Paysafe Limited

Greetings, and welcome to the PaySafe 4th Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. 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. We ask that you please ask one question and one follow-up, then return to the queue. 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.

Thank you, and welcome to Paysafe's earnings conference call for the fourth quarter and full year 2024. Joining me today are Bruce Lothers, Chief Executive Officer, and John Crawford, 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 may 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. We had a very active quarter and released much of the 2024 results and 2025 guidance last month. So I'll start off with a few simple messages that we'd like for you to take away from the call. In 2024, we delivered 7% organic revenue growth supported by all key regions and product lines. Last month, we announced the divestiture of our direct marketing payment processing business, which marks the completion of our portfolio rationalization and sharpens our focus on Paysafe's ideal customers and verticals. This represents an important step forward to enhance our financial performance and valuation by eliminating a declining non-core revenue stream and reducing our exposure to higher risk merchants. We continue to reduce net leverage, which is 4.7 times at year end, down from five times at the end of 2023. At the same time, we made significant investments while returning more than $40 million to shareholders through our first ever share repurchase program. We have a few puts and takes across the numbers in Q4, which John will take you through in more detail, but I want to reiterate that we've made incredible progress delivering on our priorities and executing our three-year growth plan. Turning to slide four. Our fourth quarter and full-year results are consistent with our press release last month, so I'll keep this brief. Revenue in the fourth quarter increased 1% year over year, resulting in full-year revenue of $1.7 billion, an increase of 6%. When we look at the organic growth, excluding impacts from disposed business, FX, and interest, our revenue growth would have been roughly 6% for the fourth quarter and 7% for the full year. Adjusted EBITDA was $103 million for the fourth quarter, resulting in $452 million for the full year down 1% compared to last year. largely reflected the accelerated merchant exits in Q4 related to the direct marketing business, as well as associated increase in credit losses. As a reminder, we also made incremental investments totaling $29 million as part of our 2024 objectives to expand our sales capabilities and optimize the portfolio. With the portfolio repositioning now behind us, And given that a large portion of these investment expenses are one-off in nature, we expect to see meaningful improvement in our adjusted EBITDA growth in 2025. We also generated strong unlevered free cash flow of $300 million in 2024, reflecting a 66% conversion of adjusted EBITDA. Lastly, for the first year since going public, we achieved a positive GAAP net income, which was 22 million for the full year of 2024, compared to a net loss of 20 million last year. Turning to slide five, I'll double click on our growth drivers in 2024, aligned with our strategic initiatives. The first bucket that you see here is attrition, which includes our voluntary attrition from relationships we exited in higher risk sectors such as crypto. This also reflects market attrition within SMB, particularly at the micro level, which typically has higher levels of attrition. The next pillar is growth from our existing clients or same-store sales, which contributed roughly 9% to growth during the year. The last pillar is our growth from new client wins, as well as the introduction of new products, which together contributed roughly 11%. When we put all of this together and look at our organic performance, we see 7% growth in 2024, supported by cross-selling and growth with existing clients, as well as new logos and new products. Turning to slide six, I'll close out the discussion of our 2024 objectives. We successfully expanded our sales capabilities by welcoming 170 new quota-carrying reps to the PaySafe sales team. We continue to see good momentum across our enterprise level accounts where revenue is up more than 10% for the year, including double digit growth from e-commerce on the merchant acquiring side and single digit growth from digital wallets on the consumer side. The investments in our sales team expansion and portfolio optimization reached 29 million for the year, which generated more than 50 million in in-year revenue and we expect this contribution to roughly double in 2025. On our consumer acquisition strategy, we made several foundational improvements which have supported stability in our user base. Our classic wallet users surpassed 1 million for the first time in three years, driven by the development of better incentives and promotional programs. Across the broader 7 million user base, we've seen favorable trends from new partner integration such as Revolut and Deutsche Bank, as well as new product introductions. For example, revenue from online distribution of our eCash solutions nearly doubled compared to last year, as more users are loading their accounts digitally versus going into a store. We expect consumer acquisition to benefit from continued product initiatives, market expansion, and improve marketing execution in 2025. Finally, while still relatively small numbers, our revenue generated from our product initiatives continue to be up significantly compared to last year and reflect 