Adyen N.V. (ADYEN) Earnings Call Transcript

Hello, everyone, and thanks for joining Adyen's Q3 2026 Business Update Call. My name is Maggie O'Donnell from Investor Relations, and I will be hosting today's call. With me today are Ingo, our Co-CEO; and Hwa, our Interim CFO. We're going to begin with playing the prepared remarks, and then we will open it up for Q&A with both Ingo and Hwa. [Operator Instructions] With that, let's get started.

Let me start how we worked in the third quarter on the framework that we outlined during the first half results. In this framework, we talked about how we implement the strategy, delivering value across the full commercial life cycle because that's what our customers are expecting from us. In the third quarter, this has been very successful. Net revenue grew on a constant currency basis, 22% to EUR 738 million. Processed volume increased to EUR 451 billion. So the financial results are solid. And what I'm very proud of is the fact that the same engine runs as always. We win share of wallet with our existing customers, and we added new logos to the platform. So this combination has always been the core of our growth and it drives on the operational complexity that we are solving for these customers. So that is crucial to me, and that's also that I like to talk about today in these remarks. I'm often asked how we fit in the conversation around AI. And for me what is crucial here is that we have always powered the financial infrastructure for the global tech players. It's been our focus for the recent years. And our core strength has always been that we partnered with the most complex enterprises. Many of the companies that we work for are now building the new foundation for this new technology. It's the major hyperscalers, it's the cloud companies, and they've relied on us for years. Just to give you an idea, about 10% of our volume right now is with these few companies that are so successful. And they partner with us because their commercial models, whether that's subscriptions or use-based billing or complicated enterprise setup, it requires global reach. It requires local payment methods. It requires a very high authorization rate. That's the reason why they work with us. That's also the reason why they continue to grow with us. So in short, when we manage multi-market scale and complexity better than anyone else. And this is exactly why those businesses turn to us and why we have the opportunity to change the models also for the companies that start to implement more AI-related business models. Then there is this next wave of AI companies, AI companies that grow faster than we've ever seen in history. And the beauty is that also their complexity increases as fast as we've ever seen in the history. And we are the company that can solve that complexity for them. And what is the complexity that I'm talking about? It's the complexity of going to multiple countries, having -- wanting to have the highest authorization rates, making sure that global payouts work as you would expect. That's when we start to help them. And what I find very important that it's exactly in line with our strategy. It's a land and expand strategy. So we solve one problem for them, we gain trust. And then over time, we gain more volumes. It is exactly the long-term partnerships that we have built with all the companies that are on our platform and that we have grown over time. So for me, the key thing is also for the new AI companies, we win when the complexity increases. That's the key thing that I have learned also in the recent quarters when we become relevant to them. And we are very well positioned here with our own banking licenses in multiple countries, with our own acquiring licenses and a single platform globally. I'm often asked what our position is in Agentic Commerce. And it's important to make a distinction between Agentic Commerce and the AI economy that I just talked about. If you look at global commerce, it runs today on Adyen and so will Agentic Commerce in the future. It's still early days, and we are focused right now on making sure that we build that right foundation. And that right foundation is making sure that we work with the AI frontier models to get the protocols right, that we work with our merchants to understand what their needs are, making sure that we -- that they continue to have a relationship with the shopper behind the agent. That's what we're focused on. The reason why we're so well positioned is because we have built all the different components that are needed for Agentic Commerce in the past. So we've built authentication layers. We have built fraud systems. We've built ways to make the settlements as efficient as possible. And that's exactly the infrastructure that you need to build. And no one has this infrastructure like we do, and that's why we're so well positioned. So in summary, over the years, we have built the right rails for Agentic Commerce. And the key differentiator for us now is that we've built an open system for our customers. So making sure that our merchants continue to build a relationship with the shoppers behind the agents and also continue to build the right loyalty relationships with their shoppers. Yes. So the other big news of the first half year, of course, were the acquisitions of Orb and Talon.One. And I'm very excited to see how integration is going. It's also one of the reasons why we've decided to double down our investments in this area. So maybe to start with Orb. Orb is a billing and invoice engine focused on user-based billing, which is exactly very relevant for the AI native economy. And what I've seen in the last quarter is that we are now capable of signing up customers at an earlier stage in their life cycle. Examples here are Vercel and Greptile. But also what I've seen in the last quarter that we were capable of signing up customers that were already an Orb customer, but are now starting to transfer their payments to Adyen. And examples here are Route and Wasabi Technologies. So a lot of progress with Orb. Very similar with Talon.One. The moment we announced the acquisition, the feedback from retailers has been very positive. The unsolved problem of loyalty in store is something that they are looking for. And in the past quarter, we have worked together with a lot of retailers to see how exactly we're going to tackle these problems. In a couple of weeks, we have organized an event with 200 global retailers in London to showcase how the future of loyalty will look like. And of course, I'm very excited to see those customers there and to discuss it with them. So we're talking today about operational complexity, and this is exactly how Talon.One and Orb fit into the Adyen strategy, like how can we solve the most complicated problems for our merchants and for invoice billing and loyalty, these are unsolved problems that we are helping customers with right now. Then I'm very excited where we are right now in the year. I'm looking forward to the rest of the year, still a quarter to go, and I have very high confidence in the results for the rest of the year and the direction that we're taking strategically. I'd like to hand over now to Hwa, who is going to give you an update on our financial performance.

