Paysafe Limited

Hello, and welcome to the PaySafe First Quarter 2024 Earnings Conference Call. 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 first quarter of 2024. 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 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 on the investor relations section of our website. With that, I'll turn the call over to Bruce.

Thanks, Kirsten, and good afternoon. Thank you all for joining us today. We kicked off the year with a great start, delivering strong results in the first quarter. reinforcing that our strategy and associated investments are driving momentum in the business and setting us up for long-term success. I'm especially pleased with the progress we've made against our established priorities for 2024, including robust hiring across our sales organization as part of our initiative to double the sales team headcount this year. More on this in a moment. In the first quarter, revenue increased 8% year-over-year to $418 million. Our growth outlook for this year reflects stronger underlying revenue performance, and we're seeing this in the first quarter anchored by improved operational execution. In the merchant solution segment, revenue increased 11%, and in the digital wallet segment, revenue increased 5% or 4% constant currency. Across the business, we saw a strong revenue contribution from our 2023 new client wins, as well as early progress towards our priorities to expand our sales capabilities, optimize the SMB business, drive consumer acquisition, and advance our product initiatives. The first quarter adjusted EBITDA increased 4% to $112 million, or 3% on a constant currency basis. As expected, margin declined from Q1 of last year, reflecting our planned incremental investments that we previewed with you on our last earnings call, and we also had roughly $3 million of severance expense for the quarter. We recorded positive GAAP net income as well as growth across GAAP earnings, adjusted earnings, and free cash flow. We further reduced our net leverage ratio and also returned $14 million to our shareholders through our stock repurchase program, which we initiated in March. Overall, these are strong results, and we're happy with how the year is evolving, so we're pleased to reaffirm our full-year outlook for 2024. Turning to slide four, I'll share an update on our initiatives to expand our sales organization and optimize the portfolio. Starting with SMB, we welcomed 29 new hires to the direct sales team, which is a 40% increase from the comparable headcount at the end of 2023. We also established our referral partners, which will drive more targeted and cost-effective approach to merchant acquisition. One example, we've entered into a new partnership with Dun & Bradstreet. becoming one of their preferred payment partners to enhance our lead generation efforts, leveraging their extensive subscriber database and marketing capabilities. This partnership will provide us with access to over 30,000 new Dun & Bradstreet subscribers each month. Additionally, we continue to deploy value-added services to our existing and new customers, which has helped strengthen our take rates in the merchant solution segment to 75 bps in the quarter from 73 bps in Q1 of last year. This complements the work being done to hire direct sales personnel, supporting growth and retention. In Q1, we rolled out a chargeback protection and backup terminals program to help safeguard merchants against downtime so they can better serve their consumers. Our key objective within the S&P portfolio is to improve the balance towards our direct channel so that our mix is less influenced by the lower margin third-party business. Driving down further, there are basically two sub-books within the direct channel of the SMD business. The attrition challenges that we are experiencing are mostly isolated to one of those portfolios. However, our recruitment efforts and other initiatives to expand the presence across the U.S. and grow upstream to higher-value merchants are starting to pay off. We saw a 10% increase in revenue per new merchant signed in Q1 in this direct business. Additionally, we signed new business across more than 20 states, increasing our state presence by roughly 50% compared to what we typically book. We will continue to build upon this progress to drive growth in our direct S&V channel, along with the enhanced retention activities. Shifting to our enterprise business, in the first quarter, we had 67 enterprise wins, which was broad-based across our core geographies and verticals. Roughly 30% of these deals were with existing clients as we continue to focus on opportunities to expand and cross-sell within our existing client base. In summary, we welcomed a total of 55 new team members to the Paysafe sales team in the first quarter across both SMB and enterprise, which represents nearly a third of our goal to hire 170 people in 2024. And we've continued with a strong hiring pace in the second quarter. Our investment spend is tracking with our expectations for the full year. And while the revenue benefit is weighted more to the second half, we are progressing well and encouraged by the contributions to date. Turning to slide five for a quick update on iGaming, which saw another strong quarter of growth and deal activity. iGaming represents about 30% of our revenue base, which saw revenue growth of 6% in Q1. This was led by North America, which continues to grow by more