6% of our total revenue in 2024. We are focused on driving this higher in 2025 with a goal to reach double-digit contribution over the near term. Turning to slide seven. I'll highlight some of the additional points on the momentum we see across the sales organization. Today, we have a more balanced growth profile, including double digit growth from our top 20 clients. We also saw a 6% increase in the total number of enterprise level merchants in 2024. Our growth was relatively broad based across all key regions, including high single digit growth from our top 20 countries. When we look at how this compares to the performance of these metrics during the two prior years, growth was in the low single digits or even declining. So we've demonstrated a lot of improvement across the board. Turning to bookings, in 2024, approximately one-third of our new enterprise deals measured by annual contract value were with existing customers, reflecting both territory expansion and product cross-selling. Additionally, We saw total ACV of bookings expand 40% over last year, including strong growth in Latin America. Our current pipeline has also grown by more than 40%, and we are targeting a 20% increase in our enterprise pipeline for FTE as our sales organization becomes more productive. In 2024, we enhanced our training program for new sellers by launching the Sales Academy. This initiative provides an effective onboarding experience coupled with continuous learning. Our goal is to empower our sales teams to approach challenges with confidence, enhancing their ability to close deals successfully. Overall, we have a much stronger sales motion in place today, and it boils down to execution in 2025. Moving to slide eight for a supplemental view of growth by business line. In 2022, several of our core products were in decline, with growth entirely driven by the SMB business. Over the last two years, we've returned to growth across all core products, particularly high-value areas such as e-commerce and wallets, despite a headwind from FX and interest this year. SMB growth remains healthy in the mid-single digits, supported by consumer resilience in the U.S., as well as our initiatives to optimize the portfolio. So again, across a number of views, you can see the quality of our revenue and the overall balance of our growth profile has improved. Turning to slide nine. When you look at the last three years, we've seen an acceleration of organic revenue growth, where we've gone from flat in 2022 to 4% in 2023 and 7% in 2024. We believe this view helps you see the underlying growth when we exclude the inorganic puts and takes and going forward into 2025. This view will exclude the divested business as well. It's also important to highlight that we have delivered this improvement in growth and quality of revenue while investing significantly in the business, rationalizing the portfolio and maintaining solid free cash flow and reducing our leverage. Turning to slide 10. Our team has a lot to be proud of when we look back at our achievements over the last three years. I won't spend much time on this as we've covered most of these topics already, but I'll share a couple of additional highlights. One area that we haven't discussed as much externally are the steps we've taken over the last two years to drive cost savings through centralizing our service functions and eliminating business units. which allowed us to self-fund a portion of our investment needs and redeploy resources to revenue generating functions. We now have the right people in the right positions to be more successful and better aligned with our goals. And continuing with the topic of efficiency, we've also improved deal execution with faster onboarding for enterprise merchants. In 2024, our average contract to launch timeframe was about 60% faster than we were delivering in 2022, driven by continued process improvement, system consolidation, and the creation of a focused customer success team. On the consumer side, we've enhanced customer experience by implementing intelligent self-service tools, and now 44% of our customer service contacts are resolved through automation. These improvements have resulted in lower friction and improved engagement with our digital wallets, along with the reduction in the total number of customer service cases. Lastly, we've talked about de-risking in connection with the disposal of direct marketing, which lowers our revenue volatility and credit loss exposure. But we've also enhanced our profile more broadly to minimize and diversify our exposure across our risk, compliance, and regulatory functions. Turning to slide 11. We view 2024 as the completion of our turnaround, now shifting our focus to the real growth engines of the company. On the product side, we're driving more revenue from new products, advancing our Paysafe Wallet platform across our branded solutions, including market expansion within Latin America, as well as unbranded solutions, such as our business wallet for SMBs and white label wallets. As our new sales organization continues to ramp up, we will focus on enhancing our sales cycle productivity and revenue conversion. We also see opportunities to bolster both of these areas through partnerships, which will help us reach new merchants and consumers and expand our product and service delivery across our core regions. Lastly, we continue to drive greater scale and interoperability of our products. enabling users to leverage the functionality of the entire Paysafe network and create better experiences for our customers and employees. With that, I'll ask John to review the financial results and outlook.

