Q3 2021 Paysafe Ltd Earnings Call

Hello, and welcome to the Pea safe third quarter, 2021 teleconference and webcast at this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded its now my pleasure to turn the call over to Kirsten Nielsen head of Investor Relations. Please go ahead.

Thank you and good morning, welcome to pay say third quarter 2021 earnings conference call with me today are Philip Mchugh, Chief Executive Officer, and Izzy Dawood Chief Financial Officer before we begin a friendly reminder, that this call will contain forward looking statement and should be considered in conjunction with cautionary.

Eight men contained in our earnings release and the company's most recent periodic SEC reports. These statements reflect management's current beliefs assumptions 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 contain information that will constitute non-GAAP financial measures under SEC rules you can find additional information about these non-GAAP measures and rec.

Conciliations to the most directly comparable GAAP financial measures in today's press release and in the appendix of this presentation, which are available in the Investor Relations section of our website with that I'll turn the call over to Philip.

Thanks, Kirsten and thanks, everyone for joining us on today's call I'll provide an update on the business and then turn the call over to Izzy to review the financial results and guidance in more detail starting with a few key messages our third quarter adjusted EBITDA of 106 million was in line with our expectations. Despite revenue.

It is a $354 million coming in below our expectations for the quarter, primarily reflecting softer than expected results from digital wallets.

We continue to see strong momentum across our strategic priorities that we set out at the time of going public as we grow with some of the true leading edge companies in faster growing segments of the market.

In North America are gaining we announced several customer wins in the third quarter across multiple states and really like our position as new states online players come online.

Additionally, the scribble wallet, while still small in the U S.

So good progress outside of I gaming, we continue to position ourselves as a disruptive specialized claims platform with our combination of Cogs processing E cash wallet pay in and pay out in real time banking solutions in particular, our pipeline across crypto digital wallets in financial services.

<unk> continues to build the U S acquired business continues to perform well with solid growth in our direct marketing vertical now show strong signs of recovery.

Lastly, we are on track to meet or beat all of our cost takeout and tech platform milestones.

At the same time, we are facing challenges within the digital wallet business, which has performed below our expectations. We've identified the cause of the headwinds both internal and external and we're taking action to improve the core wallet and to pursue the real growth opportunities in front of us however, with the headwinds we're seeing in our mark.

That's coupled with a low exit rate in 2021, we believe it's going to take another year to reset the digital wallet business and get us back on a path to growth as a result, we are lowering full year guidance for 2021 in that context, we're also providing a preliminary update on 2022.

While this is disappointing we are a strong growth plan exceptional talent under new divisional leaders and wallets and the right core assets in place to reposition digital wallets for success.

Combined wallet capabilities with our E Commerce <unk> solutions, we are winning the deals with the leading players in fast growing markets.

Turning to slide four of the presentation.

Well is he will provide more detail on financial results and guidance I want to share some context on what we're seeing today compared to what we discussed on our last earnings call.

Well, we reaffirmed the outlook back in August we would expect it to return to double digit growth and strong margin performance in the fourth quarter at that time, our confidence is supported by four main drivers.

First was our expectation that the direct marketing headwind would start to improve in the second half.

Is recovering as expected with revenue up sequentially and continued strong growth of new merchants in the third quarter and early fourth quarter.

Next we expect the continued execution on cost savings, we delivered $26 million year to date and expect to deliver $35 million in 2021, 17% higher than our original target.

Third we had signed agreements in place on large deals in our E Commerce pipeline.

These are still in progress however, the scope and timing will differ from our initial agreements, meaning volumes will be more spread out versus the ramp. We initially expected in the fourth quarter.

Finally, we had an expectation that digital wallets with see a soft third quarter, followed by improvements in Q4 as I mentioned the performance of digital wallets has been lower than expected in the second half of the third quarter and we see this continuing into the fourth quarter driven by market softness and performance challenges that are being addressed.

Yes.

Turning to digital wallets on slide five.

I'll start by unpacking, the headwinds here and specifically our current expectations relative to what we last discussed.

Earlier in the year, we saw the fundamentals improving with a stronger firm baseline following our exit of network referral accounts and solid indications that we are lapping these headwinds as we approach the second half of the year.

Turning to the summer, we're seeing quiet European activity, coinciding with the removal of most lockdown restrictions.

This softness coupled with our expectation for return to normal seasonality informed our outlook for Q3 as communicated on previous calls at that time, we expected improvement in Q4, driven by seasonal growth as well as uplift from prior marketing incentive programs.

However, what we're seeing is continued market softness, particularly due to the regulatory environment in Europe overall, the third quarter came in below our expectations for wallets and we see extending into the fourth quarter. As an example in Germany. The adoption deregulation had a more meaningful impact than we anticipated with several opera.

<unk>, reducing activity or leaving the market. Additionally.

Additionally, in the Netherlands, we are seeing a medium term impact related to local licensing requirements.

To put some numbers around this we characterize the impact of our headwinds in 2021 is the following.

First is the network impact, which is north of $20 million. We are lapping. This at the end of the year. We expect this to be partially offset by growth in the core business as discussed on prior calls.

However, since then our expectations have changed.

The softness in the European market, including the regulatory impacts, which has dampened the uplift we had anticipated in the back half of Q3 and in Q4.

These factors combined with the impact of some counterproductive customer pricing in theory and brought us to a lower base of the business as we sit here today.

We are actively driving changes to strengthen our core proposition, particularly in more mature markets. As you recall, we transitioned to new leadership within our digital wallets business in Q3, bringing him on <unk> Patel, who brings extensive global payments experienced pasty together, we are moving quickly to reset the business in response.

One of the real growth opportunities and funds.

Let's now go to the next level of detail on slide six.

First what are the challenges.

One we have the legacy issue of network counts and we are lapping those items.

