Q4 2021 Paysafe Ltd Earnings Call

Hello, and welcome to the Pes say fourth quarter and full year 2021 earnings call 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.

It is 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 fourth quarter 2021 earnings conference call with me today are Philip Mchugh, Chief Executive Officer, and he is he dawah 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 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.

Clearly 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.

Mentation 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 to 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 I'll.

I'll begin with an update on the business and then turn the call over to Andy to review the financial results and guidance.

Starting with a few key messages, our fourth quarter revenue of 372 million and adjusted EBITDA of $105 5 million both exceeded the high end of our revised guidance range for the quarter.

The turnaround of our digital wallet business is well underway the team taking decisive action to improve the core wallet reduce cost and deliver on our growth opportunities I'll share more on this in a moment, but we're seeing good signs of early progress.

Across our broader digital commerce strategy, we're winning exciting deal to start a new partnership with finance.

Initially launched a newly developed white label wallet solution.

And I gaming, we launched new states, including New York, and announced new partnerships, including hard rock and bodies.

Overall, our digital Commerce pipeline continues to grow and reflect merchants plugging into pesos to access full end to end solutions across card processing digital wallets E cash and real time banking, so more and more we are selling our solutions as a single competitive offering.

And our U S acquiring business, we continue to see solid growth in the U S SMB market and our direct marketing vertical is recovering in line with our expectations.

But our cost savings program, we delivered $40 million in savings in 2021 ahead of our initial target of $30 million that plans for incremental savings in 2022.

Lastly, on our third quarter earnings call, we provided a preliminary outlook for 2022 based on the headwinds we're seeing in Europe , coupled with our expectations for a reset of our digital wallet business.

Based on our progress to date and current expectations, we are confident in maintaining that outlook.

Turning to digital wallets on slide four.

Last earnings call, we unpack the market headwinds and challenges in digital wallets and the actions we've taken to reposition the business for long term success.

First we said the core wallet needs to be more competitive in terms of customer user experience in terms of pricing in mature markets.

The digital wallet, there's that had become too complex overtime and we needed to refocus on our core product features and rightsize the division.

Finally, we talked about midterm initiatives to strengthen our relationships with our top merchants and to deliver on the bigger growth opportunities in front of us.

Our team acted quickly, making tough decisions and the results are starting to show starting with a short term initiatives our actions to optimize pricing and improve user experience are delivering some positive early data points, particularly in regions, where we have implemented changes across 19 targeted countries in Europe , we saw monthly bank deposits increased more than 50.

Per cent and total deposits increased more than 10%.

By implementing the changes from October to February . Additionally.

Additionally, we completed a right sizing the organization in Q4, improving our cost position and focusing the organization on our core products.

Turning to the mid term priorities two main things to highlight here.

First in North America, our squirrel digital wallet continues to progress with strong proof points, including volumes tripling from Q3 to Q4 and now we're ready to drive increased awareness with the launch of our marketing campaign with Barstool sports one of the biggest U S sports betting focused and social content producers in the world.

Second we continue to expand our crypto presence we're in a in addition to our new parts with finance, we have a strong pipeline of other crypto platforms as our unique combination of card processing open banking wallet pay in payout capabilities continue to generate excitement with new and existing clients.

To summarize we're making strong progress in the turnaround of digital wallets, we're winning very competitive deals and remain very excited about the business. Our expectations for 2022 is a transitional year remain largely the same with the actions, we're taking now enabling us to absorb market risks in Europe will continue to keep you posted.

And updated on our progress.

Now turning to slide five I'll now I'll take a moment to highlight our differentiated offering and why we win in digital Commerce first is ease of connectivity through a single API.

Basically we're easy to plug into.

Second is more ways to pay in addition to traditional card processing, we have a scaled global gateway, we provide powerful pay in and pay out capabilities through our digital wallets, we digitize cash and we offer real time bank payment rails, along with 100, plus a T S.

Third we have very deep risk and regulatory management capabilities, along with deep bank relationships, which helped us to service specialize in demanding verticals.

Lastly, we are focused on specific industries, including I gaming crypto digital goods financial services and travel. This combination of a single API multiple payment types risk management and industry focus is a combination we're really focused on in terms of driving growth going forward.

