Paysafe Ltd. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Product Priorities: Launched PagoEfectivo wallet in Peru with nearly 40,000 sign-ups and strong repeat users. Skrill digital wallet evolved with new features like free-to-play football match prediction. eCash solutions had 37% year-to-date revenue growth, with own online store as largest distributor. Signed BBVA partnership to enable cash deposits/withdrawals for BBVA consumers.
• Sales Organization: Enterprise e-commerce growth exceeded 30% in Q2, broad-based across iGaming and other verticals. SMB mid growth 6% this quarter, with new marketing programs to drive sales qualified leads. Expanded partnership with Fiserv, seeing promising response to Clover initiatives.

Segment Performance

• Merchant Solutions: Volume increased by 9% to $35.7 billion, with organic revenue growth of 6%. Adjusted EBITDA was $39.7 million with a margin of 17.1%. SG&A declined sequentially, and excluding the divested business, adjusted EBITDA margin would have improved 280 basis points year-over-year.
• Digital Wallet: Revenue was $201.2 million, with 3% organic growth. 3-month actives were 7.2 million, up 3%. Adjusted EBITDA was $82.7 million, flat compared to last year, with segment SG&A higher due to marketing and foreign exchange impacts.

Guidance

• Revenue: Expect acceleration of top line growth, especially in Q4, with organic growth in the second half expected to be in the range of 8%-10%.
• Free Cash Flow: LTM unlevered free cash flow was $272 million, 64% conversion, with full year expected 65%-70% conversion.
• Margin: Adjusted EBITDA margin was 24.8% in Q2, expected improvement in the second half from stronger contribution from digital wallets and margin improvement in the Merchant Solutions segment.

Risks

• Valuation Allowance: GAAP net loss for the quarter included a $31 million valuation allowance on U.K. deferred tax assets and expectation of full valuation allowance on U.S. deferred tax assets in Q3 due to the One Big Beautiful Bill Act.
• FX Impact: Strong euro at end of June increased net leverage temporarily due to translation of euro debt balances.

Question and Answer

• Q: Touch on partnership expansion with Fiserv, specifically Clover Capital adoption and unit economics A: Clover Capital is available through the business wallet, reaching consumers directly. Initial uptake is early but pleased with response. Economics are very similar to other VAS offerings.
• Q: Bridge to rest of full year, drivers of organic acceleration and margin expansion A: Back half of the year mostly sold, with strong pipeline. Attrition improving, new products rolling out, and wallet and Merchant segment margin improvement expected.
• Q: E-commerce verticals beyond iGaming A: Other verticals in e-commerce showing double-digit mid-teen growth, particularly outside gaming.
• Q: SMB attrition and sales team ramp A: Attrition focused on, with natural decline expected. Sales team up 56% year-over-year, enterprise productivity steady, SMB adjustments ongoing.
• Q: SMB verticals expansion and PagoEfectivo wallet traction A: SMB verticals showing good production, marketing improving lead generation. PagoEfectivo wallet launched well, with 81% of surveyed customers likely to use and strong initial sign-ups.
• Q: E-commerce competitive dynamics and digital currency in wallet A: E-commerce markets competitive, but strong growth opportunities. Stablecoin used for years, exploring new use cases but not a dramatic change to current business.