To the core wallet has to be more competitive in terms of customer experience and in terms of pricing in more mature markets.

Third the digital wallets.

Two complex over time, we have to simplify the product offering right size, the organization and clean up the balance sheet.

Lastly, we have to deliver on the bigger initiatives in front of us moving to the right hand side of the page you'll see we're taking immediate short term and midterm steps to address these challenges first we've taken actions to address customer experience and pricing to be more in line with the market. As an example, we are overpriced in certain deposit forms.

Which has had some counterproductive outcomes equally we are underpriced in other parts of the law, where we see opportunity. We are tangible actions underway and are already seeing some positive results. Additionally.

Additionally, we will be streamlining the organization, including rationalizing subscale product features and finally, we are taking on actions to rightsize the division as we focus on the core wallet.

Turning to the midterm, we have several programs underway and he's absolutely underscore why I continue to see digital as a true differentiator with the opportunity to partner with some of the most disruptive players in the market.

We have an active program underway to strengthen our relationships with our top merchants, we've reset and increase our engagement with our top clients and having very constructive discussions around their pain points ways to collaborate and ways to drive better conversion and growth. We're already seeing positive developments here recently opening several new markets with one of our large at all.

As clients.

In North America gaming, we will continue to grow and deliver on our enhancements to the Scripps digital wallet with the numbers are small today, but we're really pleased with the early progress, including our expansion to 11 brands strong conversion rates higher than market average deposit size, a great proof points with some up and coming.

We are now capturing double digit share of their cashier.

Lastly, we will continue to invest in expanding our crypto presence, where we're not only expanding in terms of our ability to trade more crypto currencies within the wallet, but are also seeing very tangible interest from some of the top crypto platforms due to our unique combination of card processing real time banking capabilities and wallet pay.

Ended payout capabilities.

Although these initiatives all drive real value next year, we expect 'twenty to be a transitional year for digital wallet.

Led by strong growth as we reset the division and deliver on initiatives.

To summarize while we have challenges to address we have a strong plan exceptional talent and the right core assets in place to reset the business and unlock value that exist within our digital wallets, where leading provider of a highly functional digital wallet to a large active customer base of gamers and traders.

Additionally, our pay in and pay out functionality across the globe continues to create excitement with some large disruptive players that combination of capabilities continues to drive my personal excitement for our digital wallets is the most unique and highest value asset within pace.

Turning to slide seven I'll now quickly touch on direct marketing as we discussed in our last two earnings calls we exited a discrete set of clients and referral channels. As we entered 2021 based on our views of the market and our anticipation of compliance changes. So we've been in a transition period. This year as the market adjusted to these new rules.

The recovery is well underway and in line with our expectations in June net new merchants turned positive and we saw this progress continuing into the third quarter. Additionally, we expect a strong fourth quarter with net new merchants for the month of October already exceeding the levels from the entire third quarter. Overall, we are on track for direct Mark.

Hitting vertical to return to growth.

I'll now move on to slide eight.

When we look at the rest of our business across E cash and integrate processing, representing 70% of our revenues.

We see continued strong momentum with high teens growth this year as well as strong trends relative to prepaid debit levels. Looking ahead. We expect continued normalization of the growth rates in E cash as well as continued double digit growth and integrate processing.

Now, let me dive deeper into some of our strategic pillars.

Pillars, turning to slide nine starting with North America gaming, we've grown revenues, 50% year to date, North America, reflecting strong momentum as the market continues to open up within this growth, we're expanding relationships with new and existing operators, who trust pay state to provide customers with all the ways they want it.

Hey.

We're now live in 19 of the 21 legal jurisdictions across the U S. Having recently launched Arizona, Wyoming, Connecticut, as well as Louisiana, which is live for deposits ahead of a full launch expected in early 2022.

We're also looking forward to upcoming launches in Maryland, Florida, and New York.

We're seeing multiple operators sign up for the full suite of our payment options with several more tier one operators on the way.

Turning to Canada.

We're building on 10 years of market leadership is exclusive payments provider for regulated online gaming traffic, we are well positioned to be the dominant player as the Canadian market opens up to private operators, specifically in Ontario, where we have signed multiple deals with tier one operators that we expect will be the leaders in that market.

A real testament to our deep industry relationships, our superior offering, including an acceptance rate of more than 90% in multiple acquiring options.

Lastly, as mentioned earlier, we continue to advance our skill wallet revamp and add new brands to our pilot in the U S. The mentioned earlier the volumes are small today. We're pleased with the early results with 11 brands strong conversion rates higher average deposits and achieving double digit share with some of our earlier operator.

Overall, I'm really pleased with our progress we have a number of key announcements on the horizon and we're really happy to have Zach Cutler onboard leading thats highly focused team dedicated to winning in North America gaming.

Turning to our other key digital commerce verticals any cash we continue to see a lot of traction and exciting use cases across financial services. We are further expanding our network supported financial inclusion, enabling cash consumers to pay bills at more than 4600, Walmart stores across the U S and partnership with income.

On some of our prior announcements our cash business now partners with the largest neo banks in Europe, including Bernice Bunk and in 2006 and.

We continue to add crypto currencies available to trade and digital wallets, and we're seeing very compelling pipeline opportunities with crypto operators interested in our global risk management and pay in payout capabilities Lastly, with our partnership with visa, we've launched visa direct further enhancing more payment options.

Now turning to slide 10, we are on track to meet or beat all of our cost takeout and tech platform milestones, which will set us up to go to 2022 with a more efficient cost position, we've been focus on migrating the business the cloud and we've already achieved our target for 'twenty, one with 70% of our bids across pace that now on a new tech stack.

Effectively zero percent two years ago. We've also made strong progress on our cost savings program, taking out $26 million year to date, we expect to deliver $35 million for the full year ahead of our initial target.

