Ladies and gentlemen, thank you for holding, and welcome to the Adyen Half Year 2018 Results Conference Call. At this moment, all participants are in listen-only mode. After the introduction, there will be an opportunity to ask questions. I would now like to hand over the conference to Mr. Pieter van der Does, the CEO of Adyen. Go ahead, please.
Good afternoon, and thank you for joining us today at our first ever earnings call. I'd like to give you a brief update on our performance in the first half of this year. We kept our focus on helping merchants grow and on changing the payments landscape. As a result, we continue to see profitable growth across channels and geographies. We are very pleased to announce that processed volume is at EUR 70 billion, up 43% year-on-year. Additionally, first half net revenue is at EUR 156 million, up 67% year-on-year. We saw solid growth across all geographies and all channels, and across the breadth of the merchant base, as the globalization of commerce continues to prove a significant tailwind for us. Unified commerce continues to develop very positively, with 120% year-on-year growth in point of sale traffic, now accounting for more than 9% of total volume.
We see our POS volume catching up with the moving target as online sales volumes also grow rapidly. Both profitability and cash flow generation remained high and in line with the full year of 2017. Note worry, as we invested in the team, predominantly in tech and commercial roles. We also continued to invest in marketing to fuel our sales pipeline. We already saw previous investments paying off as we benefited from significant conversion in the pipeline over the first half of this year. Let's dive into our three growth pillars, which we have defined as enterprise, unified commerce, and mid-market, where we saw significant momentum in the first half of this year. In enterprise, we saw strong continued growth both through existing and new merchants, with continued low churn and no major merchant losses.
A lot of these existing merchants are high growth businesses themselves, which we definitely benefited from. We were also able to sign new merchants in the first half of this year, such as eBay, Valve, and Dunkin' Donuts. An interesting development here is the increased traction that we see in new verticals, hospitality, full-service restaurant chains, and supermarkets. These are verticals in which we historically have been less present. A common driver for these new verticals is the need to quickly adopt shopper-friendly mobile payment methods. This is where we find success, and we can implement this quickly, globally, and at scale. That's due to our single platform. In unified commerce, due to our significant point of sale volume growth, which is up 120% year-on-year, we now have established ourselves as a significant player. We also launched Terminal API in the first half of this year.
We see this as the future of our in-store offering, allowing point of sale merchants, point of sale transactions to bypass the more traditional infrastructure and to be run entirely over the web, facilitating the shopper journeys that our merchants' customers now expect. We were able to add several merchants to our platform in this segment too, including ASICS, Theory, and Lush. It's a very promising category for us, especially given that we're now able to offer our full unified commerce solution in 37 countries globally, including high growth regions such as we added Singapore to the mix in the first half of this year. We also continued to invest heavily in mid-market segment in the first half of this year. We see this as the next adjacent segment to enterprise.
We focused on hiring for specific mid-market roles, building up new generation in our marketing teams, and on implementing product improvements tailored specifically for this segment. The Checkout Software Development Kit, or SDK, is one example of this. It allows merchants, including those lacking significant development resources, to quickly onboard onto our platform and start processing. Further, we invested in improving the user experience of our product, including the backend, which we call Customer Area, to make sure that it's geared more for a business executive rather than just payment specialists. Under the surface, the performance is the same. Lastly, for mid-market, we have placed increased focus on partnerships, especially with e-commerce platforms like Magento, NetSuite, and Salesforce. This is where a large portion of mid-market merchants can be found. We didn't sit still on the tech and product front either. We've continued innovation to help our merchants.
A couple of our schemes we referred to market is real-time account updates. They're both for Visa and Mastercard. This tool helps our subscription merchants to reduce involuntary churn. This is where subscriptions are lost due to expired credit card details. Further, we continued to improve our data insight product, designed to increase authorization rates while minimizing fraud. We increased the use of machine learning. Our product teams are now able to spend a larger portion of their time focusing on improvements of the product rather than their maintenance. All these innovations are made possible directly by our single platform. We can implement new technologies globally and at speed. This is a key advantage to us. Underpinning all of this, we also continued to invest in the team in the first half of this year.
