Paysafe Limited

Ladies and gentlemen, good morning and welcome to PaySafe second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matthew Parker, Investor Relations. Please go ahead.

Thank you and welcome to Paysafe's earnings conference call, the second 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. The company 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 forward-looking statements. You should not place undue reliance on these statements. Forward-looking statements during this call speak only to 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 reconciliation to the most direct comparable GAAP financial measures in today's press release and in the appendix of this presentation, which are all available on the Investor Relations website. With that, I'll turn the call over to Bruce.

Great. Thanks, Matthew, and thank you all for joining us today. First, I want to take a moment and thank the Paysafe team for all their hard work and determination over the last two years. It is great to see their efforts driving our outstanding Q2 results. On today's call, Alex and I will walk through the results for Q2 and the first half of the year and update our full year guidance. Then I'll close with a reflection on the last two years of our transformation journey. While we're not done, we're excited about the progress and focused on getting better every day. We delivered strong Q2 results, which reflect an acceleration of higher quality revenue. We achieved $440 million in revenue growing 9% year-over-year, $119 million in adjusted EBITDA, growing approximately 5% year-over-year, and we further reduced our net debt ratio to 4.8 times a 14% reduction from Q2 2023. These results reinforce our conviction that we have the right strategy and execution is working. In the first half of 2024, revenue grew 8.5% year-over-year. driven by a 12% increase in merchant solutions fueled by higher volumes across e-commerce and progress on our portfolio optimization efforts. Digital wallets also grew 5.4% in the first half of 2024 from the same period in 2023, attributed to improvements in our e-cash business, the return to double-digit growth in our LATAM businesses, and continued growth of our classic wallet product. Additionally, adjusted EBITDA grew 4.6% year-over-year, while adjusted EBITDA margins declined by 100 basis points due to our planned incremental investments, which we outlined at the beginning of the year. Adjusted net income grew 5.7% year-over-year, and we recorded positive gap net income of $1.6 million in the first half of 2024. We also returned $25 million of value to our shareholders through our stock repurchase program. As part of our portfolio optimization and a move to higher quality revenue, which will deliver higher long-term shareholder value, we are taking actions to limit volumes or exit relationships with certain higher risk merchants. These steps will reduce risk in our business, but create a short-term headwind to our revenue growth rate in the second half of 2024. The strength of our sales initiatives which has led us to increase our original revenue guidance for the year, will allow us to overcome the short-term headwind quickly. We believe these actions are the right steps to take for long-term sustainable growth as we refocus on our ideal customer profile. This brings me to our revised full-year 2024 guidance. We are pleased to raise our full-year revenue outlook range to 7% to 8%. up from our previous guidance of 5.5% to 7%, a 125 basis point increase at the midpoint, moving the high end of our former guidance to the bottom end of our range. We now expect adjusted EBITDA margins to be between 27.5% and 28%. Our updated guidance includes the impacts of the actions I previously mentioned. Alex will walk you through our quarterly results and guidance in more detail in just a moment. Slide 4. In Q4, we laid out four strategic priorities for the 2024 calendar year, and I'm pleased to say that we made great progress and remain on track or coming in ahead of expectations. Let's start with expanding our sales capabilities. We have hired 104 new sales reps year-to-date, or 61% of our full-year targets. Our new hires in Q1 are ramping up as expected, and we are pleased with the talent we've recruited. As a reminder, these sales reps take approximately six months to fully ramp up. The additional sales reps have allowed us to expand our vertical and geographic sales coverage, giving us more at bats than ever before. In the quarter, we logged 74 enterprise wins, which is over two times greater than the prior year. and executed SMB deals in 30 different states, a 58% increase versus that number last year. Our portfolio optimization efforts are coming along better than expected. Year to date, we have generated approximately $26 million of in-year revenue, or 52% of our full-year target. As you may recall, we initially expected the revenue to be weighted more to the second half of the year. During the quarter, we launched value-added services such as integrated loan program to our offerings. This loan program provides flexible short-term working capital for our partners and merchants to invest in and grow their businesses. Our ability to sell value-added services like these help increase our take rate in merchant solutions from 0.78% from 0.74% in the prior quarter. Our third priority for the year was to revamp our consumer acquisition efforts, which remain on track. Towards the end of the quarter, we entered a new partnership with Riot Games, becoming the main sponsor of the Valorant esports