On our recent acquisitions, we're well on track with integrations and we're enthusiastic about the interest we're seeing from both existing and prospective new clients, particularly across I gaming and crypto. While it's early days, we already have several cross sell initiatives underway.

Before I hand, the call over to Izzy reiterate.

Reiterate a few points our strategy remains intact. We continue to see the unique combination of payment solutions is a real differentiator, particularly in more demanding market. It was more disruptive clients for alternate payment methods and risk management have a true premium.

We are winning deals in North America.

We like our pipeline and growth opportunities in emerging verticals like crypto, we're delivering against our cost and tech milestones and we're very happy with initial progress on our recent deals.

However, there is work to do with digital wallets, but the combination of our capabilities position us well to win in the right markets with the right players with that I'll turn the call over to Izzy.

Thank you Philip let's turn to slide 12 for a quick summary of our performance versus our guidance.

Revenue and gross profit came in lower than our expectations due to market softness at challenges and digital wallets segment as Philip described earlier and integrated processing, which was also lower than our expectations, reflecting lower activity in our ISO channel on a positive note.

<unk> were better than expected, including strong performance on cost savings and adjusted EBITDA was in line with our guidance range.

Turning to slide 13.

Volume for the third quarter was $31 1 billion up 19% year over year with growth in integrated processing and E cash partially offset by decline in digital wallet.

Total revenue for the third quarter was $354 million.

Down 1% year over year with take rate compression, reflecting business mix.

Excluding the impact of the pay later business, which was divested in October of 2020.

Revenue would have increased approximately 2%.

Adjusted EBITDA for the quarter was $106 4 million.

Down 1% versus the prior year, resulting in adjusted EBITDA margin of approximately 30% consistent with the prior year.

Excluding the impact of pay later adjusted EBITDA would have been flat to last year.

Lastly, free cash flow was $70 million or 66% conversion on an adjusted EBITDA basis.

Year to date, our free cash flow conversion is approximately 70% and we currently expect free cash flow conversion for the full year to end up around 70% as well.

On slide 14, we've provided the same supplemental view as you did last quarter.

Demonstrate growth excluding the divestiture of paid later add the direct marketing vertical but.

But these adjustments year to date revenue for the rest of pay fixed business with 13% and adjusted EBITDA grew 16%.

We provided the same view on the integrated processing segment in the appendix as well.

On slide 15, I'll touch on a few additional line items, including our GAAP results.

Interest expense was $19 million for the quarter.

We expect interest expense to increase in Q4 to approximately $27 million as a result of the completion of our debt rates in early October.

For Q3, our net loss was $147 2 million.

Which included an impairment charge of $322 million relate.

Relating to intangible assets within our digital wallet business.

This was partially offset by a fair value gain $94 million, resulting from the remeasurement of warrant liability at quarter end.

Our effective tax rate with an income tax benefit for the third quarter was 34, 3% compared to 27% in the third quarter of last year.

Due to the tax impact of the impairment charge recognized in the quarter as well as the impact of deferred tax balances of the increase in the UK statutory rate.

Moving to segment results on slide 16, starting with E cash volume of $1 3 billion and revenue of $90 2 million, both increased 10% compared to the prior year as we see continued strength of the business.

Enter a post COVID-19 environment.

Excluding Germany, and Netherlands, which have been impacted by recent regulatory changes.

Revenue growth was greater than 20%.

During COVID-19, many merchants and specialized e-commerce verticals enhance their cash capabilities compared to Q3 2019.

Our current revenue run rate is approximately 26% higher on a constant currency basis.

Adjusted EBITDA was $36 3 million, an increase of 18%, resulting in adjusted EBITDA margin of 43% an increase of 270 basis points year over year.

Moving next additional wallet on slide 17.

For the third quarter was $4 billion down 17% year over year.

Revenue the digital wallet segment for the third quarter was $83 7 million, a decrease of 15% compared to the prior year.

Take rates remained elevated compared to historical levels yet stable.

The year over year decline, which is worse than expected reflects a combination.

Nation of regulatory impacts in Europe.

That performance challenges that we're addressing including the unfavorable impact from pricing and <unk> initiatives from late Q2 2021.

Adjusted EBITDA was $39 9 million compared to $48 1 million in the prior year.

Yes.

Now moving to slide 18.

Integrated processing volume of $26 billion was strong up 28% led by the U S market and up 39% versus Q3 2019.

Revenue for the third quarter was $186 9 million, an increase of 4% compared to the prior year.

Excluding to pay later divestiture revenue increased 8% with growth from our U S acquired at E Commerce merchants, partially offset by lower revenue from our direct marketing channel.

Take rate was roughly 70 basis points down from Q3, 2020, but flat sequentially, which we discussed on our prior call.

Adjusted EBITDA was $44 4 million compared to $48 7 million in the prior year.

Adjusted EBITDA margin of 23, 8% decrease year on year due to merchant and channel mix. In addition to the decline in our direct marketing channel.

Excluding the impact of paid later in direct marketing revenue grew 16% adjusted EBITDA at 19%.

Second margin expansion.

Our North America gaming activities, which is predominantly driven by the integrated processing segment today grew more than 30% year over year and is up approximately 50% year to date.

North America I gaming is roughly one 5% of total company revenue year to date.

Moving next to slide 19, I will review the components of our consolidated take rate, which continued to be driven by business mix and have been consistent over time within our business segments.

Cash continues to generate a take rate over 7% in line with long term expectations.

Digital wallets increase take rate over time, as you build out functionality and access to new markets, such as FX trading and crypto trading.

We anticipate long term take rates to be around one 8%.

Finally, the take rate in our processing segment has decreased over the last few quarters to roughly 70 basis points.

Primarily driven by the business mix with an integrated processing.