Headcount increased to 768, which is up 14% year-on-year compared to the first half of 2017. Nearly half of the new hires were made in tech roles, 37% in commercial roles. We continue to employ our rigorous hiring process, with at least one of the board members interviewing every new Adyen employee. We view retention of our culture during our growth trajectory as critical to our business. Despite the publicity, the IPO proved not to be a distraction. We kept our focus on the business. We held our annual company event in the previous week. This is where we fly everybody from all over the world
To Amsterdam. From all our global offices to share knowledge and be one team. We may have raised our glasses for a brief moment, but have said before, we celebrate new regions, new functionality, and merchants on our platform. This concludes my introduction. Thank you for your attention. I would now like to hand over to our CFO, Ingo Uytdehaage, to dive deeper into our financial performance.
Thank you, Pieter, good afternoon, everyone. Thank you very much for joining. I would like to take some time to give you a bit more color on the financial results that Pieter just introduced. Volume, which is up to EUR 70 billion, a 43% year-on-year increase, continues to grow rapidly. It is primarily due to existing merchants that were already on our platform before the start of the year. It's notable that we also continue to add logos to our platform while building out our sales pipeline too. This growth came from across the width of the merchant base. We did not see any significant change in merchant concentration versus full year 2017. When it comes to volume growth, now or in the future, we do not view the size of the potential market as a limiting factor. Net revenue was EUR 156 million, a 67% year-on-year increase.
We saw strong growth in Europe and Latin America, with net revenue growth of over 50% year-on-year in both regions in the first half of this year. Net revenue growth in APAC and North America over the first half year was even stronger, with growth percentages of over 140% in both regions. To us, these figures are proof points of the strength of our single platform, allowing merchants to expand and scale across the globe effortlessly. As noted in our IPO prospectus, we manage the company on absolute margin and not on take rate. We do this because the marginal cost of additional volume on our platform is effectively zero, the drop-through is very high. It then leads to a further increase of EBITDA, which was EUR 70 million in the first half of the year. This is an 83% year-on-year increase.
This was primarily driven by the high net revenue growth and by the expansion of our operations. EBITDA margin was 45% and in line with our full year 2017, as we continue to invest in the growth of the company through the expansion of our team and building our sales pipeline. It's worth repeating at this point that we are focused on the long term, like to keep investing in growth instead of maximizing profitability at this point in time. On the financials, cash flow generation remains high. The conversion ratio of 89% was in line with full year 2017. For your further information, we've also posted a Q2 year-on-year comparison on our website at adyen.com/ir. We would like to reiterate our financial objectives, which remain unchanged from our prospectus.
On net revenue growth, it is mid-20s through low 30s in the medium term, for 2018, we expect net revenue to grow at least 40%. On EBITDA margin, we expect this to benefit from our operating leverage going forward and increase to levels above 55% in long term. In CapEx, we aim to maintain a CapEx level of up to 5% of our net revenue. Thanks all for your attention. Pieter and I will be happy to take any questions now.
Ladies and gentlemen, we will start the question and answer session now. To be registered for the question and answer queue, please press zero one on your keypads. Your questions will be answered in the order that they are received. If you have a question, please press zero one. Our first question comes from the line of Sandeep Deshpande of J.P. Morgan. Please go ahead. Your line is open.
Hello. My question is, clearly you've shown really very strong growth in terms of processed volume in the first half of the year. At the same time, your net revenue growth has been much stronger. Can you comment on the change in the mix of your customers that occurred in the first half, given that you clearly are growing net revenue faster than your growth in processed volume? Has there been a shift, for instance, last year, you had 40% of your revenues coming from the travel or travel and travel-related vertical. Has that changed in 2018? Thank you.
Thank you. I think what we've seen with net revenue growing at a faster pace than volume is mainly related to the fact that in the first half year of last year, we saw a relatively slow start with a lot of one-off costs for implementation of new regions. That's why you see a bit more net revenue growth than processed volume growth. Also, I think in general, the mix has slightly improved, so it's always hard to say just from quarter to quarter how this evolves.