Thanks, Ingo, and hello, everyone. In the third quarter, net revenue reached EUR 738 million, up 23% year-over-year or 22% on a constant currency basis, in line with our expectations and full year guidance. Processed volume grew 30% to EUR 451 billion, well ahead of the market as we continue to gain share with our merchants. Three core engines drove this top line performance. First, we deepened share of wallet with existing enterprise merchants as longer-standing cohorts consolidated more of their global volume onto our single platform. Winning a greater share of volumes from these merchants is the largest contributor to our growth. Second, we onboarded a healthy, high-quality cohort of new enterprise customers across our priority verticals. This year's cohort is shaping up to be our largest ever. These customers are larger and many are Platforms. We expect them to ramp significantly over the next year. And third, we consolidated Talon.One and Orb for the first time, which together added about 2 percentage points to our constant currency net revenue growth in the quarter. Commercial momentum remains strong and broad-based across all 3 pillars in every region. Looking at our pillars. In Q3, digital net revenue grew to EUR 387 million, up 16% year-over-year or 14% on a constant currency basis. Volume was up 28%. We delivered particularly strong growth in travel and mobility, which includes major rideshare platforms and online travel agencies, and also across content and subscriptions merchants. This segment includes the major hyperscalers, where we continue to grow our share of wallet. Our tiered pricing is designed so that as our largest merchants scale, they consolidate more volume onto our platform, driving continuous wallet share gains. In Unified Commerce, net revenue reached EUR 250 million, up 29% year-over-year or 27% on a constant currency basis. Volume grew 22%. Net revenue outpaced volume in the quarter following the consolidation of Talon.One, which contributes recurring revenue but no processed payment volume. We now support 499 enterprise merchants processing across both in-store and digital channels at scale. We intentionally target growth from larger, more complex global retailers, and these multichannel implementations represent deep customer relationships where the value we deliver drives substantial share gains. Platforms net revenue hit EUR 100 million, up 46% year-over-year or 44% on a constant currency basis. Volume grew 55%. We now have 46 platform customers processing over EUR 1 billion annually, a significant step up from 37 last quarter and 31 a year ago, with active business customers reaching 312,000, up 48% year-over-year. We're growing rapidly across SaaS and winning share in complex verticals like financial services and insurance, which will be a driver of future growth. Our Platforms business allows us to distribute our payments and embedded financial products directly to smaller merchants at scale, creating a meaningful advantage for Adyen and a durable growth channel. Now let me spend a few minutes on our team and our strategic plan. The momentum we see gives us substantial confidence in the opportunity ahead, and we have decided to step up our investment to capture it. Two things drive that decision. First, our core business continues to perform. We are winning new enterprise merchants. Our existing merchants keep consolidating volume with us, and we see significant runway across all markets. Second, merchant interest in Talon.One and Orb has been stronger than we initially anticipated. Retailers we talk to are extremely excited to unify loyalty across every channel. AI native companies see the value in a single provider for billing and payments. Only Adyen can provide all of these solutions on a unified platform and at scale. That's what gives us the confidence to act now. Serving our global enterprise merchants takes more product, engineering and go-to-market capacity, so we are accelerating our investment. These are growth acquisitions, and we are doubling down to rapidly achieve their potential. On the team, in Q3, we added 177 net new FTEs on an underlying basis, bringing us to 426 year-to-date and 399 colleagues joined us from Talon.One and Orb. We ended the quarter with 5,596 FTEs. For the full year, we continue to expect 550 to 650 net new hires on an underlying basis. Including Talon.One and Orb and the additional hiring we are now doing in those businesses, we expect to add 1,000 to 1,100 FTEs in total. Our hiring remains targeted on specialized engineering and go-to-market roles with a growing share in North America, our biggest focus market. These are competitive talent markets, and we are making greater use of equity in our compensation to attract and keep the people we need. These decisions are reflected in our outlook. For the full year 2026, we continue to expect constant currency net revenue growth between 21% and 23%. We intend to continue investing to win more of our addressable market given the size of the opportunity ahead. When we see high conviction growth opportunities, including the strong merchant pull for Orb and Talon.One, we move decisively. We are deliberately increasing our investment base to capture these platform opportunities, and we now expect our 2026 EBITDA margin to land at 50%. Over the long run, our business model produces compounding operational leverage. On capital expenditures, we maintain our guidance at 7% of net revenue in 2026 and expect to normalize CapEx toward historical levels thereafter. Turning to capital allocation. Adyen generates significant cash flows and has a strong balance sheet. S&P Global Ratings recently upgraded our outlook to positive while reaffirming our A- rating. The positive S&P update gives us a clearer indication of our balance sheet opportunity and ability to use capital to accelerate value. How we intend to deploy capital has not changed. It starts with what it takes to run our business, which includes regulatory and operational capital to settle our merchants reliably every day. Beyond that, our priorities are investing in organic growth, inorganic opportunities like Talon.One and Orb, and finally, returning capital to shareholders. We continue to evaluate the tools available to us, and capital returns are part of that toolbox. To wrap up, we enter the final stretch of 2026 with strong commercial momentum across all 3 pillars, high conviction in our strategic investments and confidence in our unique ability to capture the massive opportunity ahead. We intend to continue to outgrow our market as the scope of what we solve increases across the commerce life cycle. Our actions this year position us to grow our role within customer operations, extend our market leadership and expand our growth opportunity.