As you can see from the Pie chart at the bottom left of the page the meaningful growth of integrated processing volume as a percent of total it's driving the overall take rate lower for the company.

The bottom right, we dig a little deeper into our integrated processing volumes and take rates.

Meaningful increase in volume for U S acquired and integrated E Commerce.

<unk> to impact the overall take rate for integrated processing.

Now, let's turn to slide 20 to look at our balance sheet and liquidity.

Total debt outstanding was approximately $2 2 billion as of September 30th and our net debt to LTM adjusted EBITDA ratio was four four times.

We expect our pro forma leverage would be approximately five seven times by year end.

Collecting the additional debt raised and the LTM adjusted EBITDA of the three deals excluding synergies.

We remain focused on delevering and moving towards our target of three five times adjusted EBITDA.

Let's move to slide 21 to discuss our guidance for Q4 and the full year for Q4, we expect revenue of 355 million to $365 million on a reported basis with minimal impact on the smaller acquisitions, we recently closed Pago factiva.

At Tivo and we a fintech.

We expect mid to high single digit growth in integrated processing, and a 10% to 15% decline in both <unk> and digital wallet for.

E cash I'll point out that Q4 of 2020 was an exceptionally strong period driven by COVID-19 restrictions across Europe. So Q4 is a tough comparable period for that segment.

For gross profit, we expect to be between $205 billion and $215 million and adjusted EBITDA between $90 million to $100 million.

As a result of our revised outlook for Q4.

We expect full year revenue in the range of $1 47 billion to $1 $48 billion.

Reflecting growth from cash and integrated processing.

Should be offset by declines from digital wallet.

We expect adjusted EBITDA in the range of $425 million to $435 million.

We understand this is a meaningful change from our prior guidance I'll reiterate why our expectations have changed in early August we expected four major drivers that gave us confidence in our full year outlook.

We expect it to pick up momentum in direct marketing and we're seeing the recovery in our performance in Q3 in October.

We expect it to continue to drive efficiencies through our cost savings program, which we are exceeding.

Third we expect the digital wallets to grow double digits, but clearly the current unexpected performance is lower than we expected.

Finally, we.

We anticipate onboarding meaningful clients in our e-commerce protocols and invested to create the necessary capacity.

Expanding further we have signed agreements in place, which supported our confidence in Onboarding the clients in early October.

We remain excited about working with them, but the scope and timing will differ from our initial agreement meaning.

Meaning volumes there'll be more spread out with components going live throughout 2022, instead of the wrap we initially expected in Q4.

Yes.

Now turning to slide 22.

While we will provide formal 2020 guidance on our next call.

Believe it is important to provide an update on our preliminary expectations for next year, given the meaningful reset of our Q4 and full year 2021 guidance.

For 2022 on a reported basis.

We expect revenue in the range of 153 to $1 $5 8 billion.

Integrated process I think it is expected to grow double digits and cash is expect to grow in the mid teens.

Including the inorganic contribution our three acquisitions.

Yes.

There's a wallet is expected decline in the mid to high teens as we reset the business.

Adjusted EBITDA is expected to be in the range of $440 million to $460 million, resulting in flat margins year over year.

At our Q4 call I will be able to provide additional color on volumes gross profit and other variables.

It will also provide more detail on the quarterly cadence of revenue.

At this time.

We anticipate Q1 being down year on year or roughly flat sequentially.

Given our current expectation for the Q4 run rate this year.

Overall, there was no sugarcoating that our financial results are disappointing and not up to our expectations.

Have a strong plan to get a digital wallet back to double digit growth.

While we have to go through the necessary transition in 2022.

We remain excited about <unk> outlook.

To deliver on our strategy and see strong growth and execution across the majority of our businesses, which continued to exhibit strong momentum.

Now I'll turn the call back to Philip for closing remarks.

Thanks, Susie, although we are revising our financial outlook, we have a strong plan to turnaround digital wallets and remain very optimistic about our future as a leading specialized payments platform.

To put this in perspective last week I met with my wider global leadership team. We went through our performance in the road ahead. Despite the revised financial outlook the level of energy and engagement was just at an all time high and.

And that's because we see the deals where when we see the pipeline that we're building we see the combination of our API connectivity the multiple payment types and risk management, So a real difference maker in the market.

While it will take us longer to accomplish the financial goals that we had planned the team and I firmly believe that pace is absolutely positioned to be a winner in the marketplace partnering with leading edge companies and some incredibly exciting markets.

This concludes today's presentation now lets open up the call for questions. Thank you.

Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up.

Handset before pressing the star keys once again Thats star one to be placed into question huge.

First question is coming from Jamie Friedman from Susquehanna. Your line is now live.

Okay.

Hi, good morning, everyone. Good afternoon.

So I was hoping to get your perspective on the it.

Why are you still confident in the long term potential of the digital wallet. Despite the reset is it no. Your conversations when you go into accounts the strategic position wise.

Do you think digital wallet can turnaround.

Yes.

My question to ask Jamie.

Look the way I look at it is we made some changes last year, we attack the so.

Theres network accounts.

And felt really good that we baseline of the business.

And then we're focusing on getting to that next level of growth. So this recent step down was clearly unwelcome.

And clearly as time that theres more to do to fix on digital wallets that we can't escape in terms of what we've done we've done really three things one.

We've really we've run multiple scenarios country by country client by client to really assure the baseline.

And clear out there our view our forward view on risk to the business. So that's the first thing we've done the second thing. We did we started we started making management changes in kind of mid summer.

<unk> joined in September So we made quite a few changes there and we.

Did that because we certainly felt there is always more to do with the wallet in terms of streamlining it.

Getting rid of kind of subscale products and initiatives that we are being invested and frankly re engaging more proactively with our larger clients.

So where we are right now is a few things in terms of quick actions.

Some of the pricing and peering campaigns that haven't worked as effectively.

