Paysafe Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 delivered 7% organic revenue growth. Completed divestiture of direct marketing business, reducing noncore revenue and risk exposure. Net leverage was 4.7x at year-end, down from 5x in 2023. Repurchased over $40 million in shares. Q4 revenue up 1% YOY, full-year revenue $1.7 billion up 6%. Adjusted EBITDA $103 million in Q4, $452 million full-year, down 1% due to merchant exits and credit losses. Generated $300 million unlevered free cash flow in 2024, GAAP net income positive at $22 million.
• Growth drivers in 2024: voluntary attrition, 9% growth from existing clients, 11% growth from new clients and products. Expanded sales team by 170 quota-carrying reps. Enterprise-level accounts revenue up over 10%. Invested $29 million in sales and portfolio, generated over $50 million in-year revenue. Consumer classic wallet users surpassed 1 million, eCash Solutions online distribution revenue nearly doubled. 1/3 of new enterprise deals with existing customers, total ACV of bookings expanded 40%, pipeline grew over 40%. Launched Sales Academy for new sellers.
• Return to growth across core products since 2022. Saved costs by centralizing service functions, reduced average contract to launch time for enterprise merchants by 60%, enhanced consumer customer experience with intelligent self-service tools, reduced customer service cases. Derisked through disposal of direct marketing and enhanced risk, compliance, and regulatory functions.
• 2024 as completion of turnaround, focusing on product growth. Driving revenue from new products, advancing Paysafe Wallet platform, enhancing sales cycle productivity, and using partnerships to expand products and services.

Segment Performance

• Merchant Solutions: Q4 2024 revenue increased 1% year-over-year to $230.1 million, full-year 2024 revenue grew 9% to $957.6 million. Underlying performance led by double-digit growth in e-commerce, continued momentum in North America iGaming, and mid-single-digit growth in SMB. Adjusted EBITDA declined 43% in Q4 and 14% for the full year due to disposed direct marketing business and associated credit losses.
• Digital Wallet: Q4 2024 revenue from digital wallets increased 2% to $194.4 million (3% constant currency), full-year 2024 revenue growth was 4%. Growth supported by new products offsetting lower interest revenue on customer deposits. Adjusted EBITDA grew 8% in Q4 (9% constant currency) to $89.2 million, full-year adjusted EBITDA was $339 million with a margin of 44.3%.

Guidance

• 2025 reported revenue expected to be flat to +2% in the range of $1.71 billion to $1.734 billion. Excluding disposed business, FX, and interest, organic revenue growth expected 6.5%-8%.
• Merchant Solutions expected high single-digit to low double-digit growth, Digital Wallet expected low single-digit growth with 3-4 points headwind from FX and interest. Second half expected stronger than first half, Q1 organic growth 3%-4%, first half 4%-6%, second half 8%-10%.
• Adjusted EBITDA margin 27.1%-27.6%, range $463 million to $478 million. Excluding business disposal, margin up 150-200 basis points. First-time adjusted EPS guidance: $2.21-$2.51 per share. Growth pillars: existing customers, product initiatives, new client wins offset attrition and divestiture.

Risks

• Risk of continued merchant exits and associated credit losses from the divested direct marketing business.
• Volatility from currency exchange rates and interest rate fluctuations.
• Risk of sales team not achieving expected productivity and pipeline growth.
• Uncertainty around product launches and market reception of new products.
• Regulatory and compliance changes impacting operations.

Question and Answer

Q: Jing Zhang from UBS asked about SMB channel growth drivers in 2025.

A: Bruce Lowthers said SMB channel has solid growth, with Clover sales, revenue per merchant up in upper single digits, and added sales help in SMB channel.

Q: Andrew Harte from BTIG asked about takeover interest and target customers in 2025.

A: Bruce Lowthers said no real comment on takeover interest, and target customers include cross-selling into existing customers, SMB, e-com, and Digital Wallet areas.

Q: Paul Obrecht from Wolfe Research asked about VAS capabilities and sales productivity.

A: Bruce Lowthers talked about VAS products like account and card, ePIN, Pago wallet launching in Peru, lockable card launching in March, and sales team hired by end of Q3 2024, with sales team productivity and pipeline growth.

Q: Aditya Buddhavarapu from Bank of America asked about Digital Wallets growth and efficiencies.

A: Bruce Lowthers talked about Digital Wallets growth from transactions and product improvements, John Crawford talked about self-funding investments through internal efficiencies.

Q: Spencer Brolley James from Jefferies asked about attrition and credit losses.

A: Bruce Lowthers and John Crawford talked about intentional acceleration of attrition to rebalance portfolio, and credit losses in Q4 driven by direct marketing business, expecting normalization.

Q: Jamie Friedman from Susquehanna asked about new products and white labeled wallets.

A: Bruce Lowthers talked about new products like accounting card and ePIN, and competitive advantage of Paysafe in regulatory strength and AML for white labeled wallets, including Pago wallet launching in Peru.