Ingo, just one more question. You are still guiding to 40%-plus of revenue growth for this year. In the long term, you are not changing your guidance. Given the very strong 61% year-on-year growth in the first half, why are you not more bullish for the full year? Is it that the comps were much more difficult in the second half? That is why you are warning the market or is something changing in the second half? Because at this point, you look very much in position to beat that 40%-plus pretty significantly.
I think it is a good point. It is at least 40%. I think that is the way I would look at it. Of course, because the first half of last year was relatively slow. The second half year last year was relatively good, so we have a higher base to compete with. We are very confident in the development of the company for the second half of this year. That is also why we say it is at least 40%.
Thank you.
Okay.
Thank you. Our next question comes from the line of Joshua Myers of Morgan Stanley. Please go ahead. Your line is now open.
Good afternoon, guys, and congrats on the quarter. A few questions from me, please. The first one is around the point-of-sale volumes. Clearly very impressive growth there. How many of these customers that you're doing the merchant that you're working with on this are sort of new customers versus existing e-com merchants who are looking to backfill into offline space? Second question is on the merchant wins that you have disclosed in the first half. Have you identified a total addressable volume for these merchants, and how quickly do you expect to ramp up to the volumes with those guys? Thank you.
Thank you for your question. With the point-of-sale, something else happened than what we expected. We thought that we would convert existing merchants to also handle their traffic from store, so from the point-of-sale terminal. It panned out differently. Point-of-sale tends to be new wins, so that volume is addressable to new customers, and growth there is either getting more stores online or signing up new merchants. The second part of your question regarding addressable market there. If we look at the total addressable market in general for Adyen, but also for our unified commerce part of the business, we see that that's not something that's limiting our growth.
Just one more, sorry, guys. The volumes that you process, I think you haven't been acquiring all those volumes. I think it's around 60%. Has that changed over the first half of this year at all?
I think it's a little bit more in fact. The point-of-sale volume is always acquired by us. That part of the business is Adyen acquired. The other part you're referring to, some of our business is not that acquired by us, it's the airlines. That's the part that are all moving factors. If we sign up more airlines or if we sign up more stores, that all moves the needle in different directions.
Okay. Thank you.
Thank you. Our next question comes from the line of Ron Henrich of ABN AMRO. Please go ahead. Your line is now open.
Good afternoon, gentlemen. I have a few questions. Start off with cost growth. When we look into the other operating expenses, the housing costs have gone up, have doubled basically since the second half of last year to EUR 5.7 million. Is that the new run rate or is there a one-off in there? The same with some of the marketing costs that were up 50% since second half of last year. Is this a special push and should that come back down again or again, is this new run rate? On your FTE growth, I understood earlier that you were aiming for a deceleration in FTE growth going forward. However, in 2017, you added 200 FTEs, and then you added 100 FTEs in the first half of this year. Could you maybe give some guidance for the second half of the year and 2019?
Finally, on the take rate, you've said that growth is mainly driven by existing customers and that point of sales has outgrown the online business. Both these items should actually be negative for take rate, if my understanding is correct. Furthermore, you said there's no change in concentration, so also there that's not that the mid-market is outgrowing the large customers. Could you give a little bit more insight on what is driving the uptick in take rates rather than stable or even down? Thank you.
Let me start and then hand off some of it because you asked multiple questions.
Yeah. Sorry about that.
Which is okay, of course. Let me start with HR. We are investing in growth, and if we see that we have been able to attract a lot of talented people. It is indeed slightly higher because we were more successful in attracting talented people, and we are investing in the business. That explains the slightly higher cost there. Regarding marketing, we have been conservative with marketing in the past, and indeed, we are stepping it up here a little bit. Also with mid-market, which is more marketing dependent than what we feel we need for the corporate segment. Yes, we will be operating at a slightly higher level than we were doing in the past. Ingo, do you want to add to the other questions?