So let's bring this to life on the next slide.

We've been very active in crypto and now we're starting to work with crypto exchanged in a more holistic way.

More importantly, we see the combination of crypto F Ts and the fast emerging web three point out as a major trend unleashing a new generation of digital entrepreneurs as well as creating new ways for people to buy and sell in a virtual environment.

Hey, safe is uniquely positioned to support the full end to end product needs demanding growth requirements and complex risk and regulatory challenges in the space. We're excited to partner with buying at the largest crypto exchange in the world to help their business grow in the right way leveraging the depth and breadth of our payment offering we're starting off.

With an embedded finance solution in Europe , and the U K, we're biased leveraging our wallet platform effectively as a white label wallet, allowing pay in and pay out capabilities with their own app real time banking and the ability to plug into other payment types.

This will be phased rollout on a country by country basis, we're taking a steady approach, but we're excited about the long term potential and expansion of services, which should develop into a large relationship over time.

Additionally, we are seeing strong interest from other crypto currency exchanges as well as large E. Commerce organizations. So we really liked enbridge a pipeline again. This is a great example of what our teams can do when we bring our products together as a single solution.

Turning to another key vertical pay states North America I gaming.

In 2021, we saw strong growth in North America, including 58% volume growth year on year, driven by expansion in new States and continued growth in existing states. We are now live in 21 out of 22 legal jurisdictions across the U S. The lost some form of I gaming, including all seven states that have enacted.

Legislations during 2021.

In 2022 we're off to a strong start having launched in New York with four operators Caesars draft Kings points bat and when Beth.

We also have live in Oregon with draft Kings, and Louisiana with multiple operators.

In addition to expanding our relationship with existing clients, we announced new customer wins strengthening our position as the leader in North America I gaming payments last week, we announced a multistate partnership with balis, starting off in Arizona, and New Jersey with plans to expand into more states over time, we also announced a new partnership with hard rock digital.

Also supports I gaming and sports betting brands with payment solutions in New Jersey, which is a really nice competitive takeaway work.

Excited about the breadth of pay safe solutions that can offer that we can offer hard rock both in existing and future markets.

Turning to Canada, Ontario will last long awaited I gaming market for private operators on April 4th with a population of 15 million, Ontario will be the fifth largest north American jurisdiction, we look forward to launching Ontario, where we've signed multiple deals with tier one operators building on 10 years of market leadership with the provincial lotteries.

Delivering the full stack of processing and local Atms with market leading acceptance rates.

Lastly, as I mentioned earlier, we continue to advance our squirrel wallet revamp in the U S and are very happy with early results. Although the initial baseline remains small volumes are growing very fast we are seeing repeat V. P. VIP users. We now represent a material share of the cashier with some of our pilot customers.

As a next step in our expansion we have signed an exciting deal with Barstool sports promote squirrel brand in the U S. Utilizing a variety of Barstools. Most popular media assets, we're excited to be a unique payments partner with barstool and see great synergies between their incredible customer base and the strong value proposition to make sports betting fun and engage.

Jim.

Now turning to U S acquired on slide eight we continue to see solid growth in the U S SMB market, including 20% year on year revenue growth in the fourth quarter and 15% growth compared to 2019.

Stay safe as a scaled U S small and medium business player serving approximately 200000 merchants with a strong mix of card present and card not present solutions, we focused on a single platform for onboarding with multiple processing options enabled by multiple sales channels, including direct internal sales I say partnership.

And I as the integrations the team has done a great job executing against our plan focus on automation and self service capabilities cost management and very strong customer service.

Lastly, our direct marketing vertical is recovering in line with our expectations and we continue to be uniquely positioned to services market with a strong capability set.

Now turning to slide nine we've delivered very well against our cost program, taking out more than $40 million of repeatable cost in 2021 and we're targeting an additional $20 million in 2020 two.

We made a lot of progress last year consolidating our tech platforms migrating to cloud upgrading our bank relationships and further improving our risk management capabilities.

We will continue to benefit from these upgrades in 2022, while also delivered a new cost opportunities.

