjusted EBITDA remained stable as we were able to implement our expense initiatives at the beginning of the quarter and had a greater opportunity to reduce payroll and non-staff expenses in the U.S. In addition, as Brendan mentioned, our tech-enabled division performed relatively well during the quarter. Across both of our segments, our performance reflects the active management of our business as well as the accelerated adoption of digital payments. I'm encouraged that we are seeing continued momentum in our financial performance as we enter the second half of the year. Adjusted corporate expenses for the quarter were $6 million, which declined approximately $1 million, excluding certain loss contingency reserves recognized during the quarter. Adjusted net income was $10 million and adjusted net income per share was $0.11, which declined 28% and 31%, respectively, compared to last year. But more importantly, adjusted net income increased 12% compared to the first quarter, and net income per share was stable despite the increase in diluted shares. At the end of the quarter, diluted shares totaled 90.3 million, an increase of 7.5 million weighted average shares compared to a year ago due to the convertible preferred stock that we issued in April. During the second quarter, we actively managed our cash flows by limiting our CapEx spend to $3.5 million, a decrease of approximately 50% versus the prior year. Half of our CapEx spend was related to point-of-sale terminals in our international markets to meet the surprisingly strong merchant demand, a trend we now expect to continue into the second half of the year due to the accelerated card usage at the point of sale. We also generated $20 million in free cash flow this quarter, including a $4 million decline in interest expense. Further, our free cash flow conversion rate was 65%, an improvement of 16% from the prior year. The combination of these efforts enabled us to end the quarter with a leverage ratio of 3.1x, demonstrating our strong liquidity, active cash management, and financial discipline throughout this crisis. Lastly, I would like to provide an update on our outlook. Given the ongoing global economic uncertainty, we will not be providing revenue or EBITDA forecasts for Q3 or the full year 2020 at this time. However, we have provided recent volume trends to help you model revenue. With respect to expenses, to date, on an annualized basis, approximately $15 million of the expenses that we removed from the business in the second quarter will be permanent, and we are confident that a portion of the remaining cost savings will remain in place. We continue to actively manage our expenses and cash flows. As business activity continues to resume, we will prudently evaluate our cost base and selectively restore expenses in order to meet business demand while gradually expanding current margins. Until we are confident that the economic activity in our markets has stabilized, we will continue to provide quarterly updates of specific operating metrics to help you understand the trends we are seeing in our business. With that, I'll turn the call back over to Jim.

Thanks, Tom. To summarize, I'm very pleased with our financial performance this quarter given the recent operating environment, and I remain encouraged by our volumes and active merchant counts across our markets. We are now entering the second half of the year with strong momentum and on a solid financial footing. While there remains uncertainty surrounding the duration and ultimate economic impact of the pandemic, we are well positioned to return to growth, and we'll look forward to opportunities to expand our distribution. I will now turn the call over to the operator to begin the question-and-answer session. Operator?

And our first question today comes from the line of Bob Napoli from William Blair. Your line is open.

Thank you and good morning.

Good morning, Bob.

Interesting times we live in. Lots going on here. Thank you for the volume trends. The volume trends, would they correlate – I mean these are FX-neutral volume trends – I mean I know the dollar has weakened a lot in July, so are they FX-neutral?

Yes, they are, Bob.

And then, typically, I guess, the sectors that have held up more might have lower take rates. Should we think that the revenue is directly in line with those volumes? Or we should – how much of a haircut would we give to revenue relative to the volumes?

I think for now, we're using it as the best proxy that we can communicate publicly. Obviously, mix comes into play as well as what countries we're dealing with. So like in Mexico, where they're still well into the crisis themselves, their volumes have held up relatively well because they have a lot of large big-box type of merchants relative to, say, our base in the United States. The same for Europe. Poland would also have large merchants. So those are going to be lower margin just because they're bigger-volume merchants. So as we said when we first put out the volume trends, they're the best proxy that we can give. But I think for now, that's as good as we can show you.

Yes. Bob, it's Tom. I think you may have missed on some of the comments, but volumes for the quarter were down 21% while revenue was down 19%. So it's a pretty good corollary. How that holds going forward based on how merchants come back online and what their processing looks like, I think, is something that we'll just have to be mindful of. But at least for now, it's been a pretty good proxy for revenue.

