Continued profitable growth during the COVID-19 pandemic
Business resilience due to diversification across verticals, merchant base and geographies
Online retail and digital goods volumes accelerated while travel and in-store volumes slowed down following lockdown restrictions
EBITDA margin at 50% as we continue to invest in headcount
Building for the long term – people and tech
Scaling the team to capitalize on long-term growth opportunities
Investing in the platform with 43% of new hires in tech
Maintaining the Adyen culture, for now from a distance
Volume contributions across growth pillars
Onboarding volume at scale in the enterprise space
Continued increase of merchants opting for unified commerce approach
Investments in long-term approach to mid-market
Incremental innovation led by merchants’ needs
Ongoing build-out of product suite to address merchants’ needs
Expanding the global footprint of the single platform
New product features to solve for complexity across the industry
In line with previous periods, we saw continued profitable growth during the first half of 2020. We processed €129.1 billion in the period, up 23% year-on-year. Net revenue for the first half of the year was €279.9 million, up 27% year-on-year, with EBITDA at €140.9 million. Due to the continued diversification of our merchant base across verticals and geographies, the business has proven itself especially resilient in the first half of the year, despite the COVID-19 pandemic. Illustrative to this resilience is how online retail and digital goods volumes accelerated while travel1 and in-store volumes slowed down after global lockdown restrictions went into effect.
Several historical trends did persist over the past six months, as existing merchants contributed to over 80% of our growth, overall merchant concentration continued to decline, and volume churn was below 1%.
For the long term, the payments space continues to benefit from several tailwinds including the shift from cash to cashless payments, the increase in cross-border commerce and the blurring of lines between the offline and online shopping channels. In addition to these trends, the reopening of physical stores increases the need for merchants to work with a tech-first payments partner to facilitate contactless shopping experiences.
Due to the COVID-19 pandemic, the day-to-day of many of our merchants changed drastically. Therefore, our focus was to meet their needs in this ever-shifting reality. We have found our product suite to be particularly suited to rapid adaptations during these challenging times. When stores shut down we were able to help merchants move volumes online quickly, and in recent reopening scenarios we have facilitated several contactless in-store set-ups.
1 Airlines, online travel agencies and accommodation
In line with previous years, enterprise merchants already on the platform continued to be our largest growth driver both in the form of us winning additional volumes with them and their organic growth. While merchants’ priorities shifted during the pandemic towards themes such as operational resilience and business continuity, their interest in partnering with us remained unchanged. We continued to focus on onboarding volume at scale and were able to add enterprise merchants to the platform with timelines largely unaffected by COVID-19. The addition of leading names such as iFood, Fiverr and Delhaize to the platform underscores the success of our strategy in this space – offering a best-in-class solution to large merchants looking to future-proof their payments.
We partner with our merchants to solve for their complexities and typically win additional volume after successfully doing so. Illustrative of this land-and-expand approach is how our partnership with Zalando evolved over the past year. As a result of our ability to clear potential regulatory hurdles in the form of PSD2 last year, we recently grew the relationship to the point where we now process their European acquiring volume.
In the unified commerce segment, shoppers increasingly expect seamless experiences across sales channels – continuously driving the blurring of lines between offline and online. This longer-term trend was clearly reflected on the platform as we saw the number of merchants adding a second channel continued to increase in H1 2020. Recent additions to our unified commerce portfolio are GoSport and Pandora – underlining the ongoing success of unified commerce in the retail sector.
The day-to-day of merchants in the in-store retail and quick-service restaurant sectors was dominated by lockdown restrictions. We saw that merchants with a unified commerce set-up (i.e. processing both channels with Adyen) were more robust than single-channel merchants, as they were able to efficiently shift volumes to the online channel. With lockdown restrictions easing in some geographies and in-store volumes coming back, we see the surge in online volumes persist. We are ready to help merchants reopen safely, as the full range of our POS devices facilitates contactless payments.
We have always built Adyen for the long term, and as such continuously invest in the resilience of the single platform. With 43% of new hires in tech in H1 2020, this is mirrored in how we are building the team. We are a tech company, redefining payments. In addition, to best support our merchants’ growth across geographies, 42% of new hires were in commercial roles.
To capitalize on long-term growth opportunities, we added 266 FTE to the team in the first half of the year. While initially slowed by some logistical challenges in Q2, such as remote onboarding and obtaining visas for international hires, we were able to keep up our hiring pace and expect to continue this in the near future. We continued to invest in new offices to facilitate for the team’s future growth – one in Warsaw and a second larger office in Amsterdam.
H1 2020 Income statement. All amounts in EUR thousands unless otherwise stated
EBITDA – Continued profitability while scaling Adyen for the long term
EBITDA was €140.9 million in H1 2020, up 12% from €125.8 million in H1 2019.
EBITDA margin was 50%, compared to 57% in H1 2019. This decrease is a result of our enhanced hiring pace, as growth in employee benefits exceeded net revenue growth in the first half of the year4.
Net income impacted by other financial results
Net income in the first half of 2020 was €78.4 million, down 15% from €92.5 million in the first half of 2019.
This decrease is primarily driven by the movement in other financial results, largely caused by the increase in the derivative financial instrument as a result of the increase in the Adyen share price in H1 2020.
Steady free cash flow conversion
Free cash flow was €129.3 million in the first half of 2020, up 15% from €112.4 million in the first half of 2019. We have now excluded lease payments from our free cash flow, as the costs associated are not included in EBITDA due to the IFRS 16 accounting change.
Free cash flow conversion ratio ((EBITDA-CapEx-Lease payments)/EBITDA) was 92% in the first half of 2020, up from 89% in H1 20195.
Low CapEx due to operational scalability
Capital expenditures were 2% of net revenue in H1 2020, down from 4% of net revenue in H1 2019. This falls within our objective to maintain capital expenditure levels below 5% of net revenue due to the low cost of operating the single platform.
We have set the following financial objectives, which remain unchanged from our IPO prospectus.
Net revenue growth: We aim to continue to grow net revenue and achieve a CAGR between the mid-twenties and low-thirties in the medium term by executing our sales strategy.
EBITDA margin: We aim to improve EBITDA margin, and expect this margin to benefit from our operational leverage going forward and increase to levels above 55% in the long-term.
Capital expenditure: We aim to maintain a sustainable capital expenditure level of up to 5% of our net revenue.
We will host our earnings call at 15.00 CEST (09.00 EDT) today (August 20) to discuss these results.
To listen to a live audio webcast please visit our Investor Relations page. A recording will be available on the website following the call.
As an addendum to this letter, please find our H1 2020 financial statements and three one-page updates on our growth pillars (Enterprise, Unified commerce and Mid-market).
4 Due to the impact of IFRS 16, EBITDA margin is 3% higher than it would have been before the adoption of this accounting standard.
5 With lease payments included in free cash flow, H1 2020 free cash flow conversion ratio would have been 96%, compared to a H1 2019 free cash flow conversion of 93%.
In line with previous periods, existing enterprise merchants contributed to the majority of our growth. We continued to win additional geographies, sales channels and product lines with existing enterprise merchants.
The day-to-day of many merchants changed severely due to the pandemic. We focused on helping them, by moving volumes online swiftly. In reopening scenarios, we are ready to help merchants open up safely – all our POS devices facilitate contactless.
We continue to invest in our long-term approach of moving into the next-adjacent segment to enterprise. We provide these merchants with access to the full strength of the Adyen platform via simplified integrations, so they can focus on growing their business.
Interim Condensed Consolidated Financial Statements H1 2020 Adyen N.V.
H1 2020 Adyen N.V
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