Greetings, and welcome to the Paysafe Third Quarter 2025 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kirsten Nielsen, Head of Investor Relations. Kirsten, please go ahead.

Thank you, and welcome to Paysafe's earnings conference call for 2025. Joining me today are Bruce Lowthers, Chief Executive Officer, and John Crawford, Chief Financial Officer. Before we begin, a 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 SEC reports. Statements reflect management's current 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 speak only as of the date of this call, and we undertake no obligation to update them. Today's presentation also contains non-GAAP financial measures. You can find additional information about non-GAAP measures and, where relevant, reconciliations to the most directly comparable GAAP measures in today's press release and in the appendix of this presentation, which are available in the Investor Relations section of our website. Now I'll turn the call over to Bruce.

Good morning, and thank you for joining us today. Paysafe delivered accelerated financial results in the third quarter, including 6% organic revenue growth, 7% adjusted EBITDA growth, and 37% adjusted EPS growth. Growth from our existing customers or same-store sales contributed 5% to growth, while contribution from new sales and product accelerated to double digits. The overall attrition level was stable around 11%. We returned another $20 million to shareholders by repurchasing 1.5 million shares during the third quarter, bringing our year-to-date total to $50 million as our shares remain significantly undervalued, and we remain confident in Paysafe's long-term strategy and growth potential. To that effect, our Board has authorized an additional $70 million to our existing share repurchase program. While we're pleased with our third quarter and year-to-date progress, we continue to see outperformance of our lower-margin product and sales channels. Our updated 2025 outlook reflects our current business dynamics and a longer timeline for the delivery of key product initiatives as we navigate the complex ecosystem required to bring innovative new solutions to the market. We'll discuss both of these areas in more detail throughout the call.

So let's start with our regional performance on Slide four. The largest market, North America, grew 8% in the third quarter, excluding the divestiture. This was driven by approximately 50% growth from iGaming, while SMB grew 4%. Europe is our next largest market, which also grew 8% normalizing for FX. Latin America was roughly flat in Q3; this is mainly related to a large customer contract renewal in the prior year. As we lap that impact in Q4, we're seeing a normalized growth rate of 10%. In the non-core rest of world countries, we saw a double-digit decline attributable to our 5% of total revenue three years ago to 3% of revenue today, as a function of both macro dynamics and our own actions to trim this exposure over the years. So this gives you a sense of the puts and takes from a regional perspective, including very strong organic growth from our largest core markets that represent about 90% of our revenue. Turning to Slide five. I'd like to highlight some of our recent client wins starting with iGaming. In the third quarter, we signed an agreement with BetMGM to provide payments for their online players in Ontario, where Paysafe already maintains a strong market presence. They were looking for a new partner who could deliver high approval rates with stronger customer support and reliability. What's awesome about this deal is that BetMGM is one of the largest merchants in North America that Paysafe did not have integrated, so we're thrilled to partner with them in Ontario. It's also worth highlighting that Paysafe is very well positioned in the up-and-coming predictions market. Paysafe is in active discussions with several key players. As one example, we're expanding our partnership with Underdog to support their growth in the predictions market across…

Total e-commerce growth moderated compared to more than 30% in recent quarters due to softer performance across other verticals concentrated within lower-tier merchants, mainly in non-core areas. Importantly, we booked over 100 enterprise-level deals in Q3, an increase of 25% compared to last year, along with double-digit growth in the annual contract value of those bookings. We also continue to see higher quality deals, which supports continued revenue growth along with the durability and diversity of our merchant base. We believe our e-commerce business remains on track to reach $200 million in revenue this year, reflecting a three-year CAGR of 29%. On the SMB side, after driving 6% new mid-growth in Q2, we accelerated new mid-growth to more than 20% in Q3, led by our direct sales channel along with positive growth in SMB revenue and revenue per merchant. We also saw strong acceleration with our new mid-acquisition for Clover in Q3, up 49% from Q3 2024. A very impressive result with great progress from the team. We're excited to build on this momentum as we look ahead to 2026. Even with the strong execution on the direct side of the business, overall revenue mix has shifted to the lower-margin ISO business as we continue to deliver double-digit revenue growth from this third-party channel in Q3 and year-to-date. We continue to focus on optimizing our SMB portfolio, but given the comparative size and the growth profiles of the portfolios, we expect pressure on the total segment margin as we continue to ramp up our direct efforts. Let's turn to Slide seven. To take this a step further, and discuss our focus areas to optimize the SMB portfolio, as we've shared before, our Merchant Solutions segment today is comprised of three business lines: e-commerce, which serves our larger enterprise merchants, SMB…