I have changed those were already tracking that isn't seeing positive outcomes.

To some small changes in client customer user experience three stopping some noncore pieces just stripping some complexity out and we will be doing a right sizing of the organization as well so theres a lot of just get get to the basics baseline it focus on the core wallet, but the reason for that.

Belief of this business continues to be a high growth continues to be extremely valuable as it can go to the next level. It's really a few things one over the past few months, we've really upped our engagement at the C level with all of our top clients and especially with <unk> coming onboard to introduce them to all of our <unk>.

Largest clients and the conversations have been great.

There has been recognition that we need to do more they like some of the quick changes, we're making that they like to focus they like the breadth of payment options within the wallet.

They like to multiple markets, we can support.

They like what we're doing in the U S with a wallet.

And so you know one of our largest and oldest clients actually have enough eight new markets to us in the last month on the back of those conversations. So that's that's the first piece is real utility for our clients they need us they likes and we focus on them.

Very positively.

The second one while it's still small escrow U S.

We have 11 operators now what we're starting to see is a higher average ticket versus the market. We're able to do very large one off bank deposits for high rollers.

The conversion rates are now what we consider top tier versus the best payment options, there and with two of our smaller operators and more an up and coming we have double digit share of the cashier and that was always the the view of can we get there and we've got to keep proving this proof points and then start working with.

The larger tier one operators.

To approach them that this product has that type of cut through that type of utility for them in the U S market and then probably the third piece Thats. The most interesting to me is we're starting to not only in terms of selling scrip.

Taking the capabilities of the digital wallet platform, so being able to integrate into our digital wallet platform.

Averaging our pay in payout capability, leveraging our <unk> network in and frankly, our EMI licenses in some cases and really create some really really unique solutions for some pretty fast growing companies in gaming and travel and especially in crypto. So.

We're still working on those deals.

Some are signed and ready to go in and we look forward to announcing those in the coming months.

So that does give me the excitement that we can win deals when we combine our ecommerce the wallet capabilities and our in our cash we have a set of a set of solutions that we are we are winning deals some great names.

And the disruptive areas, where we need to at the same time as I described earlier Theres a lot of blocking and tackling for us to do on some of the legacy part of the wallet and and Thats, where we are today.

Yes.

Okay that was a thorough response, thank you I'll just drop back in the queue.

Thank you. Your next question today is coming from Dan Perlin from RBC capital markets. Your line is now live.

Thanks, Good morning, guys tough tough tough quarter for you.

A couple of questions, obviously on digital wallet so.

You called out you're seeing issues around the customer experience. So I wanted to dig into that a little bit I mean to me that sounds like share loss. So I'm anxious to hear what you are changing there where are these consumers going.

If theres still remains demand in the market to you'd called out pricing in particular in more mature markets, which means that someone got that wrong. So.

Whats.

What's the reset there how big is it.

And then can you just define what you're talking about when you say your core wallet, because I think I've always thought of Europe as being in an incredibly strong market for you guys and yet this is where we're seeing all the weakness. So if you could address those that'd be great. Thank you Yeah. Let me unpack. This a couple of things sub pack on that one so in terms of.

Sure the UX and the pricing I think are all kind of related pieces are we losing some share in the mature markets in Europe. The answers we've lost some mild share.

Certainly have and we see that as both.

Some external pressures, but also internal on the external side, we're not losing to other wallets.

The biggest driver is going to be real time banking or the open banking network is creating an attractive option, where the digital wallet used to fill that more disproportionately for some of our some of our operators. So that's probably the biggest external pressure point, we have in terms of volumes in Europe in particular.

The second piece is much more internal and it goes back to that part about being much more engaged with our clients working more closely with them on campaigns.

Working more closely with them on making sure we market and bring the types of customers that where it's a win win for both of us and that Reengagement, we've been having.

We absolutely are seeing dividends from that.

Reengagement in that with some of the drivers of some of the changes we made starting in mid summer from them at the management level as well.

In terms of the pricing in the U S.

In the opening comments, we touched on that in certain areas. The team has a good and long history of pricing and peering that means you get certain rights to board. The more you use the wallet the more your deposit and they've had a really good track record over the last few years the campaigns that we've done in the first half of the year.

Overshot the mark on some deposit costs in and an undershot the market. Some other other fees, where where frankly theres more opportunity in terms of wallet to wallet transfer with withdrawals. So as we track those campaigns on a campaign by campaign basis, we saw that they were they weren't working as well.

And we've reset those we've we've reset product 85% of them, we have a few more tweaks to do through the quarter.

We're already seeing the benefit.

They had a positive impact in terms of actives in terms of conversion rates and different in terms of deposits and coming into the wallet. So those are the those are the factors those are the factors there.

Talk about core wallet, Dan what I'm talking about is a follow up.

It's not it's not a reference to Europe, it's a reference to adding on too many.

Side initiatives. So we think about the the remittance business there.

There is initiatives to put in stock trading there is just there are too many small initiatives.

That we were pushing back on and when we made the management change we've just stripped out a lot of those pieces and really focus on the core wallet fund the wallet in.

Make sure the Paypal experience for the merchant works extremely well add more Atms and make that as smooth and as as competitive a process as possible versus adding other new silver bells and whistles on the side does that help explain.

Yeah, no that's very helpful.

And just on one other quick one you called out regulatory issues in particular in a couple of countries.

But they sounded like they are pretty onerous and I have to admit I'm not.

I'm no expert on the regulatory environment. There. So can you just help us understand how stringent some of these are that would cause these operators to actually leave.

Which it sounds like that market, yes, you've seen some you've seen some Q3.

Youll see some keep you highlights from some operators that have been recently published in Europe.

You'll see some common themes there so.

We certainly saw there's been a wave of of European regulation coming through.

So we had anticipated some of it but some of the impacts have been certainly been sharper.

