Greetings and welcome to Paysafe’s Second Quarter 2022 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Kirsten Nielsen, Head of Investor Relations. Thank you. You may begin.

Thank you and good morning. Welcome to Paysafe’s second quarter 2022 earnings conference call. With me today are Bruce Lowthers, Chief Executive Officer and Izzy Dawood, Chief Financial Officer. Before we begin, a friendly 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 periodic SEC reports. These statements reflect management’s current beliefs, assumptions and expectations and are subject to factors that could 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 information that will constitute non-GAAP financial measures under SEC rules. You can find additional information about these non-GAAP 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 on the Investor Relations section of our website. With that, I will turn the call over to Bruce.

Great. Thanks, Kirsten. Good morning, everyone and thank you for joining us today. It’s been an extremely active first 3 months for me, meeting with hundreds of employees, customers and shareholders who have traveled to all of the major offices around the world. Our team has been highly engaged and we are already taking some initial steps to simplify and improve the company. On today’s call, I will start with an overview of the quarter, then I will share my early observations on the state of Paysafe, and then I’ll turn it over to Izzy to review the financial results and guidance. So with that, let’s start on Slide 3. Our second quarter revenue of $379 million and adjusted EBITDA of $103 million were in line with our guidance range for the quarter, despite greater than expected FX headwinds. Growth continues to be led by our Americas region driven by our SafetyPay and PagoEfectivo acquisitions and U.S. Acquiring, which recorded double-digit revenue and EBITDA growth in Q2. At the same time, we are seeing progress across our key areas as we focus on improving our customers’ experience and innovation. Recently, our team won Payment Innovation of the Year at the 2022 SBC Awards, recognizing our Score wallet as a game changer for U.S. iGaming brands and their players, especially VIP customers. In addition, we continue to rollout user experience improvements in our wallet that are being positively received by our customers, such as our new dashboard, which allows customers to personalize their wallet experience. Solid expansion into Ontario’s new private iGaming market, providing traditional and alternative payments through Paysafe’s gateway, where our card approval rates are greater than 90% and we are now live or onboarding with a total of 14 merchants in the province. We continue to see robust…

Thanks, Bruce. Let’s start with Slide 12 for a snapshot of our performance versus guidance. Revenue came in at the high end of our guidance range driven by strong growth from U.S. Acquiring, while EBITDA was towards the lower end of the range, primarily reflecting business mix and currency. Moving to Slide 13 for a summary of our Q2 results. Volume was $33.4 billion, an increase of 7% sequentially and an increase of 3% year-over-year. Volume growth reflects continued strength in North America, where we saw strong growth from the U.S. SMB market as well as continued momentum in the regulated iGaming market. In Europe, as expected, we saw continued weakness across iGaming as well as softer activity in financial markets and crypto trading. As a reminder, volume does not include our embedded finance solution as a significant portion of the volumes exchange or peer-to-peer transactions, which are not revenue drivers. Therefore, we have excluded it as not to skew the overall take rate. Total revenue for the second quarter was $379 million, down 1% year-over-year. Excluding the impact from changes in foreign exchange rates, revenue increased 3% as growth from U.S. Acquiring more than offset the decline in Digital Commerce. Compared to Q2 2021, the regulatory changes in Europe, the Russia-Ukraine conflict and currency impacted revenue by roughly $35 million to $40 million. So excluding these headwinds, revenue growth would have been roughly 8%. The recently acquired businesses are performing well and growing more than 30% year-to-date on a pro forma basis. Adjusted EBITDA for the quarter was $103 million, resulting in an adjusted EBITDA margin of 27%. The lower margin primarily reflects business mix. Lastly, free cash flow was $222 million on a 12-month basis or 53% conversion, reflecting higher working capital outflows and due to the lower…

Great. Thank you, Izzy. I’ll conclude by reiterating that I continue to feel excited by the potential I’m seeing in the company. while we’re facing an uncertain economic environment and have changes in the business to address, I’m confident that the changes that we make over the next few months will set us up for growth in 2023. We’re committed to keeping you updated on our progress, and we expect to share a financial and strategic update at our Investor Day in Q1 2023. With that, let’s open the call for questions. Operator?

Thank you. Our first questions come from the line of Jason Kupferberg with Bank of America. Please proceed with your questions.