On our recent acquisitions, we are well on track with integrations as an example in the fourth quarter, we completed our product integration with Tiger Factiva and are currently live in Latin America with about 20 paces global clients. So the team is executing at a fast pace there.

Safety pay close at the end of January which is about a month later than we planned for but our product integration plans are well underway, including our global real time banking initiative overall, we remain enthusiastic about the interest we're seeing from both existing and prospective clients, particularly across I gaming, a crypto with that I'll turn the call over to Izzy.

Thank you Philip before we dive into our financial performance, Let's briefly review our segment realignment on slide 10.

<unk> mentioned, our dialogue with impactful clients and I gaming and emerging verticals, such as crypto require us to provide a full set of payment options to support the global growth ambitions. The conversations have transitioned from specific product solutions to end to end payment solutions from local solutions to capabilities are available.

<unk> in multiple markets and multiple countries.

Additionally, with increased regulations, having a single and at times global partner has become more critical to allow our customers to grow efficiently and react to market changes does it make sense to realign our segments to better reflect the evolving landscape.

Digital Commerce segment, which combines the digital wallet E cash and integrated E. Commerce businesses is 100% online global and focus on the core verticals that we serve. Additionally in this segment, we are presenting holistic pricing solutions, and becoming more agnostic with respect to which product generates the revenue.

As long as we're in April our customers to grow and thus we grow with them.

U S. Acquiring segment is predominantly focused on our U S based card present customers in the SMB space approximately 35% of the transactions are e-commerce .

In terms of performance in 2021 digital commerce had volumes of $44 billion revenues of $837 million up 56% of our total revenue and adjusted EBITDA margins of 42%.

Growth in <unk> and integrated E Commerce solutions offset the decline in our digital wallet business.

In 2021 U S. Acquiring had volumes of 78 billion revenues of $650 million or 44% of our total revenue and adjusted EBITDA margins of 26%.

As we go through the business results in the next slides I will focus on our prior segment structure for consistency with the prior quarters of 2021, you can also find historical quarterly results with the new structure in the appendix as well.

Moving to slide 11 for summary of our performance versus our guidance.

Revenue came in higher than our guidance range, primarily due to stronger digital wallet any cash performance, which benefited gross profit relative to our expectations.

Adjusted EBITDA was also higher than our guidance range, because the gross profit outperformance as well as reduction in our credit reserve in Q4.

Turning to page 12 for a summary of the Q4 results.

Volume was $31 5 billion, an increase of 20% year over year as strong growth in integrated processing more than offset the decline in digital wallet.

Total revenue for the fourth quarter was $372 million flat compared to Q4 2020 as growth from U S. Acquiring integrate e-commerce and the acquisitions was offset by declines from cash Theres, a wallet and the direct marketing vertical.

Adjusted EBITDA for the quarter was $105 5 million up 11% versus the prior year, resulting in adjusted EBITDA margin of 28, 4% at 260 basis points higher than last year.

This was primarily driven by lower credit and SG&A expenses.

Lastly, free cash flow was $53 million, a 50% conversion on an adjusted EBITDA basis.

In Q4, the free cash flow conversion was lower due to payment of cash taxes and increase in accounts receivable.

Free cash flow conversion can fluctuate meaningfully for example, our Q1 free cash flow conversion was over 95% and it is best evaluated on a trailing 12 month basis.

Now turning to page 13 for a summary of the full year 2021 results.

Mm $122 4 billion up 22% with growth in integrated processing and E cash more than offsetting a decline in digital wallets.

Total revenue for the year was 1.49 billion up 4% versus 2020 and up 6%. If you exclude the pay later divestiture.

Adjusted EBITDA for the Euro was $444 million up 4% versus prior year and up 5% excluding pay later.

Adjusted EBITDA margin was approximately 30% and flat compared to last year.

Growth in adjusted EBITDA was primarily driven by strong E cash performance and integrated processing performance and strong cost discipline.

Lastly, free cash flow was $286 million or 65% conversion on an adjusted EBITDA basis.

Free cash flow conversion was slightly below our expected range of 70% to 80%.

For 2022 we expect our free cash flow conversion to be between 50% to 70% on the trailing 12 months basis, primarily driven by the expectation of higher cash tax payments and higher working capital needs as our acquiring business continues to exhibit strong growth.