Thank you, Bruce. Let's move to slide 13 for a summary of our fourth quarter performance. The financials presented here include the results of the recently divested direct marketing business, which was impacted by accelerated merchant exits and associated credit losses as described in our press release. I'll provide some color on those impacts and what our growth would have looked like excluding this business. Additionally, in the appendix of this presentation, you'll find a quarterly summary of its financial contribution for 2023 and 2024. In Q4, revenue increased 1% to $420.1 million on a reported basis, which included about 16 million of inorganic headwinds from FX, interest, and the disposed business. So when you look at our performance on an organic basis, growth would have been roughly 6% in Q4, driven by strong double-digit growth in e-commerce and low single-digit growth from SMB merchants in the digital wallet segment. Adjusted EBITDA declined to 103.3 million compared to 121.7 million in the fourth quarter of last year. reflecting a $15 million increase in credit loss expense largely associated with our portfolio actions in direct marketing. Excluding the impacts of direct marketing, adjusted EBITDA margin would have been 26.9%. We generated $70.5 million in unlevered free cash flow for the quarter with a 68% conversion of adjusted EBITDA. The decline in free cash flow from Q4 of last year mainly reflects the lower adjusted EBITDA as well as increased CapEx. Adjusted net income was 29.6 million, or 48 cents per share, down from 66 cents in Q4 of last year, reflecting the adjusted EBITDA performance partially offset by a reduction in interest expense. Moving to slide 14 for a quick recap of the full year. For the full year, revenue increased 6% to 1.7 billion in 2024. Excluding impacts from FX interest in the disposed business, organic revenue growth would have been 7%. Adjusted EBITDA declined 1% to 452.1 million, with the two key drivers being the planned incremental investments, totaling 29 million for the year, and a $25 million increase in credit losses year over year. Without the impacts from direct marketing, adjusted EBITDA margin would have been about 25.6%, down 110 basis points compared to 2023. And recall that the 2023 EBITDA margin benefited from 38 million of growth from interest in FX, while this was a $7 million headwind in 2024. So the underlying margin trajectory remains strong. Given that a large portion of the investment items in 2024 are non-recurring, we expect to see meaningful improvement in our EBITDA growth as we put this portfolio rationalization behind us. When you couple that with an improvement in the productivity of our sales force, including the annualization of client wins in 2024, we expect to show strong improvement in operating leverage in 2025 and beyond. We generated nearly 300 million in unlevered free cash flow for the full year, reflecting a 66% conversion rate, in line with our expected range of 65 to 70%. Adjusted net income and adjusted EPS declined 8% to $132.5 million, or $2.14 per share, reflecting the adjusted EBITDA decline partially offset by lower interest expense. Let's move to slide 15 to discuss the merchant solutions segment. Revenue in the fourth quarter for merchant solutions increased 1% year-over-year to $230.1 million, including a 5 percentage point headwind from direct marketing, and full-year revenue increased 9% to $957.6 million including a one percentage point headwind from direct marketing. The underlying performance was led by double digit growth in e-commerce with continued momentum in North America iGaming and mid single digit growth across the SMB space. The disposed direct marketing business and associated credit losses had a significant impact on the results for merchant solutions, particularly on adjusted EBITDA, which declined 43% in Q4 and 14% for the full year. Again, The EBITDA and margin performance also reflects the incremental investments in our 2024 initiatives. So looking ahead to 2025, we'll start to see a better margin profile as a larger percentage of these incremental investments will not recur and credit losses return to normal levels, along with better operating leverage as the new sales organization matures. Turning to the digital wallet segment on slide 16. Q4 revenue from digital wallets increased 2% to 194.4 million, or 