The other part I'd mention, Bob, is while it – while we're not heavily exposed to travel, Spain is large in hospitality, the summer season in particular. We see a lot of – would have historically seen a lot of travel into the market. DCC, DCC is a profitable component of our business. Same for Poland. While Poland's DCC has held up and their international has held up fairly well as well, all things considered, in the later months, so call it more June, in the other European markets, cross-border is still quite low.

Okay. And then just I guess – I mean you guys – you're in markets that have a lot of cash. So Mexico, obviously struggling with the pandemic with very heavy cash; Poland, heavy cash. So I guess that strategy could be paying off here with, I mean, obviously, the shift to digital accelerating. So how do you think about the potential growth rate accelerating for the business coming out of the pandemic? Certainly, it seems like a lot of opportunities you're uniquely positioned for.

Well, we are cautiously optimistic, I would say. Right now, I think there's still not enough data to draw a final conclusion, but clearly, there is a trend away and we can see it in the data. Europe in particular, which is essentially all contactless, unlike the U.S. where we still have a mix here, that – the usage of contactless is up well over 20%, I think was the stat that I heard from Tom earlier. So we would expect that that's going to continue, that cash is going to be the loser here. And to the extent that that's the case, then I think we will be very well positioned internationally where we have lower card penetration.

Just last question on the B2B business. You talked about additional integrations and ERP additions. Any comment – what exactly is going on there? And what is the outlook for that business?

Yes. Thanks, Bob. Brendan Tansill here. So as you know, we bought the Notice business a bit over 1.5 years ago. That business focused on Microsoft. We then integrated the on-prem Oracle solution, and then subsequent to that, we recently launched a cloud-based Oracle solution. And then in September of last year, we acquired Delego, which focuses on SAP. So that would be sort of the big bellwether ERP systems that we support. But in addition to the big guys, we also have an additional bucket of mid-tier and smaller ERP solutions that we're constantly integrating to. And in fact, this past quarter, we had a couple of wins, setting up new referral relationships with resellers or VARs focused on ERP solutions. So as I've said on prior calls, the idea here is to replicate the strategy that we use in the ISV division, where we have a big business based out of Tampa that focuses on both direct ISVs that sell direct to merchants and then indirect ISVs that go to market by way of a network of resellers and dealers. We're trying to replicate that exact same distribution model in the B2B side. So the one big ERP that we are currently lacking would be NetSuite. And that's what is obviously owned by Oracle, but it's a different technology stack. But other than that, we feel like we've got a really robust technology solution here. And again, there's a lot of ERP solutions that aren't sort of the big 4 brand name solutions, and we're very focused on integrating as many of those as possible to our PayFabric gateway.

Great. Thank you, Brendan. I appreciate it. Thanks everybody.

Thanks, Bob.

Our next question comes from the line of Tien-Tsin Huang from JPMorgan. Your line is open.

Hi, thanks. Good morning. Really impressed by how quickly you guys took the cost out. I heard the $15 million is permanent. And I know you're going to give us volume updates going forward, but any help here in – or any way to guide maybe what we should think about with incremental or decremental margin both in the short and the midterm? I understand as volume gets back, you're going to start to reinvest again. So any guidance around the incremental or decremental margin that we should consider?

Tien-Tsin, it's Tom. So as we said, the economic outlook is too uncertain to provide any kind of firm guidance. I think we continue to actively manage the business. We're getting information literally on a weekly basis when it comes to volumes and even kind of head count movement within the organization, which is obviously our largest cost, but we're also actively managing the non-staff as well. I think there's still opportunity for some of the cost saves to remain permanent, but we're going to be very careful in terms of how we manage the business. We want to make sure that we're continuing to invest in the business for the long term. We want to take advantage of that cash-to-card conversion that we're seeing and make sure that we're appropriately investing in product as well as in customer service. With that, I think the guide that I'd give is just that we're going to continue to be mindful of our margin. You saw a nice increase in margin from Q1 to Q2, almost 400 basis points, a little bit up – almost 100 basis points up quarter-over-quarter. We're back up to kind of the level of 2019, and I think we can see some gradual margin expansion from here. But again, the wildcard is just what happens going forward with second wave, additional government restrictions. Of course, we're hoping that, that doesn't materialize. But we feel good about the momentum we have and the options in front of us that provide us a lot of flexibility to deliver on that gradual improvement that we anticipate.

