Paysafe Limited

Greetings and welcome to Paysafe's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Kirsten Nielsen, Head of Investor Relations. Thank you. You may begin.

Thank you and good morning. Welcome to Paysafe's second quarter 2022 earnings conference call. With me today are Bruce Lothers, Chief Executive Officer, and Izzy Dawood, Chief Financial Officer. Before we begin, a friendly reminder that this call will contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC report. These statements reflect management's current beliefs assumptions, and expectations and are subject to factors that could cause actual results to differ materially from those forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. Today's presentation also contains information that will constitute non-GAAP financial measures under SEC rules. You can find additional information about these non-GAAP measures and reconciliation to the most directly comparable GAAP financial measures in today's press release and in the appendix of this presentation, which are available in the investor relations section of our website. With that, I'll turn the call over to Bruce.

Great. Thanks, Kirsten. Good morning, everyone, and thank you for joining us today. It's been an extremely active first three months for me, meeting with hundreds of employees, customers, and shareholders. while I've traveled to all of the major offices around the world. Our team has been highly engaged, and we're already taking some initial steps to simplify and improve the company. On today's call, I'll start with an overview of the quarter, then I'll share my early observations on the state of Paysafe, and then I'll turn it over to Izzy to review the financial results and guidance. So with that, let's start on slide three. Our second quarter revenue of $379 million and adjusted EBITDA of $103 million were in line with our guidance range for the quarter, despite greater than expected FX headwinds. Growth continues to be led by our Americas region, driven by our safety pay and pago efectivo acquisitions and U.S. acquiring, which recorded double-digit revenue and EBITDA growth in Q2. At the same time, We are seeing progress across our key areas as we focus on improving our customers' experience and innovation. Recently, our team won Payment Innovation of the Year at the 2022 SBC Awards, recognizing our Squirrel Wallet as a game changer for US iGaming brands and their players, especially VIP customers. In addition, we continue to roll out user experience improvements in our wallet that are being positively received by our customers, such as our new dashboard, which allows customers to personalize their wallet experience. Solid expansion into Ontario's new private iGaming market, providing traditional and alternative payments through PaySafe's gateway, where our card approval rates are greater than 90%. and we are now live or onboarding with a total of 14 merchants in the province. We continue to see robust growth in the US regulated iGaming market and have processed more than 2 billion in gateway volumes in the first half of 2022. We are currently live in 22 states and look forward to the upcoming launches in several states and jurisdictions where recent legislation is passed. With Ohio being the most noteworthy, We also remain excited about our upcoming Skrill wallet integration with Penn National's Barstool Sports app, which is Skrill's first tier one operator in North America. During the second quarter, we held our largest merchant partner conference to date. These channel partners were great to meet and I received very positive feedback on our year over year operational improvements. So a lot of good progress in the quarter. As for the rest of the year, I want to state upfront that we'll be updating our 2022 outlook to align with our current expectations, which Izzy will walk you through in more detail. When we reiterated our outlook in May, we felt comfortable that we could absorb the anticipated impacts from the stronger dollar, the Russian Ukraine war, and the regulatory headwinds impacting the European gambling market. While we've been able to absorb those headwinds through the first half, We now have further FX pressure, as well as the added uncertainty related to macroeconomic environment, both in the US and Europe. In particular, gambling merchants are reporting a weaker consumer environment than Europe. Due to these factors, we believe it's prudent to revise our guidance. I'll touch on the actions we've taken already in my first 90 days in a minute, but I'm confident that the changes we're making over the next few months will set us up for growth in 2023. Moving to slide four. It's been over three months since I joined Paysafe, and I continue to feel excited by the potential I'm seeing in the company. I first want to thank the team for all of their feedback and engagement. which has been instrumental in the changes we have made and will make going forward. A particular highlight for me so far has been visiting our offices around the world and meeting our teams and clients in person to discuss the opportunities ahead. While we are still in the process of developing our future plan and priorities, we've made great strides, and today I'll share my initial views on Paysafe and the path forward. PaySafe has a unique position with both an acquiring and issuing construct. When I look at our revenue streams today, we're broadly focused on the right verticals, which have a large market opportunity and high growth rates. However, While we have many of our assets to power end-to-end payments for our target markets, we have a lot of opportunity to improve cross-selling and fully leverage our assets to monetize and better serve our merchant and consumer customers. With a strong history, marquee clients, and focus on improving in a couple areas, I believe we can be very competitive in these verticals as we move forward. Turning to slide five for a snapshot of revenue segmentation. While you look at the markets we serve, we can describe ourselves as largely entertainment-focused, which we broadly define as recreational or discretionary spend, such as iGaming, digital asset trading, video gaming, travel, retail, and hospitality. This comprises about 80% of our revenue today. And overall, we have a good geographical mix balanced across North America and Europe and with a small but fast-growing presence in Latin America. So when I think about our focus and who we are as a company, we power the safe movement of money or digital assets for the sector around the world. It's in our DNA as a company, and it's where we have great