3% on a constant currency basis, leading to full-year revenue growth of 4%. Growth was supported by continued strength from new products, which more than offset lower interest revenue on customer deposits, which was a headwind of 3 million for Q4 and 6 million for the full year. Our three-month active users were 7.3 million, up modestly from Q3, reflecting seasonality, and stable year-over-year with revenue growth supported by continued improvement in user experience and engagement. In Q4, adjusted EBITDA grew 8% to $89.2 million, or 9% on a constant currency basis, leading to full-year adjusted EBITDA of $339 million, with an adjusted EBITDA margin of 44.3%. An increase of 90 basis points reflecting solid operational execution and expense discipline. Turning to slide 17 for a summary of debt and leverage. At the end of the year, total debt was under 2.4 billion, reflecting debt repayments and repurchases of more than 100 million during 2024. We ended the year with a net leverage ratio of 4.7 times compared to five times at the end of 2023, We expect to further reduce our net leverage ratio to 4.4 times or lower by the end of 2025, and we remain focused on achieving our target of 3.5 times by the end of 2026. During the quarter, we repurchased 969,000 shares at an average price of $18.50 per share. For the full year, we repurchased 2.6 million shares at an average price of $16.23. In February, our board authorized a $70 million increase to our share repurchase program, which brings our remaining authorization to approximately $77 million. Moving to the full year 2025 outlook on slide 18. We expect reported revenue growth to be between flat and 2% in the range of 1.71 billion to 1.734 billion. Excluding the disposed business in both 2024 and 2025, we expect revenue to grow between 6.5% and 8%. At the segment level, we expect merchant solutions to grow in the high single digit to low double digits range, and digital wallets is expected to grow low single digits, including an expected headwind from FX and interest of approximately three to four points. Additionally, while we haven't typically given quarterly guidance, I'd like to highlight that our expectation is for the second half to be stronger than the first as some of our newer initiatives come online. We expect Q1 to be our softest quarter, with organic revenue growth of 3 to 4 percent, and our first half of the year building in the 4 to 6 percent organic revenue growth range to something more like 8 to 10 percent in the second half of the year. We expect adjusted EBITDA margin between 27.1 and 27.6 percent, with adjusted EBITDA in the range of 463 million to 478 million. Excluding our business disposal, this represents 150 to 200 basis point increase in margins, reflecting modest growth of operating expenses in the low single digits, along with lower credit losses, and driving EBITDA growth of 13 to 17% versus prior year. Lastly, we are providing adjusted EPS guidance for the first time. We expect adjusted EPS to be in the range of $2.21 per share to $2.51 per share, and we've provided some of our additional assumptions in the appendix to help with modeling. Turning to slide 19, I'll highlight some of the growth drivers behind our outlook. We expect our existing customers, including the annualization of 2024 bookings, to generate growth in the upper single digits. We also expect a growth contribution around 10% from both product initiatives as well as new client wins as our expanded sales team transitions from the onboarding stage to becoming more productive. When you put that together, these growth pillars more than offset the impact of the attrition and the divestiture, leading to modest low single-digit growth on a reported basis and growth north of 7% on an organic basis. As I touched on earlier, when you think about our margin profile, we have the non-recurring items from 2024 behind us. Specifically, we have about half of the $29 million investment in portfolio optimization that will not repeat this year. Additionally, We had an increase of approximately $25 million in credit losses, and now we expect a return to more typical levels, which when combined with tighter management of operating expenses should show the operating leverage in our business model. With that, I'll turn the call back over to Bruce for closing remarks before we take questions.