Absolutely. Thank you, Pieter. On the housing cost aspect, the new number is indeed the new run rate. Of course, with expanding the team, we find bigger offices around the globe, so the cost of housing is increasing. Your question on take rate. It's a mixed effect, and I think that always makes it difficult. I think a very important picture is a lot of one-off costs in the first half of last year, which were negatively impacting the take rate. That's why you also see an improvement this year.
Sorry. If you say negative costs in the first half, how would that run through your take rates specifically?
For instance, if you think about all the BIN sponsor partnerships that we implemented in the past. We had, for instance, implementation fees that we had to pay, which is expense through cost from financial institutions. That impacts the net revenues.
Okay. Clear. Then maybe if I do one final thing that's purely on disclosure. Could you disclose the number of transactions in the first half of the year?
We haven't seen a change in ATV, I would have to calculate it back by heart now.
Okay.
It's always tricky to look at. Do you have that? I know the ATV didn't change materially, you can just calculate it back.
It's around 2.5 billion transactions.
Okay. Thank you.
Our next question comes from the line of Gerardus Vos of Barclays. Please go ahead. Your line is open.
Good afternoon, Ingo and Pieter. Just a couple of questions. Just coming back on the yield, the 23 basis points for, I think it was both in Q1 and Q2. Is it fair to assume that will remain roughly around that kind of level in the second half? Secondly, on the seasonality, last season was quite a pronounced seasonality between first half, second half. 45% in H1 and the rest remaining in the second half. Would you expect something similar, or should I read from your kind of commentary that is more equal divided this year? On the mid-market, I guess there's quite a structural change in their business model with a greater level of indirect. We also see a lot more demand for integrated software-enabled kind of payments in that market.
Is that something you want to do yourself and therefore provide industrialized kind of software, or would you go via partnerships? Finally, on the competition and following the merger of Vantiv and Worldpay, what have you seen these kind of key competitor have? Are they coming back or are they still kind of busy with the integration? What are you hearing from the market? Thank you.
All right. Let me start with answering a few questions and then handing it over to our CFO, Ingo. The seasonality of the business, there is an element, but there's also a heavy influence which we cannot really prognosis to when merchants give us more volume. We have a lot of merchants that work with this in some regions and see it outperforms and therefore will be in other regions. It tends to be lumpy and tends to be difficult to predict. Some of our merchants, yes, we do see seasonality. On the total, that's difficult to say. That is not an exact science.
Market merchants that we're typically looking for are the ones which are already boarding on our platform, and we try to make it as pleasant for them as for the corporate merchants since we've made changes to the platform to make it easier accessible for them. That means if we look at merchants which are typically operating international or at scale, and that means they tend to be on the Magento and the other platforms which I mentioned. We're not looking for the true SME merchants which needs an all-in-one solution. There's no plan to develop that. On the competition, we see a lot of activity there.
We all have a lot of experience in this payment field. We think that lessons which we all learned from it is that if you run on a single platform and effectively your release is applicable for all your merchants over all channels, it puts you in such a strategic position that the whole strategy of acquiring and merging and then with multiple platforms trying to service your merchant, that's not our strategy. That's how we look at the development of our competition. Ingo, do you want to add on the other questions?
Yeah, sure. Thanks, Pieter. I think the main question on take rates and then how the 23 basis points will develop towards the future, I think it's very much also related to your question on how we compare to competition. I think we manage our business on getting more volume from our existing merchants with tier pricing. Therefore, take rate is less important. We have a global platform. If a merchant onboards more volume on this global platform, we give them lower pricing, which could negatively impact the take rate. We think it's a very healthy development because push-through margins is the way how we manage this business. If we get more volume and the total invoice to a merchant increases, it's a net positive for Adyen. That's our stance on it. Because our drop-through rate is basically 100% on an additional transaction.
It's hard to say whether we can keep 23 basis points. I hope that a couple of our really big merchants give us even more volume. They get to the next tier and get lower pricing, because that's a net positive for the company.
Sure. Thank you.
Thank you. Our next question comes from the line of Nooshin Nejati of Deutsche Bank. Please go ahead. Your line is open.
