Paysafe Ltd. Q2 FY2026 earnings call

Strategic & Balance Sheet Milestones

• The company has resolved all major legacy overhangs from its SPAC merger, including reaching a settlement in principle for the FARZAD litigation brought by pre-SPAC shareholders, which eliminates future significant cash flow and GAAP P&L drag from related indemnification obligations and legal costs.
• Paysafe completed a successful debt refinancing that received strong market support from both existing and new lenders, extending debt maturities to 2030 and improving the company's balance sheet resilience.
• Management identifies net leverage ratio reduction as the primary near-term driver of shareholder equity value, with the majority of free cash flow to be allocated to debt reduction over the next 24 months.
• Portfolio rationalization is complete, and the company has completed major rebuilds of talent, technology, sales, and product delivery functions. The product vitality index is tracking to 20% for 2026, up from less than 2% three years ago.

Consumer & Product Growth

• Three-month active users reached 7.8 million, marking five consecutive quarters of growth, with double-digit user growth continuing in Latin America.
• Incremental marketing spend in priority European markets has delivered double-digit consumer acquisition growth in early results, and investments are strengthening the company's customer acquisition engine for long-term value.
• Paysafe Wallet is now live in 19 European countries, with the recent Poland launch extending the existing trusted Paysafe Card consumer relationship into a broader everyday money movement platform to increase engagement and deepen customer relationships.
• A new multi-year partnership with Envision Racing (a leading Formula E team) was announced to build brand awareness, reach 550 million global motorsport fans (the platform's target digital native audience aligns with Paysafe's core customer base), and drive long-term customer acquisition and growth across priority markets.

Financial Results (Company-Wide)

• Q2 2026 total revenue was $447.4 million, up 4% year-over-year on both reported and organic bases. First half 2026 revenue grew 7% year-over-year.
• Unlevered free cash flow for Q2 was $45 million, with a 44% conversion of adjusted EBITDA. LTM unlevered free cash flow was $298 million, up 10% year-over-year, with a 69% conversion rate.
• Adjusted net income was $23.1 million, and adjusted EPS was $0.43, down 7% year-over-year due to higher investment spend and a modest increase in interest expense.
• End-of-quarter total debt was $2.5 billion, down $106 million from Q4 2025, and the net leverage ratio was 5.3x, down from 5.5x at Q4.

1. Digital Wallets: Q2 2026 transaction volume was $6.6 billion, flat year-over-year. Segment revenue was $206.6 million, a 3% year-over-year increase, making up 46.2% of total company revenue. Adjusted EBITDA for the segment was $74.9 million, down 9% year-over-year, with an adjusted EBITDA margin of 36.2%. Three-month active users increased 8% year-over-year, driven by growth in Latin America and the European Paysafe Wallet. Growth was partially offset by declines in inactive rest-of-world markets and lapping strong year-ago growth in short-term verticals like sweepstakes and cryptocurrency trading.

2. Merchant Segment: Q2 2026 transaction volume was $37.3 billion, a 5% year-over-year increase. Segment revenue was $246.1 million, a 6% year-over-year increase, making up 54.9% of total company revenue. Adjusted EBITDA for the segment was $50.6 million, a 28% year-over-year increase, with an adjusted EBITDA margin of 20.6% (up 350 basis points year-over-year). Growth was driven by iGaming volumes in North America and new data licensing deals, while the SMB business line remained flat for the quarter.

• Full year 2026 revenue and adjusted EBITDA guidance is reaffirmed, with adjusted EPS guidance updated to reflect incremental interest expense from the recent debt refinancing.
• After factoring in the $39 million cash settlement payment for the FARZAD litigation and debt refinancing fees, management expects full year 2026 end-of-year net leverage to fall in the 5.1x to 5.2x range, with a mid-term target net leverage of 3.5x (unchanged from prior guidance).
• Q4 2026 is expected to be the strongest quarter of the year, consistent with historical business seasonality and key sporting events, with early June and July 2026 business trends (higher iGaming growth, continued Latin American consumer strength, double-digit three-month active user growth in July) supporting the full year outlook.
• SG&A operating expenses are expected to decline by $25 million to $30 million in the second half of 2026 compared to the first half, driven by lower elevated Q1 credit/fraud losses, front-loaded first half marketing and IT investments, and new operational efficiencies. The Q4 SG&A run rate is expected to be below full year 2026 levels and below 2025 full year SG&A run rates.
• Management expects new data licensing revenue to grow to an annual run rate of over $50 million over time as the product scales, with potential for upside as the full consumer data value is unlocked.

No new material unpriced risks were discussed during the call. Management noted that all major legacy risks related to the company's SPAC merger (outstanding litigation, refinancing needs) have been resolved. The primary forward-looking uncertainty referenced is standard: forward-looking statements are based on current assumptions, and actual results may differ materially from projections due to unforeseen market or operational factors. No ongoing operational failures were discussed.

Q: What factors drive management confidence in a second half adjusted EBITDA ramp, and are planned new product launches still on track?

A: On the revenue side, growth is split evenly between scheduled product/customer launches already signed, new pipeline sales from current execution, and stronger than expected existing trends, including continued Latin American strength and robust active consumer growth in July. On the cost side, $26 million in elevated Q1 fraud losses and front-loaded marketing/IT investments will not repeat, leading to a $25-$30 million SG&A improvement in the second half, with Q4 seeing the largest benefit.

Q: How much of digital wallet growth comes from LATAM, and how does LATAM's margin profile affect segment margins?

A: While LATAM is growing over 30% year-over-year, it remains a relatively small portion of the overall multi-hundred million dollar digital wallet P&L. LATAM's gross margin profile falls between the segment's lower-margin e-cash business and higher-margin core wallet solutions. As the Paysafe Wallet scales in LATAM, its margin is expected to move closer to the core wallet margin over time.

Q: What is the mid-term net leverage target, and has it changed from prior guidance?

A: The mid-term net leverage target remains 3.5x, unchanged from prior guidance. Management is heavily focused on deleveraging currently, as every $200 million in net debt reduction adds an estimated $3-$4 per share of equity value at current share prices even without any expansion of valuation multiples, creating clear tangible value for shareholders from consistent free cash flow generation.

Q: What is the expected scale of the new data licensing revenue line, and can it be expected to recur?

A: Data licensing is a new product developed from the company's built-out internal data foundation layer, which is also used internally to improve fraud, attrition, and engagement algorithms. Management expects this recurring revenue stream to reach an annual run rate of over $50 million, with potential for upside as the full consumer data value is further explored.