Thank you, John. To summarize here, we see significant potential in Paysafe, having increasingly improved our investment thesis. We have proven our ability to accelerate growth while also making significant investments and completing our portfolio rationalization. With our foundational turnaround now behind us, we are looking forward to our third year of growth, focusing on Paysafe's biggest opportunities in the experience economy. This is underpinned by the exceptional talent and strong free cash flow, which allows us to continue to deliver and create equity value for our shareholders. I want to thank all of the Paysafe employees for embracing our need to change. I am more optimistic today than I was when I joined the company almost three years ago, and I'm excited to enter this new chapter alongside the Paysafe team. Now, let's begin the Q&A session.

Thank you. And I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. As a reminder, please ask one question and one follow-up, then return to the queue. One moment, please, while we poll for questions. Our first question today is coming from Timothy Chiodo from UBS. Your line is now live.

Hi, this is Jing for Tim. Thank you for taking the question. I wanted to touch on your SMB channel. Slide eight, appreciate the full-year growth rate, 6% for 2024, and the updated MIIC. So for 2025, how should we think about the growth drivers for SMB to potentially see acceleration again in your strategy around your SMB direct channel versus your ISO book? Thank you.

Yeah, thank you, and good morning. So I think as we look at the 25 SMB channel specifically, there's a couple things that I would point out. We continue to have solid growth Low teens growth with our clover sales, so we continue to see significant expansion there. One of the things that we focused on was moving upstream within the SMB channel. So getting a little larger SMB client, we've been able to do that. We see revenue per merchant up in the upper single digits going into 25. And then lastly, I would say we've also added quite a bit of sales help in the SMB channel. So we continue to see solid growth in our ISO part of the book on the direct basis. We're doing really well selling Clover and adding more salespeople, and we've had a lot of success moving upstream within that SMB channel. So overall, we feel very good about our SMB channel as we move into 25.

Got it. Appreciate the color. And a quick follow-up on the mechanics for the direct marketing business sale. So in the press release, it said the consideration for this transaction is largely annual earn-out payments over the next five years. So could you please touch on the income statement geography and how that's impacted the I assume below the line items? Thank you.

Yeah. So as far as the geography, that would be below the line, below EBITDA line as we're moving forward into 25 and beyond. So I think that was the question. I don't know, John or Nicole, if you guys want to add. I think that's fair. I shouldn't be answering the accounting questions. But I hope that answers your question.

Yeah, that makes sense. So just confirming, that's in the adjusted EPS guide for 2025?

Yes, that would be in the adjusted EPS guide for 2025, correct.

But it's not... It's not, just to be clear, it's a de minimis number expectation 2025.

Gotcha. Super helpful. Thank you so much.

You're welcome. Thank you. Next question is coming from Andrew Hart from BTIG. Your line is now live.

Hey, thanks for the question. I guess, Bruce, just maybe first one, getting a handful of questions on the comments in the press release about the takeover interest before and after the Bloomberg report. Anything incremental you can share with us on potential profiles of the bidders or any details you can share about those conversations?

Andrew, good morning. Thanks for the question. I think we're going to stick to no real comment there at this point. We've had some unsolicited comments. proposals come in, inquiries come in. You know, we feel very good about the business. We feel like we're creating a lot of value with the business. But the board will, you know, as we said in the press release, the board will execute their fiduciary responsibility and take a look at anything that gets thrown over the rail. So right now, we're just executing, trying to execute at a high level. and those things will work themselves out over time. I will just add that it was anticipated that as we were having success with the turnaround, that those type of opportunities were to rise as we created more value in the company. And so I think it was not unexpected, but we feel very good about where we are right now.