Hello, good afternoon. I have two questions. First of all, again on your take rate. How should we think about the evolution of your take rate from here? I'm just wondering if there is a scenario where your take rate could trend up over time, because we can see that some of your peers have recently turned some more positive in the development of their own take rates as they sell additional, like value-added services and so on. Secondly, I wanted to know if you can give us an update on where you currently see churn and when your next larger contracts are up for renewal. Lastly, I want to know on your guided revenue growth for 2018 and medium term, can you give us a feeling on how much of that do you see happen with existing customers versus the new contract wins?
All right.
To continue on take rates, I think of course, what we just discussed on how we see the business going forward with more big customers giving more volume, that could have a negative impact on take rate. At the same time, there's also a positive development, which is of course that we're investing in the mid-market. These markets have typically slightly higher margins. That has a positive impact on long-term take rate. That's exactly why we don't really manage the company on take rate. It's more like an outcome than an input variable for us. I think that's how we look at churn as a company.
I think on churn, I think the key message for ourselves for churn is we're so much focused on making sure that our customers stay happy with us, that they get the service that they want, that we develop new functionality with them, that we have basically contracts that are for an indefinite period of time that they can cancel on a monthly basis. It keeps us honest, and that's how we like to work with customers. There are no big contracts up for renewal, because we basically work for them for the long term. That's how we look at that. If you talk about revenue and revenue growth, most of our revenue growth comes from existing merchants. If you look at the start of this year and the growth since then, about 50% of that growth is coming from existing merchants.
Of course, we manage carefully on getting new wins on the platform live, because they are basically insurance policy for the years after. It's finding that right balance, but always the short-term growth is mostly fueled by existing merchants.
Thank you. Our next question comes from the line of Rich Fanghia of Berenberg. Please go ahead. Your line is open.
Hi there. Thanks for taking my question, guys. You talked about some of the new verticals in which you're gaining some traction, such as hospitality, restaurant chains, and supermarkets. If you could give us some color on which geographies, the size of merchants that you're beginning to gain, just some information that would be really useful. Thanks.
Yeah. It is a very interesting trend for us to see that merchants in those verticals are looking for catering for the new needs of their shoppers, and that makes Adyen a very relevant player. Because of that, we have been able to sign up a few merchants. In terms of volume, I of course cannot comment on the specific merchants. What I really like about it is that we have seen if you're active in a segment, that other companies in that segment also start using your services. It has proven to unlock that segment. We have done a pilot with a supermarket which has been getting a lot of attention, where they're looking at giving shoppers ways to buy with their mobile phones. There's enormous attention to the changing needs of consumers.
That means that the area becomes less static and more interesting for our platform.
That's great. Thank you.
Thank you. Our next question comes from the line of David Togut of Evercore ISI. Please go ahead. Your line is open.
Thank you. Good afternoon. Two questions, please. First, given your Netherlands banking license, could you comment on any plans you have to offer open banking related services in continental Europe when PSD2 comes into effect in the fall of next year? Second, could you quantify for us your expected process volume in the second half of this year and in 2019 from your new contract with eBay? Thank you.
All right. Thank you for those questions. The banking license, let me put it into perspective. For a company with the growth of Adyen, it is important to be in a very clear regulatory framework. One of the reasons why we moved to the banking license is to be in that clear regulatory framework. Yes, it opens up additional services which we can do. Your question, would we do services to consumers, which are possible under PSD2. I think other companies will do services to consumers, and we will help the merchants we're in talking to introduce those new payment methods. We won't use our banking license for that. Regarding eBay as a customer, Ingo, do you want to say something about that?
Sure. I think what eBay has so publicly announced is that they focus on a launch in basically mid-2020, because until that time, they have a contract with PayPal. That's also, we work closely with them, and we will see the volume coming through in the years up to 2020. We don't expect significant volumes until then. I think, in general, we're not dependent on eBay for our volume growth. There are many other customers going live on our platform. Of course, eBay is a great customer to have on our platform. We see many other successful companies being onboarded.
Thank you very much.
Thank you. Our next question comes from the line of Sanjay Sakhrani of KBW. Please go ahead. Your line is open.
