Paysafe Limited

Hello, and welcome to the Paysafe Q2 2023 Earnings Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one at any time to be placed into question queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Head of Investor Relations, Kirsten Nielsen. Please go ahead, Kirsten.

Thank you, and welcome to Paysafe's earnings conference call for the second quarter of 2023. Joining me today are Bruce Lothers, Chief Executive Officer, and Alex Gersh, Chief Financial Officer. 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 report. 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 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. With that, I'll turn the call over to Bruce.

Thanks, Kirsten. Good morning, and thank you for joining us today. Let's begin with slide three. We're pleased to announce our second quarter results, which marks our fourth consecutive quarter of year-over-year revenue growth. Second quarter revenue of $402 million increased 6% year-over-year, or 5% on a constant currency basis, with trends broadly consistent with what we had discussed in the first quarter. We recorded 6% growth in the merchant solution segment on continued resiliency in our SMB market and high teens growth from e-commerce, led by iGaming in North America. In digital wallets, revenue increased 5% on a constant currency basis, driven by our classic digital wallets, where we continue to see improved user engagement. Second quarter, adjusted EBITDA of $113 million increased 10% year-over-year and 9% on constant currency with 90 basis points of margin improvement. We continue to drive our sales transformation to reinvigorate growth in our strategic verticals across gaming, digital assets, travel and leisure, and retail and hospitality. In the second quarter, we closed 37 enterprise deals, which we define as agreements with more than 100,000 each annual contract value. Additionally, when we look more broadly across deals of all sizes, we booked nearly 150 cross-selling wins across our existing client base, compared to very little cross-selling a year ago. Overall, we're pleased with our results for the first half of 23. including 6% revenue growth as well as margin expansion and a reduction in our net leverage ratio. Based on growth for the first half, which came in slightly ahead of our original expectations, we are raising our full year 23 revenue growth outlook to the range of 6.5% to 7.5% and raising the low end of our adjusted EBITDA outlook, which continues to reflect more than 100 basis points and margin expansions. Turning to slide four, I'll expand on our progress across our strategic initiatives of sales transformation, customer experience, and product innovation, which are enabling us to deliver strong growth in 23 and longer term. In North American iGaming, we continue to benefit not only from market expansion, but also through our success in cross-selling into existing customer base, which is a key pillar of our sales transformation. As one example, I'm pleased to share that we have expanded our relationship with Penn Interactive, a leading operator in North America. Penn is an existing digital wallet client, and we've now expanded our relationship with our econ capability, currently live in 16 states. As you may have seen, they just announced a sports betting agreement with ESPN. In Canada, we've enabled Interactive eTransfer payment capability with more clients, including Bally's in Ontario, as well as three Canadian lotteries. We've added this popular and widely accepted regional payment method to our product offering when the Ontario market launched last year. It's now live with 11 operators in the region. Latin America also continues to attract strong interest from our suite of products, including some of the most popular forms of regional payments, which enable our merchants to reach new customers and drive volume growth in the region. In the second quarter, we expanded our existing product offering with well-known brands, including Betson, a longstanding global iGaming client, as well as Epic Games, a leading interactive entertainment company. We're also cross-selling our large European client base into Latin America and signed multiple agreements with financial trading merchants during the quarter. We are providing their customers with new ways to fund their Forex trading accounts, including our digital wallets and other regional payment methods, such as real-time bank transfers. We are also cross-selling our products within Europe, such as our recent deal with Mill Adventure. a licensed iGaming platform in Germany, and an existing digital wallet client who is adding Paysafe's eCash solution for its customers in Germany. So we've had a lot of activity with our cross-selling strategy, but we're also very focused on winning new clients across our key verticals. As one example, we're thrilled to have signed an agreement with PrizePix, a leading daily fantasy sports operator. PaySafe is now the payment processor for them in North America, replacing their current provider. As we've discussed previously, these wins with both new and existing clients were supported by our new go-to-market structure, which has improved our ability to sell PaySafe as a strategic payments partner, while also improving deal execution and increasing our average deal size and global pipeline. We've also seen stronger retention and growth of our existing merchants, with net revenue retention of our enterprise clients greater than 100% year to date, compared to a negative net retention a year ago. Turning to a few updates on our product innovation. First, we're excited to have launched new features for our eCash users, including new ways to fund and spend their money, which will support higher engagement and revenue per user. We have rolled out these features to 18 countries as of today and impressed with the initial outcomes. We believe this is also support higher retention, particularly with users who typically graduate to other payment methods or have payment needs beyond digitizing cash. Next, on our APM strategy, Paysafe's priority to bring our assets direct to our global e-commerce merchant base, enabling them to offer a more personalized and localized payment experience to their customers. We are adding several new regional payment methods in 23, along with enhancements to our existing product set. MBWay in Portugal in Q2 with a large portion of our local digital wallet consumers already utilizing the payment method and with high approval rates. Our new regional methods, such as MBWay, are already being integrated into our existing architecture, allowing us to offer the payment methods to our own digital wallet consumers and direct to our enterprise merchants through our gateway. We also enable PIX transactions in Brazil, which is another great example of a popular payment method that we offered in the region through a single integration. Lastly, during the quarter, we introduced network tokenization, which is an enhanced level of security that helps to increase authorization rates, reduce fraud, and enable improved customer experiences. So all of these examples provide some color around the initiatives that we shared with you back at our investor day in March. We're making strong progress and we're seeing it in our results with more to come in the second half of the year and beyond in 23. Moving to slide five for an update on the classic digital wallets, which is consistent with the update we've provided in our most recent earnings calls. In the second quarter, we saw ongoing stabilization of our underlying active user base with approximately 900,000 three-month actives, and we delivered constant currency revenue growth of 12% from the classic wallets. We continue to make progress with our funnel optimization and improve the gateway experience through our merchant checkout conversion work to retain users and drive more spend per user. Overall, we continue to see stronger engagement, including double-digit growth in both transactions per active user and average revenue per user, even when we exclude the benefit of interest revenue. So the drivers here are consistent with what we've highlighted throughout the year, such as improvements to the customer journey and checkout experience. Our goal is to provide customers with a seamless onboarding journey, ability to self-serve in the app, and engaging features that encourage loyalty while at the same time broadening the appeal and use cases of our unique wallet platform. And with that, I'll ask Alex to review the financial results.