On slide 14, I'll quickly touch on a few additional line items, including our GAAP results.

<unk> expense was $21 5 million and 48% lower driven by lower overall debt levels and lower spread from our refinancing earlier in the year.

For Q4, our net income was $90 3 million, including a gain on the remeasurement of warrant liability compared to a net loss of $3 $4 million last year.

Our tax rate for the quarter was 24, 8% and 43, 6% for the full year, which is higher than our effective tax rate of 31, 8% last year, primarily as a result of nontaxable gains on the warrants.

Ignoring discreet items and gains and losses on the warrants we estimate our effective tax rate will range between 23% to 26%.

Also our interest expense will increase to roughly 25 million per quarter. This year as a result of the December closing of our debt raised to fund the acquisition of safety pay.

Yes.

Moving to slide 15, now for a discussion of the business results starting with E cash volumes of $1 6 billion up 9% in Q4 compared to last year at $5 8 billion for the full year up 26%.

Cash revenue for the fourth quarter was $99 2 million, a decrease of 6% compared to prior year, which is a particularly tough comparable.

Q4 results also reflect regulatory impact in Germany, and the Netherlands, which is partly offset by the inorganic contribution from the acquisitions.

For the full year revenue was 406 million up 22% or approximately 18% excluding the two acquisitions that closed in 2021.

Adjusted EBITDA for the fourth quarter was $37 6 million, an increase an 8%, resulting in adjusted EBITDA margin of approximately 38%.

Full year, adjusted EBITDA was $165 million, an increase of 42% with an adjusted EBITDA margin of 46% overall.

Overall, a strong year for E cash business that benefited from strong adoption of the product partly supported by extended COVID-19, Lockdowns in Europe , and we're seeing a moderation of that as expected.

Moving to digital Ballston slide 16 volumes of $3 9 billion and down 19% year over year at 7.2 billion for the full year down 16%.

Revenue in a digital wall segment for the fourth quarter was $87 9 million a decrease of 9% compared to the prior year.

We're having declined which was expected was driven primarily by regulatory changes in Europe .

Revenue for the full year was $363 8 million and down 8%.

Take rates remained above 2%, reflecting the mix of activity within the wireless customer base.

EBITDA was $42 4 million in the fourth quarter, and up 16%, which benefited from lower credit losses relative to the prior year.

For the full year, adjusted EBITDA was $167 million and down 7% for the year.

As Phillippe discussed earlier, the turnaround of our digital wallets business is underway and over the last few months, we're seeing progress and net deposits into customer accounts remained positive in Q4, we also saw softer volume in financial markets trading.

Moving to slide 17.

Integrated processing volume increased 30% year on year to $26 1 billion led by the U S market and up 37% compared to Q4 2019.

For the full year volumes of $100 billion up 32% year on year, reflecting increased volume across most of our industry verticals and now 36% versus 2019.

Revenue for the fourth quarter was $190 3 million, an increase of 9% compared to the prior year for the full year revenue was $745 million up 4%.

Excluding the pay later business revenue increased six 7% as growth from our U S acquiring and E. Commerce merchants was offset by lower revenue from our direct marketing channel.

Take rate was 70 basis points in Q4 as expected lower than Q4, 2020, primarily due to mix within our integrated processing business.

Adjusted EBITDA increased 8% to $51 8 million and adjusted EBITDA margin was 27, 2% comparable to the prior year.

For the full year, adjusted EBITDA was $187 million and down 8%, primarily due to decline in our direct marketing business.

Move to slide 18, 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.

The cash continues to generate a take rate over 7%, excluding the impact of the acquisitions, which have a lower take rate than the organic E cash business.

Digital wallets to steadily increase its take rate as we expand into new verticals and expect it to hold steady in the near term.

As our embedded finance relationships expand we expect our take rate to decline towards more historical levels as the year progresses.

Finally, the take rate in our integrated processing segment has decreased over the last few quarters from 1% to 70 basis points, primarily by business mix.

In 2022.

We expect take rate to increase back to 80 basis points at the direct marketing channel recovers.

And as you can see from the pie charts at the bottom of the page the meaningful growth or share of integrated processing volume is driving the overall take rate for the company lower.