All right. Terrific. No, that's useful to know. That's useful to know. And I guess it wouldn't be an earnings call, Jim, if I didn't ask you a little bit about the deal pipeline activity. There's been some activity going on around us. So just curious what you're seeing, what your appetite is. I know that, obviously, uncertainty is high, but maybe there's some opportunistic chances here in the midterm. So anything to share, either organically or inorganically?

Thanks for the question, Tien-Tsin. Yes, I would say, if you go back to when we raised the $150 million from MDP and then the first quarter earnings call, one of the objectives here was the money was to be used in a defensive way. Our expectation based on the early days, the late March, early April, it was pretty dramatic as you can still see in the charts, but it was pretty dramatic here to see how significant the drop was in volume. It was very evident because governments were closing. People were staying home or working from home. So the money was to be at defense but also hopefully, offensive. And fortunately, the declines that we had originally anticipated and sized in the organization didn't materialize. It was not nearly as bad for us or for the market more generally. And as Tom said in his comments, we came out of the quarter really where – we went into the quarter at 3.1x on a leverage basis. So the $150 million is available to us, along with additional capacity on our existing facility. So we are no less interested in expanding in the way we have historically expanded, which is new markets, forming relationships with a leading financial institution, together with technology investments like Brendan has mentioned on the B2B side, the one we made – 2 we made last year in Spain or in Mexico. So you should anticipate that our interest has not waned at all. I think the challenge is, unless it was something that we are already in conversations with, it is more complicated to obviously do it today because everything is virtual. It's hard to get on a plane and fly to other markets. But we're continuing to push, and we do have deals in process. There's still always – a way to go until there are actually something that we can announce. But yes, that strategy has not changed, and we're well positioned to take advantage of them as sellers already.

Okay, thanks for the update.

Thanks, Tien-Tsin.

And our next question comes from the line of Ashwin Shirvaikar from Citi. Your line is open.

Hi, thanks. I hope you guys can hear me. Sorry, I'm kind of driving around because I don't have power, Internet. But – so volume trend increased in the U.S., I'm kind of assuming. Is that due to sort of higher degree of card not present? And then a broader question on – at least this was my perception listening to you guys, that the e-commerce trends are kind of a little bit different for you guys in Europe versus the Americas. Is that mostly a reflection of your specific client base differences? Or is there something else going on with regards to product? Hopefully, I didn't misread what happened.

Ashwin, it's Tom Panther. I'll start, and then certainly, Jim and Brendan and Darren can also pick up on my points as well. First, I hope you're okay. Heck of a storm that went through there in the Northeast corridor yesterday, I'm glad you're at least able to get online. So your first question related to revenue per transaction and the performance specifically within the U.S. First, mix of business, I think you already hit on that in teeing up your question. Tech-enabled is about 40% of the U.S. business – really about 40% of the Americas business, maybe even higher of the U.S. business. And that has held up well during the downturn of the pandemic, and pricing has remained stable. And keep in mind also, in the U.S., it's generally market practice within the U.S. that certain of the fees are fixed in nature. There are certain statement fees and things like that, that just aren't impacted by volume to the same degree as in the international markets. So there – that provides a little bit of a buffer or neutralizer to the downturn in volume. I think it's those 2 reasons that I'd point to why revenue per transaction held up pretty well in the U.S. Your other question, if I heard it correctly, your words giving out a little bit, had to do with just kind of e-comm and the level of e-comm within the Americas versus within the – our international markets. And I think there, what we just continue to see is just adoption of e-comm. It was just further ahead within the U.S. But I think it is continuing, and this pandemic is going to only be an accelerant to that. It's going to continue to be something that I think our international adoption rate will only continue, and then our ability to export those capabilities into those markets, I think, will serve us well. I think we were pretty pleased that our e-comm business itself held up pretty well. We actually saw some pretty good volume and revenue numbers within that e-comm channel, one that, as we have acknowledged in the past, struggled a little bit. It was actually something that held up quite well.