Good morning, guys. Thanks for taking the question. Just on the new revenue guide the year. Obviously, you highlighted European gaming and some of the emerging softness there. But does the new revenue guide assume softening trends in verticals outside of European gaming? And if so if you can just detail that a little bit? Thanks.

Yes, Jason, it’s Izzy. Thanks for the question. No, it’s predominantly European gaming because that’s the majority of our digital commerce revenue. and we start seeing the weakness in late May into June. We’re assuming it’s because of just higher cost of fuel, higher cost of food, just causing slowdown discretionary spending. So it’s predominantly what we see lower activity in the iGaming segment as a whole.

Okay. And then I was just curious on your interest expense expectations for the year, how those may be changing just given some of the floating rate that you have in your stack? And where would you tell us to expect leverage to end the year at. I think it ticked up a hair here in the second quarter. So just wanted to get a sense of where you think you will be by the end of the year as you pursue the longer-term target? Thank you.

Yes, Jason, I think it ends up in the 0.55556 range. We don’t expect much of a change in interest expense because I think if you look at Page 18, we are basically a 100% hedged against the European rate change and 70% against USD. So effectively in a pretty good position there from an overall interest expense. Now, the base rate does increase. Again, it will have a little impact, but not a meaningful change.

Okay, terrific. Thank you for the comments.

Thank you. Our next questions come from the line of Darrin Peller with Wolfe Research. Please proceed with your questions.

Hey, guys. Thanks. Bruce, I’d love to hear your perspectives after having now been there a few months. If you really look at the businesses that you’re operating now, in terms of the medium and long-term opportunity, I know not to front run the Investor Day too much, but what are your key takeaways in terms of what this business is versus what you maybe thought it was coming in after coming out a couple of more months look?

Hey, Darrin. Look, I would say coming in, I had a pretty good beat on what I was stepping into and what the company was doing. So over the first 90 days, it was really kind of going around talking to customers, employees, trying to get an understanding of where they were in the process. So quite simply I look at the business. We have a merchant acquiring business platform. And then we’ve got an issuing platform where we drive our wallet business out of. So as I look at that construct I like those spaces, I think we’re in very good verticals. I think, we had some issues around product innovation and sales, which we can address. We’ve got a lot of success with that in the past. And so I think these things are things that we can get back on the right track. And so I feel very good. 90-days had a pretty good beat of what we did this company. I feel like we have got a great brand to build off of and excited about our team, our employees are very passionate about what we do. So, I feel very good about where we are.

Thanks. Let me ask you a follow-up, which is a little bit of two parts. One of them is just when we are looking at the digital wallet business, that was a business that when we first looked at the story, thought would be worth grow quite a bit more and be potentially valuation-wise worth quite a bit more than it seems to be performing and trading at. And you are still seeing annual actives that are sequentially – they are not really – I think they are down again. So, when we think about what can cause an inflection there, I would be curious to hear your view. And then really, a bigger picture thought would be if there is anything in the business maybe in the merchant acquiring business in the U.S. that should be separated out given the potential valuation opportunity in some of those businesses. When looking at the different parts, could some of the parts really be worth more and some may be done about that.

Yes. So, let me take the first question just around wallet. Again, I think we had a pretty good understanding as I was coming into where wallet was and what the impacts were. So, we obviously saw the Russian-Ukraine war having a significant impact on our revenue stream there. FX is having an impact on the revenue stream. And we also had some regulatory issues, most notably in Netherlands and Germany, which created some headwinds for the business on the European side. As I said in the prepared remarks, what I would – my assessment is that we became very much merchant-centric with our wallet. We didn’t – we weren’t balanced in our experience and focusing on the consumers that we are using the product. So, I think if we can bring a little more balance to our product innovation around that, we can get a pretty good run with the wallet part of our business. The second part of your question around some of the parts in the valuation, I think where we are today, I think the Board is very supportive of what we have as an organization and our ability to turn this around and get it to grow. And so I think that’s what we are going to focus on is focusing on growing our business. We do see a lot of commonality between the verticals and the consumers that we have on the merchant side and the consumers we have on the wallet side. So, I think there is a lot of opportunity there for us to really exploit the synergy between those two-sided markets.