Yes.

Now, let's turn to slide 19 to look at our balance sheet and liquidity.

Cash and cash equivalents were 702 million at year end with higher than normal as we had not closed under debate transaction by year end, but we have received the cash.

Debt outstanding was $2 7 billion as of December 31, net debt was $2 billion and our net debt to last 12 months adjusted EBITDA ratio was four six times at the end of 2021 .

Adjusting for the safety pay acquisition, which closed on January 31.

Our pro forma net leverage would have been five five times. If we are closer transaction on December 31.

Our primary use of excess cash looking forward is to pay down our debt and start moving towards our target of three five times adjusted EBITDA.

Yes.

Now, let's move to slide 20 to discuss our guidance.

Since our last call in November we have had a delay in the closing of safety pay.

Unfavorable movement in the Euro USD exchange rate and the economic uncertainty driven by the war on Ukraine. However, we remain confident and are maintaining our full year outlook for the full year on a reported basis, we expect revenues between 1.53 and 1.58 billion.

U S acquiring revenues expected to grow high single digits to low double digits with 300 basis points EBITDA margin improvement.

Digital Commerce revenue is expect to be flat to up low single digits and EBITDA margins are expected to decline approximately 400 basis points.

For the total company adjusted EBITDA is expected to be between $440 million and $460 million.

Yeah.

For Q1, we expect revenue in the range of $355 million three.

$365 million and adjusted EBITDA in the range of $95 million to $100 million.

In line with the preliminary view, we provided on the third quarter earnings call. Despite the delay in closing six safety PE and the adverse movement exchange rates.

We expect mid single digit growth in us acquiring offset by high single digit decline in digital commerce, driven by year over year adverse FX movements and the impact of gambling regulations in Europe as expected.

We also expect growth and margin to improve in the second half of the year as we start to lap the impact of some of the regulatory changes in Europe and see the turnaround digital wallets with that I'll turn the call back to Philip for closing remarks.

Yeah.

Thanks, Susie before we wrap up and take your questions I'll take a moment to address this morning's board announcements as you saw in our press release Bill Foley has decided to step down from the board to focus on other commitments I'd like to thank bill for the leadership and vision. He has brought to pay say throughout his time as our chairman as well as his belief in pay state include.

The recent reinvestments from Kenai, it's been a privilege working with bill and I look forward to staying in touch with him as one of pace as major shareholders as part of this announcement, we welcomed Dan Hanson as pay states New Chairman Dan currently serves on the board of a light alongside Bill and he brings decades of relevant expertise across capital markets financial services and.

<unk> I've had the opportunity to spend a lot of time with Dan over the last few weeks and I'm really excited about what he can bring to pesos.

To quickly summarize we're really pleased with our Q4 results and our progress on the turnaround and digital wallet. The actions. We've taken are driving positive early results repositioning the business for success and it allows us to absorb market risks in Europe as.

As we continue to improve as fundamentals and returned to growth. We also continue to win and pursue exciting deals and high growth verticals with some of the most disruptive and emerging companies in the world. We remain extremely focused on executing on both fronts positioning pay say for strong growth in the future.

And just and I would like to person to say that the last several months have been challenging for pay say I'd like to truly thank the team for their energy their hard work their customer focus and really their will to win we.

We see what we're capable of we're excited about the direction, we're going in and that's the energy we have at the company with that said I'll start.

Turn it over for the Q&A session. Thanks, a lot.

Thank you well 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. It may be necessary to pick up your handset before pressing.

One moment. Please poll for questions. Our first question today is coming from Dan Perlin from RBC capital markets. Your line is now live.

Thanks, Good morning, and good to see things turn back around here I wanted to revisit it if you could just talk about the cash our cash flow conversion dynamics.

Again, I know you mentioned it on our fourth quarter numbers I'm, just trying to make sure I understand the specific drivers as to why you.

You'll be able to drive that improvement in FY 'twenty, two and in as much detail as you're willing to share. Thanks.

Yeah sure. Thanks for the thanks for your question.

For full year 'twenty two let.

Let me rephrase my say.