tournaments. This tournament was broadcast across the EMEA region and generated an audience of 1.2 million viewers. This partnership allows gamers to use the PaySafe card for a seamless and secure transaction experience during checkout. We've incorporated these sponsorships into our strategy, and we're seeing nice results as we move through July. Finally, our efforts to deliver innovation experiences to consumers remain on track. This next example could probably go under either customer acquisition or innovation experiences. As you may have probably read, we recently announced a partnership with Revolut. What's great about this partnership is it lets us bring our eCash services to Revolut's 9 million UK customers, in turn providing Revolut's customers access to 12,000 of our eCash network locations. We expect this service to eventually roll out to other European markets. This product innovation is helping us generate revenue in new and exciting ways. This quarter, the amount of revenue generated from new product innovation grew by 50% over last year. Turning to our merchant business on slide five, we saw solid growth led by e-commerce, which now represents just over 30% of our merchant portfolio by volume. Last quarter, we discussed that our SMB direct book was being impacted by one portfolio, and we have taken a number of steps to stabilize that portfolio throughout the quarter. This stabilization, along with volume increase and take rate improvements, have led our SMB direct book to grow 10% in Q2, roughly in line with our SMB ISO book. Our ISO book continues to show strength with another double-digit growth quarter. Our efforts to rebalance the portfolio continue to progress, expanding our sales presence across the U.S. and moving upstream to higher-value merchants is continuing to pay off. We saw a 5% increase in the revenue per new merchant signed in Q2. Acceleration of our enterprise sales continued as we executed 74 enterprise wins in Q2 across our key verticals and geographies, up from approximately 30 in Q2 2023. Approximately 30% of these deals were with our existing customers, highlighting the success of our cross-selling efforts, which was almost zero two years ago. Additionally, our net revenue retention in the quarter was 103%, further proving that our efforts to sell additional products and services to existing customers drives higher revenue per merchant. Slide six, a quick update on iGaming, which saw another strong quarter. Global iGaming revenue grew 15% year over year, accelerating from 14% in Q1 2024. As we executed 64% more deals in the Q2 2024 quarter versus Q2 2023. North America iGaming revenue grew over 50% year over year from merchant wins that occurred in Q3 and Q4 of last year and assisted by seven additional states legalized last year that came online this year. Our iGaming sales continue to find opportunities to cross-sell into our customer base with 44% of the deals won in the quarter coming from existing clients. These cross-sells allow us to take a larger piece of the payment's cash register. As our merchants work to grow their revenue through product improvements, additional offerings, and geographic expansion, we stand ready to help them be successful. Slide seven. In Q1, we started reporting digital wallet KPIs based on the segment to provide investors with a more holistic view of digital wallet's performance. In Q2, we saw transactions for active user grow 20%, driven by our core wallet, quick checkout, and eCash. Additionally, average revenue per user grew by 6%, largely driven by the eCash product initiatives, and more revenue attributed to iGaming. This marks the sixth consecutive quarter of year-over-year growth on both of those metrics. We saw three-month active users remain flat year-over-year, and we acquired approximately 1.2 million users in the quarter. This is in line with the seasonality we experienced in Q2 for active users, given the reduction of sporting events during the quarter. While our user base remains stable, this is not our goal. we are focused on returning our user base to growth. While we no longer break out our classic wallet, we did see three-month active users grow 4% year-over-year, and we have had three consecutive quarters now of growth, reflecting continued momentum growing our user base. We are also introducing a new KPI, consumer acquisition cost, which was $17.60 in the quarter. When comparing ARPU and consumer acquisition costs, this provides us with an approximate two-month revenue payback, which is why this opportunity is highly attractive and highlights why returning our user base to growth continues to remain a priority. Overall, our current users are conducting more transactions and generating a higher ARPU, which is a solid foundation as we focus on driving additional consumer adoption and engagement. So in summary, Paysafe had a strong Q2 by every financial metric. Year over year, we delivered quality revenue growth of 9%, adjusted dividend growth of 5%, net leverage reduced to 4.8 times, 7% volume growth, and a 3% take rate expansion, just to name a few. The strategy that we laid out two years ago of focusing on client experience, sales transformation, and product innovation are taking hold and allowing us to build momentum, enabling us to raise our revenue guidance for the full year 2024 by 125 basis points at the midpoint to 7% to 8% from our original guidance of 5.5% to 7%, and puts us in a great position for consecutive 7-plus percent revenue growth years. With that, I'll ask Alex to review the Q2 results in more detail.