That's helpful, thanks. And then I guess with the portfolio now, Can you just talk about some of the target customers and area of focus you want to have in 2025? I think one of the comments you made was the experience economy, and this bridge of the 25 Outlook drivers is great. There's 10% growth from new customers. So can you share with us kind of who the target customers are for the refocus sales team in 2025?

Yeah, absolutely. So a couple things you'll notice in the slides this time. I think we probably do a better job explicitly commenting on the cross-sell opportunity into our customers. So if you recall, when we came in just a couple of years ago, there was virtually no cross-sell because of the siloed entity or the siloed structure of the entity. And now we've got about a third of our customers are buying multiple products from us. So that's a huge transformation in the way the company's sales motion is operating, and we expect that that will continue as we continue to add more and more products in, whether it be LPMs, local payment methods, or new products as we are moving forward. I think what is also probably helpful in the 25 outlook drivers that Kirsten and John put together is it makes it very simple to see, you know, we're performing consistently with 24 to 25. We see similar same-store growth moving into 25 with the businesses that we have remaining, and we see, you know, new customers and new product growth coming on board at a similar clip. So we feel very good about you know, the sales motion. We feel good about the, you know, the verticals that we're in, the SMB, e-comm. We see real nice growth in the digital wallet starting to reemerge and e-cash. So overall, there was another slide that kind of depicts the major product lines. You can see that there's now growth across the balanced portfolio, which is really what the goal was. And it sets us up very well as we move into 25 and into 26.

That's super helpful, and if I can just squeeze one more. John, I appreciate the 25 guidance you gave, the breakout between expectations for revenue on merchant versus digital wallet. I guess, can you just expand a bit on the merchant segment kind of expectations for gross profit growth? And then on the earn out of the divested business, I guess my question would be, as a follow up to the first one, what is the dollar amount expectation? that you could get from the earn out both in 2025 and what's the maximum longer term? Thanks.

I'm going to go in reverse order. Sorry. On the divestiture, I would expect, as I mentioned on the earlier question, that the impact in 2025 will be minimal as the buyer works on ramping that business. And then over the five-year period, we could make up to 50 million dollars on the on our burnout and then on the uh sorry on the back to your prior question um on the gross profit growth for merchant um we expect we expect the merchant business to be growing robustly in uh 2025 i think similar though to my comments On the call, it is gonna be a little bit backend loaded as the merchant business accelerates into 2025. So we're expecting second half gross profit growth in that segment to be more robust than the first half, but growing throughout the year. Thank you.

Thank you. Next question is coming from Darren Peller from Wolf Research. Your line is now live.

Hi, thanks. This is Paul Obrecht on for Darren. Can you provide some more color on the vast capabilities you've talked about as part of your 2024 investment strategy? Just curious what the merchant adoption and response has been like to those products and if there are any other products in the pipeline that maybe merchants seem to be demanding.

Yeah, Paul, thank you. So in regard to the products, we've had a lot of success in 24, driving into 25 with our account and card product Our ePIN product in particular, both on the digital wallet side, those have been received exceptionally well. We talked a little bit about ePIN, which really changed the distribution model for our card eCash product line. So, you know, continue to see growth there, expecting that to continue well into 25, 26. We have some new products that we're very excited about as well. think the overarching theme is we're continuing to try to leverage our white label wallet um and uh so with that um white label wallet platform it gives us the opportunity to go into peru for example where uh peru we have a really strong presence in ecom uh we're going to launch we've already soft launched uh pago wallet and so we're very excited about that it'll be a a wallet down there that takes advantage of the market share that we already have. So today we do quite a bit of the pay-in part of the business and e-comm down in Peru. We have a big brand name in that country. And so we'll be taking advantage of that brand name and now incorporating the payout. So we'll have a complete service. And we think that's going to be a great product for us as we launch fully in Q2. So that's just one example. We also have another product that will be launching here in March. Again, soft launch has already happened, but launch on a general release basis, really with our lockable card. And this is a product, especially for our video game customers, which is a large portion of our eCash business, 42% of our users, This will allow them and streaming customers to help manage their subscriptions. We think the feedback has been wildly positive, so we're very excited to see that roll out on a general release basis and see what that product can do. So just a couple of examples. We can keep going on. I think the other focus would really be around the e-commerce side, which you're seeing really, you know, solid growth with our e-comm business north to 30% year-over-year growth. So we feel very good about continuing to expand there. And we have a great product with Clover in the SMB space. So we're very excited to continue our partnership with Fiserv, and we look for big things as we expand that relationship in 25.