So just to add to that, I would say in Europe, Ireland in particular as an example, as you couldn't dine in, there was a lot of dine-out. So a lot of what Darren saw and Brian Cleary, who runs Ireland, was sales were amazingly robust. I was quite surprised during the quarter. But most of what we were selling were virtual terminals to merchants that historically were dine-in versus dine-out. I think that will shift over time as people can start dining in. I don't think – most restaurants who aren't otherwise geared for e-commerce takeouts, their preference would be to have people come in. So some of it was just related to the pandemic. As stuff normalizes, I think we will see more of a normalization of the trend of how people conduct business. And I'll just amplify what Tom said. In the U.S., Brendan, Lauren, and the team have done a very good job of repositioning our e-commerce domestically. And it was obviously aided by the fact that so many people were buying things remotely. So it had a very good quarter.

Got it. And I know you're not providing outlook, which is completely understandable, but should July trends hold, how would Americas and Europe look for you? And the reason I ask is because, obviously, we don't necessarily have prior year monthly trends. You don't know what happened with, say, for example, back-to-school last year or things like that specifically for you. So any particular color you may be able to provide with regards to the quarter?

Yes. I think the trends that we're showing on the slides between the 2 segments are probably as good as we can do. I think a lot of it has to do – I mean, obviously, in the United States, we have an election coming up. So there's lots of puts and takes as to how schools will open. Are people going to come back to their offices? In a number of our offices, we're back. We're planning to open a few more within the guidelines that are set by each of the – by the local government. But what you don't see on the slide, and we actually contemplated it but it was super busy, was to show you really by vertical. So you see on the right side of the slide, we described the segments. We were going to give you more color on that. But it would have probably extended to a 2-hour call instead of a 1-hour call explaining the puts and takes. What I'd say is there's still a lot of vertical markets that are not performing where they were last year. What's holding it up, as you can see, are the things that we all need to live. But the more conveniences of our lives, restaurants, travel, et cetera, are not there. And restaurants, travel, et cetera, are also, in some markets, very profitable for us. So while we are moving as a company and, I think, globally in the right direction, until you're not seeing masks and people are on planes and stuff is back to normal, I don't – I'm not expecting the third quarter to be a normal third quarter. I'm very pleased that we are where we are as a company and as a market or the markets that we're in. But I do think – it's not like this is in the past. You just have to watch the news at night, and there's still a lot of concern in the world.

Thank you for that. I appreciate all the color.

Our next question comes from the line of George Mihalos from Cowen. Your line is open.

Hi. This is actually Allison on for George. Thank you for taking my questions. My first question is you spoke a little bit about the deal pipeline earlier. I'm curious how that is trending by geography. Which geographies are you seeing the most opportunities? I know LatAm has been a focus. Is that still the case?

Yes, Latin America remains a focus. Really, our primary focus in Latin America is just to stand up the Chile business. And why don't I let Brendan – we're not together, so I have to call him out. Why don't we let Brendan give an update on Chile? Brendan?

Yes, sure. So we have a 2-part regulatory approval process. The first was regulatory approval to establish the legal entity. That approval has been received. And so the company – the legal entity now exists. The second threshold is for the legal entity to commence operations, and we were required to engage a consulting firm to assist us in determining our readiness. So that consulting firm has now been engaged, and we are well into the process. The expectation is that we would receive approval late third quarter, early fourth quarter. And I don't see any reason why anything would delay a commercial launch immediately following regulatory approval. So we've made a lot of progress on the technology front. We've, I think, evaluated some vendors that we would be using locally to help support the business, terminal support in the field and things like that. So anyway, I think we're extremely well positioned. We've made a couple of hires locally. But we continue to manage cost so that it doesn't consume cash in any material way prior to generating revenue and signing up new merchant accounts. So I feel great about where we are, and I think the time frames are unchanged relative to what we've communicated in past earnings calls.