Alright. Thank you. All the best.

Thank you. Our next questions come from the line of Josh Levin with Autonomous Research. Please proceed with your questions.

Hi, good morning. I have two questions. Bruce, you talked about the need to enhance product innovation and we built a strong sales engine. How long do you think that will take to do?

Yes. Josh, thank you. Look, it’s not going to happen in a quarter, but I think we will be back in return to a solid growth rate in ‘23. So, I think as we look at the back half of this year, we will have a series of changes, but we will be – we will come out of the year with a solid growth rate and looking to – not to get too far ahead of ourselves, but to have ‘23 be a return to growth for the company. So, I don’t think it’s a long-term problem.

Okay. The second question with regarding weakness in your European gambling, you talked about it being macro. I know last year, there was some increasing competition from account-to-account players. I guess, Trustly was one of them. Is any of the weakness in Europe due to increase in competition or changes in the competitive landscape, or is it really entirely macro?

Hey Josh, it’s Izzy. I will take that question. Yes, what we see is macro as a mater of fact a couple of the gambling operators have come out especially in Europe, read-up on them. They are showing 30%-plus declines in Q2 year-over-year. I mean we also did decline, but not to in that magnitude and their point of software weakness is part of it regulatory driven, but part of it also lower economic activity that impacts gambling capacity for the consumers. So, from the best we can see and what we have read, what we have heard or we talk to, it’s more a macro-driven event as opposed to anything from a pure competitive environment.

Just one mini follow-up on that, if I might. You mentioned regulations. This is just sort of the residual effect of the regulations that went into effect last year, they are also part of what’s going on?

Yes. There are a couple of things. So, clearly, in Q2, we have the Netherlands and Germany overlapping items. But looking at the rest of the year, there was still a fair amount of uncertainty around Germany in terms of operators getting their licenses or relinquishing them. And the second one is more recent. We have talked about it about where the UK white paper comes out on affordability as well. And as you know, both Germany and UK are relatively sizable markets.

Thank you.

Thank you, Josh.

Thank you. Our next questions come from the line of Timothy Chiodo with Credit Suisse. Please proceed with your questions.

Good morning.

Great. Thanks for taking the question. Hi, good morning. On the U.S. acquiring business, so the volumes were up 8% in the quarter. I believe the prior guidance for the full year was for mid to high-single digits, but with an aim towards more of the high-single digits is, I believe in the prepared remarks, you mentioned that maybe there is a little bit of a moderating of that expectation. Can you update us on what the expectations are for full year 2022 U.S. acquiring volumes?

Yes. Tim, thanks for the question. Yes, it’s probably going to be in the high-single digits still. Growth is moderating year-on-year. We are being cautious around…

Okay. So, still in the high-single, so that would imply exiting the year or call it in the – go ahead, sorry, please, go ahead.

Okay. From a revenue perspective, we should be around also a 10% full year-on-year growth as well.

Okay. Thanks a lot Izzy, I appreciate that. I just want to clarify that, that would imply just call it, a Q4 exit rate of maybe approaching the mid-single digits or so. Does that sound about right for volume?

Yes, mid-single digits, probably in the higher end of the mid-single digits, but yes, that sounds right.

Okay. Great. Thanks a lot. And then a final follow-up on the U.S. acquiring business, you have mentioned in the past that you are a large distributor of Clover. Is there any comment you can make around how the Clover business is doing and if that’s gaining share within your mix of U.S. SMB volumes?

Yes. As far as the Clover business, I have listened to Frank’s call, live everybody else. I think it’s just like you do them pretty well. But from our perspective of reselling it, I don’t see any real changes in what we have had in Q2 versus what they had prior to. So, there is not an increased demand or decrease in demand. It seems like it’s a steady state for us.

Okay. Excellent. Thank you for taking both of those questions.

Our next questions come from the line of Jamie Friedman with Susquehanna. Please proceed with your questions.

Hi. Thank you.

Good morning.

Good morning. So, Bruce, in your prepared remarks, you commented on the general progress in the iGaming segment. You had some really good proof points there. I was just wondering if you could elaborate on that a bit. Did you happy to give the growth rate in that segment this quarter? I think it was 40% last quarter.