We are now going to move on to Q&A. [Operator Instructions] Our first question comes from Fahed Kunwar from Rothschild.

Just I had a couple of questions. My first question really is about kind of the cost of growth for the business. I wanted to kind of step back a little bit on the margins. I know you're getting a lot of questions on margins. But obviously, you've had M&A, which you haven't had before, the increase in CapEx this year. We've had the margin guidance change. How do we think about the kind of long-term cost of growing the business? Do you think that has increased? So perhaps the durability of growth is longer, which is fine, but actual cost of that revenue growth is structurally higher given the competition for people like Stripe and others in checkout.com? Or is it literally just, hey, look, we're going to invest in a discrete period of time, we'll get the revenues, the margins will go up later? Or is there -- has there been a fundamental shift in the cost of growth? That was question one. The second question I had is around the strategy of Orb. I understand it's been run separately. It sounds like you've accelerated the integration based on the opportunity. I wanted to get a sense of how big that opportunity is? I appreciate you won't give revenue guidance, but I look at, again, someone like Stripe and Metronome has gone from nothing to 20% of the ARR in a couple of years, it's been very, very seismic. How big an opportunity do you think it is for yourselves? Is this about selling Orb to your enterprise customers? Is that the main strategic decision? But any kind of sense of the TAM unlock that a business like Orb has given you would be great.

Great. Thank you. Hwa, do you want to take the first one on cost of growth and Ingo, you could take the second?

Sure. So on cost of growth, I don't think that there's been a structural change. As we said, it's a deliberate opportunity and decision to accelerate investment in order to capture the overall opportunity ahead, which is, we think, quite large. Pointing to the business overall, you've seen historically that we've generated leverage -- operating leverage, and we expect that over time, but we do want the flexibility to take actions when we see the opportunity ahead of us. Ingo, I guess, in the second one.

Yes. So on the Orb, indeed, Orb is acquired with the incubator model in mind so that they would run separately. But at the same time, we see that there is a big merchant demand for the services of Orb. So go-to-market teams have started to work very closely together to capture it. And we see basically 2 trends. The first one is that we capture early AI companies early in their life cycle, and that's exactly one of the things that we wanted to go for. That's one of the reasons why we acquired Orb. At the same time, we see that for a lot of our enterprise merchants where we already processed payments as a result of the AI economy that they are changing their business models more to usage-based billing, and that's also where Orb comes into play. For me, it's hard to say like, okay, what is exactly the total addressable market for billing. But I think it's very clear that it's changing rapidly as a result of the rise of AI, and that's why I'm so excited about this opportunity.

The next question comes from Jason Kupferberg from Wells Fargo.

So it's great to hear about all the client feedback from Talon.One and Orb and obviously, there's general momentum in the business. So we get 2027 in February, will you provide us with some details on timing or magnitude of the revenue benefit that comes from these accelerated investments that you're making on the back of these acquisitions? And then if you can just clarify, are we discontinuing medium-term guidance for all metrics going forward? And then I have a follow-up.