But beyond Chile – so we want that to go first. And then once in the market, just as we were in Europe – we were in the market in Europe with 1 single relationship – or actually, it was 2. It was Deutsche Bank and what was Banco Popular at the time. And then from there, it essentially sets up a beachhead to be able to expand into other markets. But we generally don't go into a market unless we're following a customer. We have examples of that in Europe. But in most instances, we enter a market with a financial institution for the reasons that we've stated earlier. And then maybe I'll let Darren just talk about Europe for a second. You can cover EuroBic quickly since we've been talking about it for almost 2 years and then what else we're looking at there. Darren?

Thanks, Jim. Yes, in Europe, we – so for Portugal, we have been talking to EuroBic for a long time due to some regulator and shareholder issues they've had or fixes they need to put in place, which they're actively working on. We remain actively engaged with them and still very keen to enter that market. So fingers crossed for positive news from their side shortly, but we remain just actively in dialogue with them as much as possible. So outside of that, we continue to look at tech-enabled opportunities across Europe. We've already made a couple of acquisitions in that space and continue to look to build out in markets we're already in or complementary markets and then equally continue to look at filling the gaps in Eastern and Western Europe country-wise with a market-leading financial institution where feasible.

Okay. Great. That was very helpful. And then just a quick follow-up. In response to an earlier question, you mentioned DCC. I'm curious how should we be thinking about how DCC is going to impact the numbers going forward, particularly in 3Q.

Yes. I think – at least right now, I think – I don't know that the trend is going to change much. So just to clarify, DCC is when a foreign card comes into a market and the consumer, at the point of sale, decides to get paid in their local currency – sorry, we just saw a call coming in – get paid in a local currency versus – I mean their home currency versus the local currency. So if international travel doesn't improve, then the trends are going to pretty much stay where they are. The big move for DCC tends to be in the summer months as people move around. So as they stay within their markets for work, school, et cetera, then I don't think we're going to see much of an improvement on DCC. DCC is an extra fee that we charge. So it's more profitable on those type of transactions. I'm not expecting the trend to get worse. I'm not expecting the trend to change materially on the other side.

Okay, great. Thank you for taking my question.

Thank you.

Our next question comes from the line of Ramsey El-Assal from Barclays. Your line is open.

Hi, guys. This is Ben on for Ramsey. Thanks for taking the question. I wanted to follow up earlier on – I think I believe it was Bob's question on the volume versus the revenue mix. And your answer was pretty kind of clear for the overall business. I'm wondering more specifically about Europe for modeling purposes. It seemed like the delta was a bit wider. And I believe in the past, you've kind of explained that that's due to just the shift to more enterprise merchants. And I'm wondering just on the – if you could provide any color maybe on like the month-by-month trends there of kind of that gap. As maybe more SMBs kind of return or kind of reactivate, are you seeing kind of have an improvement in that gap between volume and revenue.

Yes. As I think we've alluded to in a number of occasions, until we see more of the SME market come back and be a bigger contributor, the volumes that you are seeing on these slides are – and when I say these slides, I would say from kind of end of March through to where we are today, and you can see it to the right side as well, what's growing. These big-box types are the ones that we're getting the volume from because people aren't going to restaurants, they're going to grocery stores. And as a result, the margins on those businesses are just smaller. The volumes look good, but the volume – the margins are smaller. As economies recover and it's more of an equal distribution over – based on what historically has occurred, then you're going to see the overall revenue improve on each of the transactions.

And Ben, it's Tom. I think we are encouraged by where some of those country-level volumes are. We've seen them back to pre-COVID levels with the exception of Spain. And within some of those verticals, as Jim said, those that are nondiscretionary – or excuse me, those that are discretionary are the ones that continue to lag. So I think there's pent-up demand opportunity really across all of our markets but also specific to Europe, even though it does look like it's trending back. When you break Europe apart, it would – and you were focusing specifically on kind of the revenue and the 25% decline in revenue relative to kind of volume, it was impacted by the DCC as well as by Spain. And those 2 things had a big impact on that 25% decline. As those 2 things rebound, I think you can see those – the relationship between revenue and volume would be a little bit tighter.