than 50% in Q1. This included 48% growth in our March Madness volumes and more than 60% growth in our Super Bowl volumes compared to 2023. We also expanded to new states in Q1, including Vermont and North Carolina. We continue to expand our product suite with the launch of our pay-by-bank solution, allowing U.S. online vendors to instantly fund deposits at operators' cashiers directly from their bank account. This further enhances the capabilities of Paysafe's gateway, the iGaming payment solution that connects operators to the most comprehensive range of payment methods. Turning to slide six. As an example of our white-label wallet strategy, in Q1, we kicked off our partnership with Exala, a global game commerce company. Through this relationship, we're enabling game creators and influencers to receive payouts directly into their wallets, supporting seamless spending through an Exala-branded prepaid MasterCard and facilitating a convenient withdrawal into their bank account. The Exala wallet will be available through a stage rollout across the US and Europe and will soon be offered to gamers who can top up their wallets with a wide range of payment options or send peer-to-peer payments. We are excited about these types of partnerships and the broader market opportunity, including a near-term pipeline of more than 10 merchants. Let's move to slide seven. This is an overview of how we've evolved our focus and delivery of the PaySafe wallet platform. Traditionally, we've offered single-use consumer wallet solutions, which is now transitioning to a more unified platform for three primary customer segments, With all users able to leverage the functionality of the entire platform, our branded wallets, historically represented by our Skrill and Neteller consumer digital wallets, is extending to our prepaid or e-cash solutions, known as PaySafe Card, now offering these users similar online and account features available to our Skrill and Neteller users. This strategy will continue to create a roadmap for all Paysafe consumer products to transition or graduate into a wallet relationship while reducing complexity and enhancing customer satisfaction. Leveraging the same functional technology, we are offering merchants our white-label wallet to provide the same benefit of a wallet relationship to their consumers. Exala is a key example of this strategy, enabling seamless pay-in and pay-out solutions for their merchants and consumers powered by Paysafe. Lastly, the Paysafe Business Wallet is now offering empowering SMBs to receive acquiring settlement and manage their business finances easily in one place. Collectively, these solutions leverage the breadth of our shared capabilities and assets such as LPM integration, API access, and issuing cards, and will be supported by a more streamlined delivery and global market approach. Turning to slide eight to provide a little more color on this, as we touched on during the last earnings call, we're driving a more targeted approach to marketing and consumer acquisitions. driving our outreach to new channels while delivering more effective localized messaging. As we broaden our wallet portfolio, this will allow Paysafe to strategically market to its new consumer groups and unlock market expansion. And now that we've established three continuous quarters of growth in our classic digital wallet active users, we feel it's important to transition our metrics to a broader view of the portfolio, consistent with how we're looking at the consumer segment going forward. Here, we're showing the consumer acquisitions for the first quarter, which is approximately 1.4 million, comprising new users from all consumer products and revenue streams. This led to seven and a half million active users for the quarter. While ARPU will vary across products, our focus on building an expanded wallet platform steers us towards a stronger, scalable model to drive sustainable growth and value for Paysafe, our merchants, and our consumers. Let's expand upon this on slide nine. Taking a broader view of what we've previously shared, highlighting our progress in wallets, we now represent the entire segment, comprising all revenue and users. This user base of 7.5 million actives was stable year over year. Where we're seeing softness is mainly isolated within the non-account holding users, which is a subset of our users within our prepaid products. who tend to be more one-time in nature and have significantly lower ARPU. We're focused on converting more of these non-account holding users to account holding wallet consumers, where we're seeing growth of approximately 5% year over year. ARPU, for the expanded view of the user base, was $26 for the period, which increased 5% year over year. This is naturally a lower absolute figure than what was shared previously for the classic wallet such as Skrill, which reflects a higher value user, such as gamblers and traders, with higher activity and spend levels in a given period. Overall, I would say the message is that we've seen stability in the broader consumer base with improvement in engagement. We're sharpening our strategy and enhancing our wallet platform, paving the way for a more scalable model that drives sustainable growth and greater value for merchants and consumers. As we continue throughout the year, we'll provide you with more color on the entire consumer businesses. With that, I'll ask Alex to review the financial results. Thank you, Bruce.