And bigger than we expected so the two that we're calling out in.

In Germany. There are two changes there is a cap on how much a single person can bet.

So regardless of what.

It's not on a single operator, it's across all platforms. So when you when we came to.

Higher higher Ed Betters that cap has a pretty high impact. The other issue has been the tax on many casino and poker games and that it made the games frankly unprofitable for operators. So you've seen a few I think betfair recently publicly announced that they are actually outright exiting.

You've seen some other operators talk about 70% drops. So there is a big adjustment happening in Germany, and that's an extremely large market for us we.

We do believe this is a point in time.

Operators are all getting Luckily license they are getting adjusted to these new regulations.

They're understanding which payment forms work. So we do think over the next six to eight months there'll be there'll be an adjustment in a settlement and then get back to growth, but it has been an impact and then in Holland, which is also a meaningful market for us.

They really created a surprisingly small and this is the price of the industry not just to us.

The amount of operators to be licensed in Holland, and they absolutely outright limited lots of payment types initially.

We're confident that will be reversed over the next kind of four to five months it feels like.

Kind of an unexpected overreach from regulators and Theres a lot of a lot of activity to tour of our SaaS. So just two examples.

That's very helpful. Thank you and good luck.

Thanks, Dave.

Thank you. Our next question is coming from David <unk> from Evercore. Your line is now live.

Thank you good morning.

Just on the topic of repricing and digital Wallets you take rate was two 1% in the third quarter.

Your long term guide is one eight once you go through all of the repricing initiatives that you've discussed.

What's the what's the timeline to go from two 1% take rate to one eight in other words as one eight embedded in your fourth quarter in.

In 2022 guidance for digital wallets.

Hey, David.

I'll hop on that one and nice to hear from you.

It's not embedded in Q4, we actually our take rates have been stable, yes higher.

The pricing elements is more driving volume, but the overall take rates is really being driven by our mix, especially around our crypto business. We're still is growing very well year on year, although small.

Part of it so the moderation back to the long term one eight ill probably spend more time on it on our Q4 call, but we don't see that reversing it Barry.

Near future, probably take a couple of quarters to get there.

Understood and then.

If you could talk about your strategy to reduce that your net debt to EBITDA is.

Just over four times when you look at the revised guidance on EBITDA for this year and 2022.

Are you more inclined to accelerate the pace of.

Debt Paydown and slowed the acquisition pace just to shore up the balance sheet.

Yes, David clearly, obviously with the revisions are debt to EBITDA ratio does go up.

And desperate pressure on the leverage ratio, obviously, no no impact of any covenants our operations our free cash flow conversion is still pretty high so feel pretty good about that.

As we mentioned before we will pay down debt as fast as we can with the excess cash flow to bring that down. So obviously, our long term commitment to three five times is still there, it's just going to take us little longer to get there.

Understood. Thank you.

Thank you next question is coming from Jason Kupferberg from Bank of America. Your line is now live.

Good morning, guys.

Just given where we are with with digital wallet. It sounds like youre going to have to make a lot more investments there to get back to growth and you talked about some of the pricing adjustments I guess I'm just trying to think through what the EBITDA margin assumptions for that segment should be in 2022 like what's baked into that overall.

EBITDA guide for next year.

Yes.

Yes.

Good question, Eric Jason if I can.

Mentioned I'll, probably get into more details on our Q4 call.

But with the with the Guy who care about mid to high teens decline I think from a EBITDA margin perspective, we're still going to be.

So assume safely and they're in the mid 30% EBITDA for the business.

Okay. Okay.

Okay got it got it and I guess, just coming back to the regulatory question because it sounds like that kind of caught caught you off guard, but like what percent of the European digital wallet business is Germany, plus Netherlands, just so we have an idea of how to act.

Kind of draw a box around this.

Yes, good question there.

I don't have that at my fingertips, but given Germany's upsized relative size in Europe, it's up it's a pretty large pretty large marketplace, obviously UK, it's a big market as well.

Other places we operate in but Jason we can follow up offline dock and are providing more information on there.

Okay I appreciate that thank you.

Thank you. Your next question today is coming from Timothy Chiodo from Credit Suisse. Your line is now live.

Great. Thanks, a lot one on the World Bay partnership in the U S. But first I wanted to see if we can just hit on a couple of numbers real quick.

For the 2021 in Q4 I believe two of the three acquisitions you do have as you mentioned the minimal revenue impact, but I was hoping you could give the dollar amount in Q4, and then also more importantly, perhaps for the 2022 revenue guide are you able to provide the inorganic contribution from the three acquisitions I know that previously you had mentioned the 60 million.

Figure, which I don't believe included via Fintech, which as I understand it smaller, but maybe you could just give the total number for inorganic revenue in 2022.

Yes, So September I think Theres two questions on Q4, I'd say roughly $5 million would be the contribution.

And going into 2020 to $6 20 that add.

Got it.

Meyer basically includes all three <unk> is a smaller tuck in.

So a little better impact, but not as meaningful.

Great, Okay, 60, and 'twenty, meaning Rev and EBITDA, yes, correct, yes.

Okay, great really appreciate that thank you.

One is on <unk>.

As on the World pay partnership in North America, just thought it would be a good topic to revisit it.

Could just talk a little bit about one the history of that partnership and then the forward looking in terms of how long is this partnership do you always go to market together for North America integrated processing in other words is that the entirety of your business do you have separate do they have separate those types of mechanics would be really helpful. Those are common questions, we get from investors.

Yes, yes. So so we do have a long and fruitful partnership with world pay in and we continue to do great business together.

The partnership is not exclusive.

And we are currently already a multi acquirer provider so our gateway locks in about 75% of the operators.

We do the card processing wallets cash, we're adding other atms to be as complete as possible.

Currently.