capabilities, attractive TAMs, and the right to win as long as we remain focused on helping our customers by delivering a holistic value proposition. Plainly, we need to act as one team with a common goal. Turning to slide six, this is how we look at our addressable markets today. This isn't particularly new for those of you who have been following Paysafe, but I think it's worth reiterating that we like where we play. We serve massive TAMs with attractive tailwinds over a long term, growing at double-digit rates. So, it's not a matter of repositioning Paysafe into entirely new verticals. We have plenty of runway to grow in our core markets today, but we must do a better job of executing product innovation and sales to drive growth within these verticals. With that backdrop, let's move to slide seven. PaySafe has a unique two-sided network that brings consumers and merchants together, with many products needed to power the end-to-end payments of entertainment. We have a scaled global offering which serves 250,000 merchants and 25 million consumers. Additionally, we have more than a million access points today. The challenge for our team is not only to improve the value proposition on each side of the network, but to focus on the synergy opportunities that bring the two sides together. I have had success in my past in locking value on these two-sided networks, and I believe those opportunities exist here as well. On to slide eight. Now I'll add some additional observations following my first 90 days here at Paysafe. I want to recognize that certain areas of the business have performed quite well. Across the Americas, we've seen strong growth from LATAM, US acquiring, as well as our regulated iGaming market. This region grew 18% in the first half of 22. Additionally, when we look across our top accounts, or roughly our top 800 merchants, we are generating healthy double-digit growth at the end of 2001. And we have the opportunity to do much more with those clients to help them drive their revenue. Lastly, Our average monthly users are also increasing, driven by growth in the Americas, fueled by our strategic acquisitions, which has more than offset the decline in users in Europe, which has faced challenges from the regulatory environment, as well as the Russian Ukraine war. We continue to see underlying improvements and positive trends in the funnel optimization, conversion rates, and pricing optimization in target markets. On the other hand, there are a few areas that frankly were not working well today. But this also represents a significant opportunity to drive improvement and ultimately future value for our stakeholders. First, despite the progress in recent years to drive platform consolidation, cloud migration and savings, the organization is still too complex and is operated in silos. Streamlining the business and improving operational efficiency will allow us to fund our sales and product innovation. The team has responded quickly and we have already made a number of organizational updates to simplify our structure and improve our go-to-market model. User experience is critical for our success and these changes will allow us to improve our focus on employee, consumer, and merchant experiences and all interactions with our products and our organization. Second, We have a lot of opportunity to enhance our product innovation. Bluntly, we have lost our way here. For example, PaySafe was truly a pioneer in the wallet industry, but our focus has been heavily weighted to the merchant side of the network and less so on the consumer side. What's now clear is we need to bring a balance to our product innovation. From a product side, we have a great opportunity to really help our customers in a time of dynamic change within the verticals as the world of entertainment moves to mixed reality. It is past time to return to our early entrepreneurial days, driving innovation to market, developing products that deliver great experience to our users, and helping our merchants grow. Finally, we will also rebuild a strong sales engine focused on existing customers, new account acquisition, and business development opportunities. These rebuilt organizations will get the full support of our business lines and operational teams, reducing the friction in doing business with us. We will be hiring additional talent in both of these functions as we move forward and establishing metrics for us to drive growth. Turning to slide nine. We are making several organizational changes to our leadership team and structure with a focus on driving better client experience and enabling our teams to efficiently go after sales and aligning product direction. At the same time, I've been recruiting new talent, and I'm very pleased to welcome Rob Gatto as Paysafe's Chief Revenue Officer. Rob brings decades of experience driving growth for both private and public businesses of all sizes. His commercial acumen and deep understanding of both market and customer needs will make him an invaluable member to the team as we transform our business. We will continue to add talent in the next couple of months. We have also centralized operations under Roy Astin, who's been appointed to the Chief Operating Officer role. This is a meaningful change and will be something we talk about further next quarter. Additionally, we're in the creation stage of a project that will drive significant operational efficiency. We're not ready to announce yet, but more to come on that next quarter. We also plan to provide additional metrics on the transformation and updates in terms of where we are. Importantly, we're putting in place an expanded and simplified wallets division as we bring together our digital wallets and e-cash capabilities into one team led by Chirag Patel to bring a unique customer-centric proposition to market. Afshin Yazdian has also taken a broader role leading our global merchant acquiring business. We view that we have tremendous opportunity with our merchant business as we look at our existing customer base and the potential for future growth. Turning to the path forward on slide 10, as you can see from the prior slides, I believe we are in position to take advantage of being in great verticals. We have many things working well, and now with a focus on just a couple of areas, returning to our roots of product innovation aligned on user experience and sales, we are excited about our future. Acting as one organization operationally will improve efficiency and allow us to reinvest for growth. I am convinced that we will return to growth in 2023. With that, I'll turn the call over to Izzy to discuss our results.