We – I don’t believe we gave it in the prepared remarks, Izzy probably has the number…

Yes, we – year-on-year, we saw a 25% volume growth in Q2 in iGaming segment. If we go just regulated iGaming is probably – it’s probably close to 70%. So, pretty strong volume growth year-on-year.

Okay. Got it. And then you mentioned the 22 states Bruce, but I think that was the same as last quarter. So, it was to track. I realize you have your – you are pretty disciplined on what you announced in that segment. But is there – are we closer to the middle than the beginning, or is there a lot more to do in terms of the footprint in the U.S.?

I think we are still in the beginning of the game here in the U.S. on iGaming. So, I think you probably read Massachusetts just had a positive move with some legislation in the last week. It’s a priority for us is what I would say, and we expect to lead the U.S. in the iGaming market. Probably who leads that for us is doing a great job.

Yes. I appreciate these bridges that you guys are doing, by the way, in the PowerPoint. These are helpful. But I wanted to ask about the assumption in digital on Page 20. Did I hear you right that you are – I don’t want to mess it up, Izzy, but I thought you said that the digital assumption for the year now is flat on a constant currency basis, down high singles on an as-reported basis. I apologize if I heard that wrong.

That’s right. Jamie, you got that spot on. It’s basically, the currency impact is pretty meaningful that runs all through the digital commerce business.

Got it. Okay. I will jump back in the queue. Thank you.

Thank you.

Thank you. Our next questions come from the line of Dan Perlin with RBC Capital Markets. Please proceed with your question.

Thanks. How are you? Good morning. I wanted to just ask, I guess it’s a little bit of a broader question in the context that the product innovation being very merchant-centric and you need to pivot a little more towards consumer centric. That makes total sense. But it sounds like a lot of the – a lot of the headwinds are just very macro-centric in Europe. And so I am wondering, as you think about trying to create some kind of non-cyclical product innovation that can help. Are you leaning more towards pivoting away from some of the high-frequency users? Some of the services that you provided historically have tilted towards the – again, I guess I just call them the high-frequency users, typically larger gaming consumers. And so I am wondering, is there something about the incremental engineering and innovation that also dovetails into the type of user that you might start to attract that you think could help us to counterbalance some of these macro issues?

Yes. Dan, great question. So, no, we still are going to absolutely have a focus on those VIP users. I think what we want to recognize is the – there are a lot of choices out there today for consumers. We want to make sure that we have a very distinct value proposition to drive velocity to our app. And that’s really what we are going to focus on is great user experiences to broaden out why people are using that. But the VIP customer is still very important to us, will continue to be very important to us. But we think there is a lot of opportunity to broaden the usage and create additional velocity in the app, which bring value to the merchants.

Yes, absolutely. I wanted to just also ask a question around the kind of top accounts. I think you said the top 800 merchants are growing healthy double digits, which made me think – how should we be thinking, actually we are thinking about the other merchants? And to the extent that those other merchants are may be obviously not producing the same level of growth? Are they – or should they be pruned a bit. Like is there a balance that needs to be set here for the types of merchants that fit into your new strategy? Thank you.

Yes. Let me start off, and I will let Izzy add in as well. But one, I wouldn’t say it’s very unusual. So, when you look at our top accounts and the percentage of revenue that they drive, that’s probably not very unusual compared to any other company out there. So, we are going to have clients that are highly engaged, highly active, have the opportunity to cross-sell more products into them. And so that makes a lot of sense to me. On the other end of the spectrum, we have got 250,000 small merchants. Some, of those are not going to be growing anywhere near some of the larger organizations that are really driving growth. And so that growth rate by default is going to be a lower growth rate. So, I think we are in a good balance. What I would say really my overarching point about it is that we didn’t really have a keen focus on our top accounts. It just kind of happened. And now what we are going to do is bring a focus to what those accounts need to help them grow. And that’s really what we are going to really dial in on.

That’s great. Thank you so much.

Thank you. We have reached the end of the question-and-answer session. I would now like to turn the call back over to Bruce Lowthers for any closing comments.

Thank you very much. Look, thank you for joining us this morning. Greatly appreciate it. I want to thank the team for pulling everything together for the call here today and all of the team at Paysafe for all of their efforts in my first 90 days and look forward to building on the momentum we have started here in the first 90 days. So, thank you very much.

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.