Okay. That was actually very helpful. And then if I could ask one more. You didn't talk much about the ISV channel on the call. And I understand that, to some extent, with coronavirus going on, you're more – the impact was more due to the vertical than the distribution channel. But can you maybe just provide us with an update there on how that business is doing given...

So just – I'll do it real quickly, just given the time. The – for the U.S. business, the U.S. business is very oriented to hospitality. So you live in the U.S., you know what hospitality look like. That said, I think Brendan could amplify. One of our months – whether it was May or June, I think we had one of our best months in, I don't know, 6 or 9 months, so some of that might have been pent-up demand. But Brendan, do you want to cover that real quick?

Yes. June was our best month in the trailing 12-month period. So actually, we had an incredibly active month. And I think some of that correlated to the fact that we were able to get the Tampa facility back into the office. Some of the productivity is impacted around just having folks work remotely. And while I think we've done a good job of adapting to the realities of the pandemic, getting folks back in the office, having all our sales guys in close communication with one another, it absolutely reaped benefits. And it could have been pent-up demand, but June was a fantastic month.

Yes. Just to clarify, Tom corrected me here, that was new merchant adds. So the business is still very strong. What isn't strong is you're not going to restaurants sitting down like you used to. And I don't think anybody is. And even if you do go inside – I mean we're here in Georgia, and it's been open. But even if you go inside, it limits the number of people in. So the overall ISV business performed as you would expect based on something that's oriented very much to hospitality. But my thrust and what Brendan mentioned is the new sales still were very strong and continue to be strong. Let me just give Darren a chance to talk about Europe for a sec.

Thanks, Jim. Yes, we're seeing the same kind of good signs from the ISV channels throughout Europe. For example, as Jim said, new signings are holding up in levels that we've seen pre-COVID. So for example, in the U.K., maintaining those signing levels, but 60% of our new merchants coming through an ISV-led channel. Business is superb. As I outlined, we made a tech-enabled acquisition in Spain, ClearONE, which is partnering with ISVs, and that is growing, similarly, extremely well for new merchant count. Equally then, across all of our other markets, we're seeing strong green shoots of ISV-led merchant acquisitions in Poland, Czech, Ireland, Germany, et cetera so – and expanding into new sectors and verticals such as medical in Ireland that previously was kind of white space for card-processing opportunities, so new sectors and new verticals opening up as well through these ISV partnerships.

Great. Well, thank you so much for taking my questions.

Thank you.

Our next question comes from the line of Mike Del Grosso from Compass Point. Your line is open.

Good morning. Thanks for taking my question and congrats on a strong quarter. Question on your U.S. exposure. First of all, I appreciate the granularity on the slides. But perhaps on a state-level basis, could you kind of provide any color on concentration there? I think Texas is a large exposure. But any other large states you'd call out?

Yes. I mean our merchant base tends to, on some level, track population centers. So yes, we're exposed to California, we're exposed to North, we're exposed to Texas and we're exposed to Florida. But we have exposure – and those states, some of those, in particular New York and California, have been slower moving in terms of opening. And we saw that very clearly in the numbers. And in fact, when Florida and Texas opened and then closed back down, we saw that impact in the numbers as well. But the good news is we're very diversified across end market. I know Jim had commented that the ISV business is concentrated in hospitality, but that is absolutely not the case in our e-commerce or direct businesses. So we're – and we're also equally diversified across geographic location as well. But yes – no, there's no question that we do track the big 4.

Okay. And then the follow-up is on Chile. I know when you first announced it, you put out a press release outlining some of the characteristics of that market. But could you maybe remind us what some of the early targets are as far as revenue or EBITDA contribution once that comes online this year?

I think – we haven't provided any. I mean the answer is the market is in such infancy that it's hard to know exactly how it plays out. The market has been a monopoly since the inception of the cards business there. It's controlled by a company called Transbank, which is owned by the banks, and it has been the only game in town for a very, very long time. Santander has split off a little bit. And so they're kind of finding their way. But Visa, Mastercard are now just getting introduced to the market for domestic transactions. Their pricing tables have only recently been announced and are being implemented. So to give guidance about profitability when we don't fully understand spread or all those kinds of critical metrics, it's unknown. But the good news is our bank partner is extraordinarily engaged, and they have introduced us to many of their larger corporate relationships, and many of them have articulated a keen interest in working with us. And then we'll implement all of our own direct sales strategies as well, telesales, field sales, ISV relationships, proprietary and third-party gateway solutions. So I think between our relationships – or our strategies and the bank's incumbent banking customer relationships, I do think that we're going to see a nice pickup relatively quickly.