Got it. That's helpful. Thanks. And then, excuse me, As a follow-up, can you update us where we're at from a sales productivity standpoint? I think in the deck, you said you were targeting a 20% increase in the pipeline per employees. I'm just curious on the timeline for ramping these hires that you made in 2024.

Yeah, so in regard to the sales team, we had everybody hired, as we mentioned in the Q3 call, by the end of Q3. So the team has been ramping up as we're moving into 25. As you saw from some of the metrics that we put out there, really solid growth numbers. When you look at the enterprise sales team, approximately 40% growth on productivity. When you look at the in-year contribution going from 23 to 24, you see over 100% lift in contribution. So we feel very good about the people that we're bringing on board and scaling them up. seeing a lot of growth in LATCAM. And so that's been great to see, you know, there'll be a double digit growing business force in 25. So overall, I think, you know, we're very pleased with the sales hires and the progress they're making. And this year in 25, it'll really be about continuing to ramp them up, continuing to get maturity into that organization to drive what we need for 26 and beyond. So overall, so far, it's gone exceptionally well.

Appreciate it. Thank you.

Thank you. Next question is coming from Aditya Budhavarapu from Bank of America. Your line is now live.

Hey, Bruce, John. Thanks for taking my questions. A couple for me. Firstly, on distilled wallets, you said you expect that to grow significantly. Can you just talk about the moving parts there and how you should think about that business over the mid-term? Second, you also spoke about self-funding some of your investments through internal efficiency. So what's the scope for further efficiency as you go into 2025 and beyond? And John, anything you've noticed, I guess, since you've joined in terms of areas where you can be more efficient from a cost-based perspective?

You want me to jump in, or are you doing wallet? All right. So on the wallet side, Growth around the wallet, you see continued growth through transactions. When you look at our TPA, I believe it's in the appendix, but if you look at our TPA transactions per account, you see really kind of steady growth throughout 24 with that in the wallet segment. So that continues to drive really the growth. And the driver of that has been we've made a lot of improvements in the functionality and usability of the digital wallet in eCash products. And so that's really what's driving the transactions going up. That's also helping drive up the ARPU. So you have those two great mechanics. I also touched on the classic digital wallet broke a million users in Q4. first time in several years. So we really have some good momentum finally building in the digital wallet. As we look at the new product releases as well with Pago, we should see continued acceleration with the digital wallet side of the business.

And then to your questions about self-funding investments and efficiency opportunities, I'd say I think big picture, think about it to some extent as a redeployment or a reallocation of spend from back of the house to front of the house as we continue to look at driving sales and marketing to grow the business on a go-forward basis. And some of that I mentioned on the last quarter call in my brief remarks about some of my priorities, one of which was some systems migration work and that sort of thing. And as those projects continue to deliver over the next few years, we will create additional opportunity that we can then redeploy for growth in the business. So There's not one big thing to your question, but there are a lot of medium-sized, small projects.

That's very clear. Thank you.

Thank you. Next question is coming from Trevor Williams from Jefferies. Your line is now live.

Hi, this is Spencer James on for Trevor Williams. Thank you for taking the question. Maybe just to start, I wanted to ask... Hi, how are you? Maybe just to start, I wanted to ask about your assumption for attrition in FY25. It was helpful to get the summary of the expected drivers on slide 19. It looks like you expect an 11% headwind in 25, which is less than the 13% headwind in 24. I was just wondering if you could comment on the strategy for managing that attrition and how the underlying drivers of it may look different this year versus last year.