Thank you. I've got a question on the mid-market opportunity. How quickly do you expect it to contribute in a meaningful way? Which regions is the opportunity most prevalent? How much of the costs are in the run rate today as far as the initiative launch is concerned?
I think for the mid-market, if you look at where we are at the moment, is that we saw mid-market merchants already onboard on our platform. What we said, okay, this is a very logical next step to go from them and make a part of our product offering even better geared towards them. We improved the Customer Area. We launched an SDK for mid-market merchants. As a next step, we're going to up marketing and sales teams. If you think about how it exactly could pan out in the future, it's too early to tell. We're seeing a lot of traction here in Europe. We expect also in other regions around the world to get traction in the near future.
The interesting thing is, if you think about the type of expenses that we have, it's mainly the sales force hunting new mid-market customers. It's the same platform, there's no additional platform cost. I think the improvements that we make to benefit mid-market is something that also others benefit from. It's not an investment that is lost. It's always a positive for us.
Follow-up question, just two model-related questions. One, were there any specific FX impacts this half that impacted the numbers? Secondly, could you just talk about how you philosophically think about free cash flow and the uses of excess capital? Thanks.
I think if you look at the FX, the FX income is growing basically with the growth of the company, so no specific new situations or developments. If you think about excess cash, I think we are in a very healthy position. We invest a lot in the growth of the company. We have a dividend policy where we will not pay out dividends until further notice. We think it's a very healthy way of building a company in this high growth phase.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Adil Akbar of Kempen & Co. Please go ahead. Your line is open.
Hi. Most of my questions have been answered before. I just want to know about the unified commerce and the mid-market segment. Can you give some sort of geographical overview of what geography that you're growing in currently and what is the spread over here, if possible?
I'm sorry, I got the first part of your question. Could you repeat it, please?
Yes. About the mid-market segment and the unified commerce, if you could give a geographical breakdown of this one.
For the unified commerce, it's always linked to where we can accept point-of-sale transactions. That's a growing footprint, which started off in Europe, rolled out also in the U.S. and we are expanding that, and we just knew that we added, for example, Singapore to that. That's ongoing. In the mid-market, there are specific markets where we saw that merchants were signing up, which didn't have all the corporate aspects of our large merchant base, and where we felt that we could make changes to the product to make it easier. Again, to repeat what Ingo said, for us, these are changes to a platform which are limited to making the interface more accessible to not specific finance people, but more business-oriented people. We don't need to really change the product.
We need to make it easier to connect to, those are the things which we have done. The efforts are minimal, and it gives a much easier path for merchants to sign up. We do commit ourselves for certain regions.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, if you do have a question, please press 01. Our next question comes from the line of Aditya Mechatla of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Yes. Good afternoon, Pieter and Ingo. I had four questions. Firstly, just on the customer wins in the half year, could you give us some color as to what level of volumes these customers can bring as they ramp in the medium term? Secondly, can you give us an update on the introduction of faster settlement services? How's that going and what is the level of traction you're seeing? I have two more follow-ups.
All right. Customer volume. The size of the customers that we sign, we don't like to binge, so we never try to get our merchants into a contract where they commit themselves to do very quickly full roll-outs. Sometimes we see it happening. What it means is we have contracts where we need to outperform the competition to get the full volume. For all those contracts, in general, it's similar that it's up to the merchant how much volume they give us. We have a track record of increasing the share of wallets within those merchants. With faster settlement, yes, it's something which we are looking at. It's very early days for that, so there's no guidance on that.
Okay. Understood. Just looking into the second half. In the first half, you saw very strong growth in North America and APAC. How should we think about growth on a geographical basis? Will it be similar to what we saw in the first half? Do you expect some changes in terms of the geographic mix? Just quickly on the EBITDA margins. When we're working backwards from your first half numbers, looks like your margins went down in sequential basis from one Q to two Q. I know it's different from gross margins on a quarterly basis, but I wondered if you might be able to give some color on how you're thinking internally about EBITDA margins into the second half.