I'm just going to amplify. I was on a call – one of these Webex calls with the CEO and a team. I think there was like 15 people from the bank. When I say excited, this bank is super excited, which I think is awesome because, a lot of times, when we buy a bank business that's been around for 5, 10, 15 years, they're just not as excited about it. Maybe they're excited about the transaction and they hope for it to be better. But here, this bank has never had a chance to run or be involved in running the business. And as Brendan was mentioning, I mean, they were clipping off all the big names, big merchant names in the country. So – and this is a market that grows organically, as it's published, 21%. So yes, they've gone through COVID and they've taken a very aggressive lockdown. I don't know if they're open yet, but they've been locked down for quite some time, locked down meaning working from home and not even leaving the house type of thing, like Spain. But we're super excited because it is a new region and even more excited because we think they're going to be an awesome partner.

That’s great. Thank you.

Okay, great. Thanks. I think we have time for one more.

And our final question today comes from the line of Kartik Mehta from Northcoast Research. Your line is open.

Thanks. Tom, I know you talked a lot about cost already, but I just want to make sure I understood something you said last quarter. And I thought you were talking about $6 million a month because of the volume decline you were anticipating. Obviously, I think that hasn't come to fruition. But are you still on that same trend during the month and which so far...

You're moving in and out, but I think I got the question in terms of just kind of expense trends and picking back up from the $6 million reference point. I think what we can say is we absolutely delivered on that in Q2. When you look at our period-over-period results, regardless of which period you pick, we delivered on that 25% expense reduction. We did actually restore some expenses during the quarter and still delivered on that. So I'm pleased by that outcome. There were places where we needed to bring some people off of furlough and bring them back in as we saw call volumes increase and different activities resume in our markets. I think what we will say going forward is that we're going to continue to make sure that we're managing the business prudently and with a long-term focus. And if that means we need to restore some expenses and give back some of that $6 million while still improving margin, that's what we'll do because, I think, our focus is more around profitability and making sure that we're delivering the right kind of margin for our shareholders, not necessarily hanging on to a particular expense target that was specific to the early days. As I mentioned in my comments, I think there's still opportunity. We mentioned that $15 million number on an annualized basis. That $6 million would be a $70 million, give or take, on an annualized basis, and I think there's additional opportunity to have permanent savings both on the staff and non-staff side. But what that number is going forward, I think, is going to be a multivariable equation based on delivering the right margin for the shareholders.

And then, Jim, I know you talked about acquisition. And when this initially happened – the pandemic initially happened, it seemed like maybe acquisition prices would come down because volume trends were coming up so aggressively. But today – where we stand today, have you seen a change in acquisition pricing at all or the desire of people to participate in a deal?

That's a good question, Kartik. I think for the deals that were already in the queue, just like us, I mean, I think this was – to some extent, this is a one-time event. I mean I hope it's a one-time event, but I think people look at the pandemic as it's something that's happened. It's horrific, but life will return to normal. And I think as a seller, unless there's a permanent impairment or they're super desperate, I think a seller has a similar view that if you like the business at this price in January, trying to buy it in June or July just – and use a trailing 12 mentality, unless they're desperate, I would find it very surprising that a seller would take that view. So I don't think you – I'm not anticipating prices changing in a material way, I mean maybe somewhat. Maybe some of it is going to be around how you structure a deal. Maybe there's more – I'm not a big fan of earn-outs, but maybe there's more of that type of a component. But just to simply say, "Oh, yes, we're going to pay you less because your volume is down 35%," I don't think – unless they have to, I don't think somebody is going to be a seller.

Thank you very much. I appreciate it.

All right, thank you, Kartik.

We have no further questions in queue. I'll turn back to the presenters for closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.