Yeah, I'll start off and John can add color to it. So if you think back and play kind of the earnings calls from 2024, you heard me talk about throughout the year, us trying to de-risk the company. Sorry, not de-lever, but de-risk the company, but we de-levered as well. But de-risk the company. And so there was a lot of involuntary attrition that we drove in the business, meaning literally we decided to part ways with customers that did not meet our risk profile as we were going forward on the new strategy that we outlined. We believe that that is two to three points of attrition that we added to the mix in 24, and so we're expecting attrition to settle back down at kind of a normal rate as we go forward. So that's the gist of it. We intentionally accelerated attrition to rebalance our portfolio. We now believe that that's done, and we feel very good about the attrition assumption that we have.

The only color I would add to that is that understand that some of that voluntary attrition that Bruce mentioned actually was on the wallet side of the business. So think geographies or specific product areas where we are de-emphasizing.

Fair enough. Appreciate it. And then as a follow-up, maybe just on credit losses, could you give a bit more color on what drove the uptick in Q4 and comment on what gives you confidence that it can normalize this year?

So in Q4, this was driven by the direct marketing business, the vast majority of it. And that's, apologies, I think we kind of hit it, but we were working through some voluntary attrition and exits of merchants to that period that causes significant disruptions, and in this case, significant losses in the period. And so our assumption around normalization is, Over the last several years, the company's had a fairly stable loss rate, whether you look at it as a percentage of volume or a percentage of revenue. And on the merchant side of the business, it has tended to run 2% to 3% of revenue, closer to 2% most of the time. And then you saw a large spike in Q4 last year related to the direct marketing business, as mentioned.

Understood. Thank you for taking the questions.

Thank you. Our final question today is coming from Jamie Friedman from Susquehanna. Your line is now live.

Hi. Good results here. Good year in 2024. Bruce, I wanted to ask, in terms of slide 10, is there any way to, we say here that new products are now mid-single digits as a percentage of revenue versus 0% in 22. Is there any way to

unpack at least qualitatively which of those are the biggest at this point and then a quick follow-up uh yeah jamie good morning and um so great question i think uh we can have matthew follow up with you and give you a little more color on that the biggest probably impact uh from a new product perspective has definitely been uh the accounting card which has expanded across Europe in 24. That, coupled with ePIN, probably are the two biggest drivers for us, but we can probably funnel some additional information on the product side. But we continue to expand those as we move into 25, so we're looking for that to continue to grow as we move into 25, 26.

And then in terms of the white-labeled wallet, that topic, not just for you but for the industry, is kind of evergreen. What's the right to win at Paysafe? How do you see your competitive advantage? What are the conversations like on the client side? How's that going? Because you sound pretty excited about it, but it's never clear at the industry level. you know, who wins and why? Thank you.

Yeah. Jamie, that's a great question. I think, you know, some of the differentiators that we have is really around our regulatory strength and strength around AML. We're obviously regulated in Europe. We do a tremendous job around the AML issues, put a lot of effort into that, and that gives us a tremendous framework for us to leverage with our white label wallets as we move that across geographies and create kind of new affiliate wallets as we're moving forward. So Pago is really The Pago Wallet is really a white label wallet, and we're very excited about that, launching that fully here in Q2 down in Peru. So it should have some good metrics around Pago Wallet as we're moving through 25. Okay.

Thank you.

Thank you. We reach the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Yeah, I just want to thank everyone, obviously the team here for all the preparation that goes into quarterly earnings. I also want to thank the employees for just a tremendous year as we bring a close to the transformation of PaySafe. And when we now move forward, focused on growth, focused on bringing new product to our customers, and just very excited about the future. So thank you all for joining us today, and we look forward to talking with you again soon.

Thank you. That does conclude today's teleconference webcast.