Great. Thank you. I think if you look at net revenues and where they come from going forward, of course, the growth in APAC and North America is very promising, and we see no reason why that would change. Of course, in Europe, we started the company, so there we have a bigger base, and you see that relative growth numbers are a bit lower than North America. I think it's fair to assume that that mix will not change significantly. On the EBITDA margin, we keep building the company. If you ask me how I look at my monthly financial results, I only look basically at last at EBITDA. I first look at sales pipeline and net revenues before I look at actually the EBITDA. The reason for that is that most of our cost is related to the team, and we're very much talent-focused.
Like Piet said, we want to make sure that we hire the right people, if we see the opportunities to hire great talent, we hire them. That could cause, of course, a bit more cost in a certain quarter. We think in the long term, if you look at the scalability of this platform, most of our cost is the team. The revenues or the volume is basically unrelated to the size of the team. You see a lot of potential operating leverage in this business, that's what we focus on, that's also basically the case for the second half of the year. If we see great talent to be added to the team, we will. We certainly think that we will benefit from economies of scale.
Okay, understood. Thank you.
Maybe to add one point. In Q2, of course, and Q1, we had one-off cost related to the IPO between EUR 3 million and EUR 4 million. That's also impacting EBITDA.
Understood. Thank you.
Thank you.
Thank you. Our next question comes on the line of Alexandre Faure of Exane BNP Paribas. Please go ahead. Your line is open.
Hi. Good afternoon. Thanks for taking my question. I have two, actually. The first one is in terms of value added by region. Could you help us understand the change in what part of the value chain you provide in North America over the last 12 months? The reason I'm asking is because it feels like your cost of sales in North America is coming down a lot. I was just wondering if you were doing more and more acquiring from your customers over there. Is there any obvious explanation that we should think of? The second question is in terms of maybe set up fee or BIN sponsorship fee that you might have incurred in H1 2018. I suppose there might be things related to Canada, for instance, anything like that, of course, we expect the profit rate to keep creeping up over H2. Thank you very much.
Okay, very good. Thank you. Let me take one step back. If you look at our business model and how we've started the company, we started off in Europe with our own Visa, Mastercard licenses. In some regions of the world, when we saw that we were successful in Europe, we started a few years later, for instance, in North America, where we had a rented BIN set up where we rent a BIN from another financial institution. That's the reason why the growth in North America also started later. It takes a bit more time to build that market and to get more volume on the platform. That's also why you see that net revenue still has a lower base compared to Europe. We have a lot of expectations, of course, of this region, given the market size.
Net revenue there is key for us, because if you look at how our business model works, how we report gross revenues, it includes the interchange and the scheme fees. The interchange and scheme fees really vary per region. The interchange fees in North America are much higher than, for instance, in Europe. That's why you see a real difference in region on the gross level versus a net level. That's also why we manage the company on a net level. If you look at the geographical split that we provided for net revenues, we always look at the billing address. Let's take a very international company that we work with in many regions. We send several invoices, an invoice for the North American business, an invoice for the European business, and the European invoice is recognized as European revenue.
Obviously, North American invoice is recognized as North American revenue. That's also something I think to understand. The main driver is where we have this full stack platform, and I think that's where the good news also kicks in because we have that full end-to-end platform now in Europe, U.S., Brazil, Australia, Singapore. Because we have that opportunity, we're able to grow the volumes with our merchants. It's the same platform. The moment that they are live in Europe, they can easily also turn on the U.S. For the regions where we have to work with a BIN partnership, and then relating to your second question, we pay some fees which is on a per transaction level. I don't expect any additional implementation fees at the moment.
I see. Thank you.
Thank you. Ladies and gentlemen, to remind you, if you do have a question, please press 01 on your keypads. As that was the last question, I'd now like to hand over to Ingo for closing comments.
I would like to round up this earnings call by thanking you for participating. Should you have any additional questions, please reach out to our investor relations team to further help you. Thank you very much.
Ladies and gentlemen, this concludes the Adyen half year 2018 results call. You may disconnect your line. Have a nice day.