Thank you, Bruce. Let's move to Slide 10 for a summary of our third quarter results. On a reported basis, revenue increased by 2% to $433.8 million. Organic revenue growth was 6% for the quarter, reflecting continued double-digit growth from e-commerce, 4% growth from SMB, and 4% organic growth from digital wallets. This excludes the impacts from the divestiture, foreign exchange, and interest. While this marks an increase in reported inorganic revenue growth from the first half, this was slightly below our expectations in terms of the overall revenue performance as well as business mix. As Bruce mentioned, it reflects some moderation of e-commerce growth and lower than expected growth in the second half from digital wallets. Adjusted EBITDA increased 7% to $126.6 million. Our third quarter results benefited from a licensing deal, which contributed approximately $10 million to revenue and adjusted EBITDA, offsetting the headwind from ongoing business mix and the divestiture, which has less impact in the second half. As a result, adjusted EBITDA margin was 29.2%, up 160 basis points year over year. Given what we're continuing to see at the gross margin level for both segments, we don't expect EBITDA margins to be at this level in Q4. We expect adjusted EBITDA margins closer to 23% in Q4, about 25% for the full year. Turning to cash flow. We generated $83.6 million in unlevered free cash flow in the quarter, with a 66% conversion of adjusted EBITDA. Down from 76% in the prior year, mainly reflecting one-off tax refunds which benefited the prior year and the timing of a large receivable. Normalizing for this, conversion would have been above 70%. On an LTM basis, unlevered free cash flow was $265 million, reflecting 62% conversion. We expect Q4 to be within or slightly above our targeted range…

Thank you, John. To wrap up, I'd like to reiterate that we are on track to deliver our third consecutive year of organic revenue growth and importantly, with the transformation that we've driven over the last three years, we are seeing real improvements in how we operate. While we're not seeing the EBITDA expansion that we initially planned for the year, we remain focused on driving stronger operating leverage and expect to deliver higher adjusted EBITDA growth in 2026 and beyond. I'm more confident than ever that Paysafe is a more agile and adaptable business today with higher quality revenue streams well-positioned for long-term success. Now, let's begin with the Q&A session.

Thank you. We'll now be conducting a question and answer session. Our first question is coming from Trevor Williams from Jefferies. Your line is now live.

Great. Thanks. Good morning. I just want to go back to some of the dynamics within the SMB book on the direct side. We can see the mid-growth acceleration. It sounds like attrition has been stable. So Bruce, it'd be helpful to hear kind of what else you need for that direct channel growth to get pulled up, whether that's just the time with the mid-growth needing to compound and we'll see that just naturally get pulled up over time or anything else initiatives-wise that you would point us to for kind of what the levers are needed to get that growth rate up? Thanks.