Acquired with World pay we have some active deals with <unk> and we have one or two other acquiring relationships that we will be expanding over the next six months.

This is this.

This is absolutely a demand from the market operators want that they want that resilience they want that breadth and it's it's a priority for us. So we are building that out still.

Still it's still the vast majority of <unk> and still a great relationship, but we are definitely following.

The customer here. So we've got the integrations, adding more products, but we're also adding more acquires and in Canada. It's the same thing we have we're a multi year multi acquire solution already.

And that drives kind of best in class, 90% conversion rates there.

Excellent. Thank you for taking both of the questions.

Thank you. Our next question today is coming from George <unk> from Cowen. Your line is now live.

Great. Thanks for taking my questions guys I guess first one for me.

As it relates to some of the Delta in the third quarter expectations. I think you guys highlighted some contracts that's somewhat timing somewhat.

<unk> I was hoping you can delve a little bit into the <unk>.

Commentary should we be thinking that maybe the total contract value is a little bit different than what was originally signed.

Yes.

Obviously, we can't go into too much detail, but we had a few contracts two in particular that were.

We're very sizeable are sizable.

And we had we had signed agreements with them, but as we went through with both clients.

Timing to ramp up.

Definitely definitely changed and then two in some cases the product mix in terms of how much is card processing, how much is bank payments.

As change what we're seeing is actually we are building.

Deep integrations with with some of these players and we will be looking forward to making some announcements coming weeks to give people a sense, but we do see them as larger clients, we're being more conservative in our outlook at forecasting those until we see them really come to fruition and growth.

Okay. That's helpful and if I could ask one also on the on the digital wallet side you highlighted some of the regulatory changes I guess in Germany. I'm curious how you guys are thinking about or how concerned you are about that may be spreading to some other markets.

In the in the future if you're hearing any rumblings around that and then.

Again related to the wallet your confidence in the pricing algorithm. I mean, you were sort of at a point, where you're testing different things and you know maybe that long term pricing outlook of one 8%.

That debt.

That sort of changes.

As as things progress just just trying to get some clarity around that thank you guys.

Yes.

Things so on the regulatory front Europe's Europe steps, you had a wave of regulatory change.

And some more touch smaller smaller pieces.

Italy, and the UK have also had some items that are restricted but the Germany and Netherlands, starting in the two biggest ones as we kind of cascade across the globe the way I'd break it down in the fall and we've certainly exited when we consider the very high risk markets, which could create.

A lot of volatility we've exited those.

U S and Canada very clear.

They're regulated and opening up state and private state by State Province by Province in Europe, as we look forward, we're not seeing any.

Any new regulation in any major states in the major countries right now.

Even early stage regulation thats coming through so we do see that this wave is pretty much.

Good baseline for where we are in over the next six seven months the operators will adjust and we'll get back to kind of a good.

Kind of.

<unk> growth pattern, there when we look around the rest of the world.

Across Latin America, Asia, and Africa, that's a long tail of countries.

And of course, those countries can have ups and downs against gaming regulation, we think it's a tailwind across Latin America, we think it's mixed across our cross.

Eastern Europe and in Asia. So as we stand here today, there's probably about $20 million to $30 million of total net exposure. If you were to take all of the negatives and add them up on the same time, we certainly would never expect that to happen.

In our go forward forecast, we are now being more prudent expecting some of that to happen just to be cautious.

You had a second question George I forget the second question apologies.

Oh your your confidence in that long term, one 8% take rate for <unk> for.

For the digital wallet.

Yes, I definitely think I think deposit options, particularly in Europe have gotten much more competitive.

I think that's an absolute fact, and we are we're reacting to that.

So that will be that is a downward pressure and the forecast we do see some take rate coming down at the same time.

We are seeing.

Some charges and withdrawals, we continue to really like the crypto business. These items drive up revenues as well, so there's a netting effect but.

Overall, I think the general trend will be more competitive.

Much more competitive on the deposit in.

On the deposit in fees versus where we are today.

We've got that baked into into our outlook now.

It also does underlying by the way.

When we bought safety pay the real time banking capability.

In 19 markets, including seven in Europe.

And we're absolutely seeing demand for that as well. So it's also that's been.

And a welcome addition to our to our toolkit.

Thank you.

Thank you. Our next question today is coming from Josh Levin from Autonomous Your line is now live.

Hi, good morning, I have two.

Two questions. The first is what role is built fully playing these days with regards to the company and the ongoing issues and then the second you said that 2022 is a reset year and then do you expect growth to come back in 2023 as you're right the ship.

But instead of having shareholders wait until 2023, the CF the ship can be righted and you are raising some serious issues that the company is facing have you considered that at this juncture the best way to create shareholder value is to potentially explore selling the company. Thank you.

Yeah. Thanks, Josh So I'll answer on the Bill and on the on the second question, So look bill and I.

We speak on a weekly basis he is engaged.

He is aware of.

Of all the issues are good and bad.

<unk> is also very very active across the board.

In terms of all the points. So look in terms of the conversations he's clearly disappointed in the performance and the fact that the cleanup that we have that we've got more to do.

And he and.

Both working very closely on the actions, we're taking the right sizing.

The organization is stripping out of some areas. So he's involved in those pieces quite a bit he is equally evolved in the upside we get from about the inorganic and organic deals that we're pushing and seize the opportunity and the momentum there. So.

You, obviously did partially but I think it's desk.

Definitely.

Not happy with that outlook and performance, but also sees the value where we're growing in gaming growing in crypto and growing in some of the disruptive areas that we're always the attraction of pace.

So thats the conversation with bill.

We don't have a conversation on sell in we know it started from myself to the board.

So don't see us at this value.

Noted a low point, we know there is credibility to rebuild but.

But as I said in my comments, we we see the deals that we are signing we see the areas that we can fix and we see we see the way forward simple as that.

