Paysafe Ltd. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Paysafe delivered 6% organic revenue growth, 7% adjusted EBITDA growth, and 37% adjusted EPS growth in Q3. Returned $20 million to shareholders by repurchasing 1.5 million shares, with Board authorizing an additional $70 million to share repurchase program.
• Regional Performance: North America grew 8% in Q3 excluding divestiture; Europe grew 8% normalizing for FX; Latin America was roughly flat in Q3 but expected 10% normalized growth in Q4; non-core rest of world countries saw double-digit decline.
• Client Wins: Signed agreements with BetMGM, Underdog, state.com, Bitano, Campminder, PaySagi, etc., in iGaming and other verticals.
• SMB and E-commerce: SMB direct sales new mid-growth accelerated to over 20% in Q3; e-commerce growth in Q3 exceeded 20% led by iGaming growth.
• Digital Wallets: eCash product initiatives had strong consumer engagement with account and card products surpassing 500,000 registrations; however, Classic Wallets growth not meeting 2025 plan and new product initiatives delayed due to complex ecosystem.

Segment Performance

• Merchant Solutions segment: Volume increased 9% to $34.9 billion, resulting in organic revenue growth of 7% led by double-digit growth from e-commerce. Adjusted EBITDA was $47.8 million with an adjusted EBITDA margin of 20.6%.
• Digital Wallet segment: Volume from digital wallets increased 13% to $6.7 billion or 8% on a constant currency basis. Revenue from digital wallets was $205.7 million, an increase of 8% or 4% on an organic basis. Adjusted EBITDA for the digital wallet segment was $93.4 million, an increase of 11% compared to last year.

Guidance

• 2025: Expected 5% to 6% organic revenue growth, adjusted EBITDA growth of 4% to 5% excluding business disposition, resulting in adjusted EPS in the range of $1.83 to $1.88.
• 2026: Preliminary expectation of mid to high single digits organic revenue growth and adjusted EBITDA to increase high single digits versus 2025, to be refined in year-end earnings call.

Risks

• Product initiatives taking longer to deliver and gain momentum than planned due to complex ecosystem involving regulatory, risk, and banking needs.
• Business mix dynamics leading to pressure on total segment margin as lower-margin ISO business grows faster than higher-margin direct channels.

Question and Answer

Q: Trevor Williams from Jefferies asked about levers needed for SMB direct channel growth.

A: Bruce Lowthers responded that SMB direct channel growth takes time. There's nice acceleration of new mid-acquisition, attrition stabilizing, but it takes time to build up as SMB mids are small in revenue stream. Need to keep doing current work, accelerate sales team productivity, and value-added services will help improve attrition rate.

Q: Trevor Williams also asked about e-commerce deceleration details and quarter-to-date trends.

A: Bruce Lowthers said e-commerce deceleration was mostly in non-core verticals. Had a last-minute client shutdown causing write-down in Q3. Dealing with MCC codes in lower-tier markets and working to keep deals once ramping up.

Q: Darrin Peller from Wolfe Research asked about longer timeline for new product delivery including wallet initiatives.

A: Bruce Lowthers stated that pushing into new markets for white-label wallet solutions involves complex ecosystem, taking longer than anticipated to align regulators and banks, but there's good demand for solutions.

Q: Darrin Peller also asked about delevering views.

A: John Crawford responded that medium-term objective is to get leverage below 4. Expected to finish 2025 with leverage around 5, and continue delevering in 2026-2027 to reach 3.5%.