Yes. Good morning, Trevor. Thank you for the question. Look, the SMB, as we've talked about before on the direct side, is just gonna take time. You can see as you just articulated nice acceleration of new mid-acquisition. We've got the attrition stabilizing, but it just will take time to kind of get that to build. It's a big book. So each of these SMB mids are very small in a revenue stream, talking about $200 to $300 a month in revenue stream. So it takes a lot of them, and so it takes some time to build that up. But we feel very good about what we're doing there. We have a nice acceleration of our Clover product that we resell on Fiserv's behalf. So a nice uptick there. And that really opens the door for ancillary services, value-added services that should help improve even further the attrition rate because once an SMB client has not only processing but these other services around it, like lending, like payroll, these things really increase the stickiness of the client. So I think we have what we need. We need to just keep doing what we're doing and keep accelerating the sales team. Productivity per rep. Which I think we've got underway. We've really found a rhythm with the marketing and sales team. And now it's just gonna take a little time to build up those billable mids to get the growth rate back up.

Okay. No, that's helpful. And then just on the e-commerce deceleration, it sounds like it was mostly in non-core verticals, but any more detail there would be helpful. And I don't know if you guys could share how the quarter-to-date trends look relative to the 20% growth from Q3? Thanks.

Yes. So you're absolutely right. So I want to be very clear. The 50% growth rate. It's really the non-core piece. And candidly, coming into even the last day of the quarter, we thought we were rocking along pretty well. We had a last-minute client that had to shut down, which caused several million dollar write-down in Q3. So that business is one that is a little more interesting than the iGaming, the e-commerce core business. So this is for us, we're in kind of a lower-tier market. A lot of kind of travel, or things that are more high things sometimes are a little difficult, higher risk MCC codes. And so those to bank. Even if you have existing clients that are with the bank as they try to expand, sometimes the banks aren't open to the additional risk, and then you've got to find other places for them to bank. And so had a little bit of challenge with that with some of those MCC codes, and we're working our way through that. The nice part is we continue to sell the deals. We've now got to figure out how to keep the deals once they start ramping up.

Okay. No, I appreciate that. Thank you.

Thank you. Our next question is coming from Darrin Peller from Wolfe Research. Your line is now live.

Hi, thanks. This is Paul Obrecht on for Darrin. You talked about the longer timeline for delivery of new products, including the wallet initiatives. Just curious if you could provide a bit more color on really what changed during the quarter relative to your prior expectations?

Yes. So Paul, as we looked at the quarter, coming in, we felt pretty good. We had, as we said in the last call, sold a number of deals. We thought they were progressing. Sometimes just with these deals as we're talking about white-label wallet solutions, we're kind of going into different markets. And sometimes, whereas we're expanding those markets, these are things that are new to us, getting our regulators, getting our banks kind of aligned on these new risk opportunities. Sometimes it takes a little longer. The analogy we have here is the fintech ecosystem is this big boulder, and as we move into some of these newer spaces, pushing that boulder uphill takes a little bit longer than we anticipated. Overall, we have good demand for our solutions. The clients are staying with us, working through these issues. So we feel good that ultimately it will come. It's just coming slower than we anticipated.

Got it. That's helpful. And then John, I know you talked about the stronger euro leading to the increase in the leverage along with the divestiture. I know you're also balancing buybacks, but just curious if you have any updated views on what delevering could look like over the medium to long term?

Yes. I think that over the medium term, we're still focused on getting leverage below four. It's going to take a little longer than we expected, probably obvious based on where we are today. But we expect to finish this year probably around the leverage that we're at today in the low 5s. And then continue to delever through both paying back and growing EBITDA in 2026 and 2027 with the objective to get to 3.5%, but it's probably going to be 2027 to get to that 3.5 level.

That's helpful. Thank you.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing remarks.

Thank you. I appreciate everybody dialing in. Again, we felt we had a very good quarter for Q3. Continuing to make progress in our transformation. We really like the growth drivers that are emerging. Obviously, e-commerce continues to be a 20% grower. We continue to see on an enterprise-wide more value-added services, more products starting to come to market, which we're excited about. Still remain very excited about Account and Card and our geo expansion in LatAm. So a lot of good things coming to market. So thank you very much. We appreciate everyone dialing in this morning. And thank you to the team for all the work that you're doing to drive transformation.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.