Thank you.

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

Hey, guys.

I just I just want to understand what you are.

When you can really do to turn the course in the digital wallet side, especially around the user base.

<unk> consumer side, specifically, so obviously it sounds like some of this is regulatory some of this is open banking trust layered alike, which maybe a little bit out of your control and so just wondering from a customer acquisition consumer facing standpoint. This is really a two sided network.

Help us understand better what Youre, specifically tangibly doing just give us examples of Mccann or what you can do to actually change that course.

And maybe a little more on the timing it sounds like you would expect I guess going through to get that change it.

<unk>.

Yeah. Thanks, there those are all the right questions first of all is the total.

Safe level.

The cash businesses drug at 17, and 18% year to date.

The integrated processing is also going to be at kind of 17% to 18%. We do a lot of good growth engines in the business, but clearly digital wallets.

Had some some areas to cleanup so it does look I kind.

Kind of touch on a few pieces here one.

Decline engagement Darren is absolutely critical.

We've made we've made a lot of money and some of the higher risk areas of the market and haven't paid as much attention as we should.

Some of the more mature markets and more regulated markets, especially in Europe, so that reengagement alone.

Is a big part of the Formula spending time plugging into right Atms working on co marketing agreements.

And all of those conversations are happening IRC had it with all of the kind of top tier <unk> kind of C suite clients and the reactions have been really positive and open.

They liked krill.

They like the customer base they like the focus is.

And some have called out very directly that it's great to see the regular engagement and that absolutely drives some of the management change decisions in mid summer. So that's absolutely one and that is the number one source of customer sign ups from our merchants Darren so that has to be the focus.

Two as some of the pricing tier that we talked about.

The.

Mark has got more competitive so we do see that we don't see those as a complex Texas.

A lot of those fixes are already in place and happening and we're already seeing like I said, some some turnaround in terms of sign ups and conversions.

And we'll continue to track that very very closely.

But thats really the second piece.

Third one is really that point about exposing.

Wallet capabilities to clients.

Versus pushing just a pure scale brand, but almost allowing the wallet capabilities to be embedded with some of our clients and thats where were seeing some opportunity as well that can drive lots of volume and customer growth.

And we think Thats very unique we have a platform that really has two brands on it scribbling that Taylor and we see we're seeing lots of interest in that capability as well.

Alright, Thats, a little more helpful to get some tangible examples when we when we think about the percentage of the business that youre offerings account for at your customers I guess, it's kind of important to remind us maybe what percentage or how important grill is for your customers on the merchant side now on the operator side I think it's a pretty the VIP.

Customer base, you bring as the value proposition.

How much is that still resonating with customers.

But sort of a floor under there's to some degree for investors and then on the same topic on the digital side just the U S. We were hoping to see some bigger brand names announced overtime do you still anticipate that for.

U S reach thanks.

Yes, so we.

In Europe, we it depends on the operator, but in general we cover about 7% to 10% of the cashier share with escrow wallet.

Important.

Part of the.

Of the proposition.

That does tend to skew towards the the high roller as well so so thats again, having those client by client conversations it absolutely resonates it absolutely resonates.

But I do think our client engagement and focus.

Did weaken in Europe, we're making like I said lots of money and.

And much less regulated places and.

Our earning our keep in more competitive markets, we lost a little bit a touch there, but the importance and the volumes matter tremendously to these operators so there.

There is engagement there is openness.

See the reach that we have that works and you look in the U S.

It has taken time Darren.

So we're not going to do some big blowout campaign the ltvs.

Above the line marketing in the U S are very high we are working on those proof points, where we're now getting what I would consider kind of top top decile conversion rates, so beating the market there.

The average tickets are higher and we're doing some jumbo tickets now and with two smaller operators, where we are.

10% to 15% of cashiers share, we really love that data point.

As those operators can access any payment product right not just us.

But we've really focused with him in.

They were approaching the larger operators as well.

We're proving to them the product works.

Perhaps the type of customers, we need and we're having active conversations but its going to take time before we get some of the really big ones too.

To to push this but we like we like the direction, it's going right now.

And just last one is on the cash side of the business be the wallet capabilities of that in the Digitization of that how has that been going so I mean, I know you guys are see more optimistic on that part of the story so to speak.

At least.

Organic standpoint, if you can give us a little more color on your expectations and why that's going better. Thanks.

80% of the revenues now go through our <unk>.

Our pace a card app.

So we basically moved 12 million customers.

Our active on on a stored value app is effectively a wallet, obviously, a very different profile more underbanked and younger.

We will be adding some banking capabilities, so virtual debit account.

Able to to move money back and forth.

The backend capabilities of that product are the same as scrilla net teller. So when we talk about being a multi wallet company.

That is absolutely a great proof point of where it is so we remain very very positive on that point.

Okay.

Alright, thank you.

Thank you.

Okay go ahead.

Go ahead please.

Go ahead.

We retain a brief question and answer session I'm going to turn the floor back over to management for any further or closing comments.

Thanks.

Thanks, everybody for the questions.

Clearly it's not the result, we are looking for their stuff to clean up there.

Things to fix but as I said in my closing comments, we had a team meeting with all of my top 80 leaders. We went through this we went through the adjusted financial outlook.

Went through the road ahead and the.

It's hard to describe the energy and enthusiasm was extremely high because the team does see the capabilities. They do see the actions we're taking the changes we've made in the digital wallets team.

And frankly, the clients and we're winning in the pipeline that we're building so.

It's going to take us longer it's not where we want it to be but we remain totally focused on delivering the strategy we've talked about from the beginning.

From winning and I gaming, winning other verticals driving out those costs and making the recent transactions really come to life. So we're going to be obviously make ourselves available for everybody for for more Q&A and to go deeper than this first session. Thanks everybody.

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.