So on 2027, what we'll provide is an outlook for the whole business. So we'll provide a net revenue guide as well as some color on EBITDA and CapEx. Your question around -- so with regard to Orb and Talon.One specifically, our intention is not really to break that out as a segment, but we will give qualitative updates around what's going on there. As Ingo said, we look at this as a long-term opportunity to help build a new offering over and above not just loyalty, not just billing, not just payments, but together. So we'll give you that color on a combined basis in February. With regard to the discontinuing of the medium-term guidance going forward, we are -- we will provide an update in 2027 again for 2027. And we are, as we mentioned, discontinuing the EBITDA, the hard EBITDA target. I think that said, we are still very confident in the long-term durability of growth of this company and in the leverage that the company can provide over time.

Okay. And so just given that we're accelerating some investments into this year, are you committed to some degree of annual EBITDA margin expansion off of the reset outlook for this year? Or can we at least -- should we think about 2026 as a floor, just to give investors a general sense of where margins can go beyond this year?

Yes. We'll -- again, we'll provide the update for 2027 in February of 2027. The color I can give you today is like, as we said, historically, we have generated margin expansion. We are intentionally deciding in 2026 to pull forward some of that spend. The other thing that I can say is that in 2026, there are some charges related to the acquisitions and other things that we don't expect to recur in 2027 as well.

The next question comes from Alex Faure from BNP Paribas.

Yes, I had a couple of questions. I think you commented earlier in the year that M&A is now part of Adyen's toolkit, but that the priority over the next few months, or let's call it, shorter term would be about integrating Orb and Talon.One. And if we fast forward to today, you seem to be pleased, and more than pleased with the way those acquisitions have been received by your customers. So how should we think about that? Is this influencing that early reception, the way you think about bolt-on M&A? And could we see Adyen do more of it also in the short term or are bolt-ons becoming part of the algo, I guess, is my first question. And second question, just to make sure that I'm getting the numbers right. I mean you're taking down the margin guide by 2 points for the year. You're telling us that you're hiring 550 more people that you initially intended to. Is there something else outside of people in that 2 points guide down or that's all people related?

Ingo, why don't you take the first one on M&A?

Yes, sure, absolutely. So if you look at our M&A strategy, we indeed have added 2 companies this year to our family. And the reason why we've done that is because we saw the complexity from our merchants in billing and loyalty, and we want to solve for that complexity. So it's a capability game. We've not acquired them for their short-term revenues. It's really about a long-term capability, and that's how we will continue to look at M&A. So if you think about what is important to our customers, the type of challenges that they face, if there is any capability that we think is missing and the time to market is the highest priority, we would consider M&A again. That's how we currently look at it. Our first approach to investment is always organically. That's how we've built. It's also the strength of our single platform. So that's always the first choice. But if time to market is important and it is a capability that our merchants are looking for, we would consider it as a next step.

On the cost?

So on the costs, people is the largest component. There are some of the nonrecurring costs related to integration as well, but it's relatively small. The thing that I -- the color that I would add around people is we're also increasing in a very competitive marketplace, equity compensation. And I'll call out that within our EBITDA margin guide, we don't back out stock-based comp. So that is a material contributor to the change as we go forward in addition to just hiring people. I think the other piece of color around the people themselves, yes, they are related to Talon.One and Orb and the joint value prop that we bring to them. But it's also across the broader business is when we think about, again, not just buying a billing business or a loyalty business, but really what can they all look like together on our unified platform when you combine them with payments and financial products and other offerings. So that's the sort of expertise that we're trying to bring on board.

The next question comes from Russell Quelch from Morgan Stanley.

A bit of a follow-on from the last one. So staying on the theme of margins. I'm wondering a few questions here. So what milestones should we be thinking about to judge the return on this incremental investment? I'm thinking things like attach rates, headcount productivity, anything you can provide. I was wondering how much that stock-based compensation should rise in '27, given the increased hiring you flagged. How much these onetime costs are in '26 that won't repeat in 2027? Maybe I'll stop there. So there's a few questions within that.

Hwa, do you want to take all 3?

Sure. So the milestones to judge return are really around driving sustainable growth and the overall product offering that we are able to deliver. So it's going to be customer adoption. There will be cross-sell associated with it. And then overall, the way we'll talk about it from a company perspective will be on a consolidated basis, ultimately. We don't plan again on breaking out or loyalty or those things individually. But we will give qualitative markers as you go forward. But really, the key thing for us is driving durable, sustainable growth as we move forward. The SBC, I don't have a hard number for 2027. We'll give you the 2027 outlook in February, again, but it will be -- we'll give you that color as we go forward. And then quantifying the onetime costs, we previously said in the first half, we took about a little under EUR 10 million. And we -- when you look at the rest of the year, we think it will -- in total, the onetime cost should be about 1 point actually for the whole company.