Paysafe Limited

Hello, and welcome to the PaySafe Q3 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 be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kirsten Nielsen, Head of Investor Relations. Please go ahead, Kirsten.

Thank you, and welcome to Paysafe's earnings conference call for the third 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 reports. These statements reflect management's current assumptions and expectations and are subjective factors that 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, and thank you all for joining us today. Let's jump right in. This marks our fifth consecutive quarter of year-over-year revenue growth, demonstrating progress on our turnaround and strategic initiatives. Our third quarter performance shows growth across our key metrics, including volume, revenue, adjusted EBITDA, adjusted EPS, and last 12-month free cash flow, building upon a strong first half of the year. Third quarter revenue of $396 million increased 8% year-over-year, or 5% on a constant currency basis, with trends consistent with what we discussed in the second quarter. We recorded 6% growth in the merchant solution segment, led by double-digit growth from e-commerce. In the digital wallet segment, revenue increased 12% on a reported basis and 5% in constant currency, driven by double-digit growth in classic digital wallets, which was partially offset by softer performance in e-cash. Third quarter adjusted EBITDA of $116 million increased 22% year-over-year and 18% constant currency, reflecting 320 basis points of margin improvement. Our net leverage ratio was 5.1 at the end of the quarter, down from 5.8 at the end of last year, and well ahead of our original target for 23. Based on our strong progress and financial results to date, we're pleased to reaffirm our full year guidance for 2023. We also announced today that our board has authorized the share repurchase program giving the company the opportunity to repurchase up to $50 million of common stock. We remain highly focused on investing in our business to support growth while continue to reduce leverage. I would also like to congratulate our team for receiving several awards during the third quarter. First, Paysafe won Best Digital Wallet at the Digital Bankers Global Payments Innovation Awards. And we're also highly acclaimed for Best Payments-led financial inclusion initiative. In the iGaming vertical for the third straight year, we were recognized as the Payment Service Provider of the Year at the prestigious American Gambling Awards from Gambling.com Group. We were also recognized on CNBC's list of top fintech companies in the digital payments category. It's always great to see our teams recognized for their dedication to delivering exceptional payment experiences. Turning to slide four, I'll reiterate that we continue to make progress across our strategic focus areas, starting with sales transformation. In the third quarter, we closed 45 enterprise deals, which we define as agreements with more than 100,000 each in annual contract value. As we've discussed previously, Our wins with both new and existing clients were supported by our new vertically focused go-to-market structure, which has improved our ability to sell Paysafe as a strategic payments partner. We have also been committed to improving the customer experience for both sides of our ecosystem. On the merchant side, one of our focus areas has been to drive greater deal efficiency, including faster onboarding. As just one highlight, when we look at merchants onboarded in September, our average contract to launch timeframe was 10 days earlier than what we were delivering in Q2, which reflects 14% improvement over the previous quarter. Continued focus on process improvement, system consolidation, and the creation of targeted customer success team is driving the optimization in this area. On the consumer side, we continue to see ongoing progress in our funnel optimization and improvements to the gateway experience. For example, our merchant checkout conversion is up more than six percentage points year over year, reflecting a number of enhancements, such as the optimization of merchant integrations, simplified login and registration flows, better analytics, and better payment method selection. On product innovation, in addition to the improvements to product usability, we've talked about leveraging our wallet platform to drive value for our clients and bring together merchants and consumers. In Q4, we are conducting the initial launch of the Paysafe Business Wallet, a digital wallet for US SMB that uses the digital wallet to collect merchant acquiring settlement. Over time, the range of money movement capabilities and services will be expanded with a longer-term product vision to combine foundational capabilities along with addressing the underserved needs of our SMB clients. Ultimately, we're focused on driving the wallet here in the U.S. in a way that adds value for our merchants while also creating a flywheel effect. Lastly, we recognize the unique opportunity to enhance and broaden our wallet platform for unbranded solutions. Our foremost objectives are to enrich the capabilities of our wallet platform and facilitate the growth and success of our merchant partners. Our focus is on empowering businesses to create customer experiences aligned with their brand by leveraging the advanced features of our platform. We are well-versed in the regulatory landscape and licensing requirements, which our clients and prospective clients appreciate in Paysafe's offering. We're enthusiastic about advancing these initiatives with a number of key deals in the near-term pipeline. Moving to slide five, I'll provide some additional color on the progress that we're seeing across the sales initiative. In the third quarter, we saw balanced deal activity across our target verticals with including new merchants, continued strength in cross-selling to our client base and expanding geographically with our clients. We now have doubled our sales headcount in direct sellers versus the same time last year, and we saw 103% net revenue retention through Q3 year-to-date, which has been supported by the work we've done to realign our account management resources. As another highlight, we're very pleased to announce a new partnership with Fanatics Betting and Gaming, a major brand here in the U.S. PaySafe is providing Fanatics with an all-inclusive payment solution implemented through a single, streamlined integration, offering sports bettors an unprecedented range of options for making deposits and receiving payouts. Moving to slide six, we've talked about our unique advantage in the North American iGaming, which is a small but high-growth market for PaySafe We are very strong in card acquiring and gateway, currently live in 30 states with over 50 operators, in addition to our strong position in Canada. So again, through one integration, an online gambler at a gaming merchant can access to any form of payment for money in and money out. In addition to that, we also have very deep industry relationships and expertise, including high conversion rates, faster state entries, which is also how we attract and retain customers. Now, with our new sales organization, we're even in better position to replicate this success across other key verticals. Moving to slide seven, for an update on our classic digital wallets, which is, again, consistent with the update we provided in our most recent earnings calls, In the third quarter, we saw constant currency revenue growth of 17% from classic wallets, resulting in five quarters of consecutive growth for digital wallets. Much of this revenue growth comes from Paysafe's continued work to improve the customer and checkout experience by reducing friction, while we also focus on expanding the use cases of our unique wallet platform. This stronger engagement has resulted in double-digit growth in both transactions per active user and average revenue per user. Digital Wallets is seeing ongoing stabilization in our active user base with approximately 900,000 three-month actives. And in this quarter, we can report growth of around 3% from the prior year. Moving to slide eight. As you've seen in our results, we have improved to 7% revenue growth year-to-date compared to flat performance for the same period last year, as well as 120 basis point improvement and adjusted EBITDA margin. Here, we've broken out the puts and takes across our year-to-date results. We have seen double-digit revenue growth across the classic digital wallet business, as well as our e-commerce business. our high-priority and high-value focus areas as part of the transformation. Additionally, our SMB ISO channel continues to perform well, supported by strong demand for our differentiated offering for partners. While we made progress in the areas we set out to turn around and continue to execute that playbook, we still have the opportunity to pursue focused growth in other areas. We've seen softer performance this year from the direct channels in U.S. acquiring, as well as our e-cash solutions, which I'll discuss next on slide nine. As we focus on 2024, we are addressing the softness on the direct side by, one, enhancing our product offering, two, expanding our acquisition strategy, and three, adding additional sales headcount, including a focus on moving up market in the direct business, which is more consistent with our customer profile of our ISO channel. In eCash, in addition to enhancements to marketing and customer acquisition, we will focus on unifying our eCash technologies and distribution network while continuing to upgrade our customer experience by integrating our wallet features into the platform for a more engaging relationship to support user engagement and the graduation to our branded wallets. We believe both of these businesses should be roughly mid-single-digit growers over the midterm, while we expect our digital wallet and e-com solutions to continue to see relatively stronger growth. With that, I'll ask Alex to review the financial results.