Paysafe Limited

Greetings and welcome to the PaySafe fourth quarter and full year 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 welcome to Paysafe's earnings conference call for the fourth quarter and full year 2022. Before we begin, a 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 SEC reports. These statements reflect management's current 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 non-GAAP financial measures. You can find additional information about these non-GAAP measures and reconciliations 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. Joining me today are Bruce Lothers, Chief Executive Officer, and Alex Gersh, Chief Financial Officer. After our prepared remarks, we will answer questions received from shareholders through the Say Technologies platform. After that, we will take questions from the analyst community. With that, I'll turn the call over to Bruce.

Thanks, Kirsten, and thank you, everyone, for joining us. If you're following along on our webcast, let's begin on slide three. When I joined Paysafe, we said our focus would be on returning to growth in the back half of the year, and into 2023, and we've done exactly that. In the fourth quarter, revenue of $384 million increased 8% on a constant currency basis, exceeding our most recent guidance, resulting in 9% growth in the second half. Full-year revenue was approximately $1.5 billion, an increase of 5% on a constant currency. Adjusted EBITDA of 108 million in Q4 was slightly above the midpoint of guidance, resulting in full-year adjusted EBITDA of 410 million. We also delivered solid free cash flow of nearly 300 million in 2022, which translates to 73% conversion of adjusted EBITDA. Overall, we're pleased with our results for Q4 and 2022. which was a year of progress against a challenging backdrop. As we've discussed on our prior calls, our overall mix has shifted more to North America in 2022, driven by growth from our merchant solution segment, which benefited from strong demand across retail and hospitality and travel and leisure, particularly in the U.S. SMBs. We also saw growth in Latin America, led by our acquisitions of SafetyPay and PagoEffectivo, which grew revenue 18% on a pro forma basis. In Europe, we experienced market headwinds from FX, the Russian-Ukraine war, and gambling regulations in our digital wallet business. Despite these impacts, digital wallet growth improved in the second half, recording five consecutive months of sequential growth. As part of our focus on reinvigorating growth, we prioritize recruiting high-caliber talent, simplified and repositioned the organization, and rebuilt our sales function. We delivered on these priorities, which is positioning Paysafe to fully leverage our assets and realize the synergy potential across our businesses and capitalize on meaningful opportunities in our core verticals. I'm excited by the momentum that we're seeing in recent client wins, including multi-product deals and cross-selling, as well as geographical expansion with our existing clients, which demonstrates the strength of our portfolio when we bring holistic value propositions to our merchants. Looking to the year ahead, the progress we are seeing across our sales transformation gives us confidence in our ability to deliver strong organic growth in 2023. I am more excited today, 10 months into the role, about the opportunity that we have and believe that PaySafe is uniquely positioned with significant runway to grow across our large entertainment TAMs by refocusing and delivering on these priorities. Additionally, we continue to see strong activity in North America iGaming. including strong volume growth during the NFL season and Super Bowl, reflecting growth across both new and existing merchants. PaySafe now supports payments across 25 U.S. states after kicking off 2023 with our entry into the new Ohio online sports betting market, which followed our Cube4 launch in Maryland. Turning to slide four for an update on digital wallets. This view is focused on our classic digital wallets for additional transparency. In Q4, we saw continued signs of underlying stabilization in our classic digital wallet business. We recorded constant currency revenue growth versus the prior year of 7% from the classic digital wallets, excluding the impact of the Russian-Ukraine war. We are seeing positive trends in funnel optimization, including improvement in early adoption rates up 2.5 percentage points since the start of the year, as well as 1.5 percentage point improvement in our churn rate since the beginning of 2022. Drivers of the improvement include improved KYC processes across both standard and enhanced due diligence, We have virtual assistant and service center UX improvements in successful VIP and premier customer campaigns. As a result, in Q4, we saw a year-over-year increase in underlying deposit volumes of 14% constant currency, excluding Russia and Ukraine war, and a one-off impact of Nigeria in Q4 21. as well as a meaningful increase in transactions per active users driving overall ARPU improvement. Additionally, our initiatives to reduce friction and improve the checkout experience have resulted in a further 8% point increase in our conversion rate at merchant checkout in Q4 versus the prior year. This improvement since last year has driven approximately $10 million in annualized incremental revenue. So despite active users being lower year on year, we're seeing stability, higher engagement and value from our customers supporting an improvement in ARPU and overall revenue growth throughout the second half of 22. We continue to drive forward our customer-focused initiatives and expect to see a return to growth in our active user base into Q2. Turning to slide five. Looking to 2023, we're building on the improvements made in 2022 and have several immediate initiatives to improve performance while creating opportunities to accelerate growth longer term. First, we'll continue to focus on client experience. I'm very pleased that Paysafe was recently ranked third and well above the industry standard on the J.D. Powers Merchant Services Satisfaction Survey, a testament to the team's hard work and focus on the customer. This was the largest single-year improvement by a company. On the consumer side, in addition to increasing our investment in the consumer acquisition, we continue to build upon our improvements to the wallet user experience. On our product innovation initiatives, we see immediate opportunities to improve our authorization rates where we are currently above the benchmarks for our core verticals, but see opportunity to further increase auth rates in 2023 through network tokenization and new fraud management solutions. On our APM optimization, we'll begin to make our APMs available enterprise-wide by Q3, connecting merchants to North America, Europe, and Latin America through a single integration. On sales transformation, we're building out a world-class sales engine focused on existing customers, new account acquisition, and business development opportunities with plans to double the team headcount in 2023. While it's still early days, I'm excited by the strength of our enterprise pipeline, which has already increased meaningfully from when we launched this initiative this past summer. And in Q4, we closed more than 20 enterprise deals, including multi-product wins and cross-selling across products and new geographies. One example, we recently signed a multi-product deal with Better, a new innovative online sports betting and fantasy sports company backed by Jake Paul to provide acquiring digital wallet and APM connectivity through our gateway, starting in Ohio, which plans to launch into multiple regulated U.S. states in 2023. In the financial trading vertical, we recently expanded our relationship with with Deriv a leading online trading platform and a longstanding digital wallet client to provide card acquiring in Europe. Moving to slide six. As I mentioned at the beginning of the call, we continue to see strength in North American iGaming. In Ontario, we're building on 10 years of market leadership with provincial lotteries, delivering the full stack of processing with high card approval rates, as well as local APMs. We are now live with nine operators in the new Ontario market. As one example, we're partnering with Rush Street Interactive, a leading online gaming and sports entertainment company focused on markets in the US, Canada, and Latin America. Paysafe currently supporting Rush Street in Ontario with traditional payments and APMs through Paysafe's gateway. This win was a result of our long-standing history in Canada as the trusted payments provider for iGaming coupled with our cross-regional capabilities throughout North America and Latin America. Lastly, as a reminder, I'll encourage everyone to tune in to our upcoming Analyst and Investor Day on March 13th, where our leadership team will share more examples of our recent client wins and the momentum on our transformation. With that, I'll ask Alex to review the financial results.