Reframe for 2020 , one as a whole our free cash flow conversion is roughly 65% and in 2022, we expect about the same.

Fluctuations you see more is around the quarterly beat.

Mark Dan in terms of our receivables.

In terms of when cash taxes do get paid but overall year on year, we expect our cash flow conversion stay flat I think the other nuance that I raised is that it's lower than what we said between 70% to 80%. So around 65% again is driven by the growth in our years acquiring business, which we're pretty happy about and just in terms of generating more.

Our income in jurisdictions that we don't have offsets against our cash taxes are going up but overall, it's still a pretty strong cash flow conversion rate for the company.

Got it Okay, and then bill can you talk a little bit about the.

Maybe some of the competitive dynamics that you've seen I mean, you did a lot of changes during the quarter.

I'm, specifically thinking here, maybe some of the success that you've had and I gaming I know a lot of other companies.

That we cover are trying to push into that environment as well. So I'm just wondering maybe what youre seeing.

Specifically in that area and then if you could maybe also speak to.

Some of the specific things around this grille revamp I mean, it sounds like volumes, albeit smaller are really accelerating here. So just want to make sure I understand directionally, how that's being positioned in the states. Thank you sure sure Dan It's good to hear from you. So yeah look the question is surround mainly kind of our actions in North America I gaming so.

Yeah, definitely a very competitive space.

But as we said look we were live in 21 States. All seven states that went live in 2021, we were there on on day one right. So the first thing is being fast being ready being being ahead of the curve.

The second piece is we are offering one of the most holistic.

Capabilities again, it's a single plug in you get a full set of API is it's not only card processing with good acceptance rates are you can get kind of instant bank payments you can get multiple a P M and we'll be expanding that as well.

So that really all the major form types and wallets that a consumer wants to use.

Can be used with our gateway and you can't underestimate also the market expansion.

You know Canada has grown very rapidly we have the highest acceptance rates. There were full end to end gateway and processor and it's the same integration so what we.

We're seeing is that the product is the broadest set that's good our relationships are incredibly deep you know we as we said last year, we brought on Zac Cutler here.

Incredibly well known.

Person in the industry. He was a former operator, so he knows what's needed and that does change our relationship it changes what we're solving for.

But we're even seeing some players some operators that had direct acquiring our integrations actually coming back to us because with our gateway, we can give them, Canada and the United States. We're live in markets on day one we.

We can plug in multiple Atms from interact in Canada.

To emerging wallets.

And in the United States. So all of this comes together Dan It makes it very competitive.

The second piece, obviously as we can bring things like E cash and like our squirrel wallet that can create different differentiated opportunities. We talked about that that was an important factor in our win with hard rock.

That's an important fact with our with valleys.

And with the scale product in particular.

We've been talking about it for a while that we revamped the product. We said we are very very focused on the VIP customer, which we felt was a serious gap in the market and personally Dan I've gone with Zack on several calls to clients.

And we've talked about the offer about the digital wallet being focused on Vips large ticket instant funding capability.

And also we indemnify a lot of risk and loss for them. So we're not only solving our customer issue.

Frankly, we're solving ashish headache.

But a lot of these operators have so it's really resonated well with them. So that's one.

Two were coming now with proof points right, we've been piloting the product.

We can show to some smaller operators that were at 15% to 20% of the cashier as Vips are repeat users. They are betting more they're betting in large amounts more and more on that on that platform. So we actually have data and proof that we can show to the more of the tier one operators and of course now we're gonna start marketing the product.

It will be an exclusive.

Partner, a payment partner with Barstool and that's an incredibly.

Engaging active fast growing consumer base.

Credibly relevant to the industry and so we're excited to take the product to the next level.

Some advertising and then of course, our focus is to to get more tier one operators signed up and that's a that's a goal of the team for 2022.

That's great. Thank you so much.

Thank you. Your next question is coming from George Mahalo from Cowen. Your line is now live.

Hey, guys, let me add my my congrats on the fourth quarter results and nice to see that momentum.

I guess to kick things off first if we can just look at the 22 guide that you reiterated filling as you talked about several additional headwinds FX, obviously being once a geopolitical uncertainty acquisition closing a little bit later than what you expected yet you kept the guide there. So I'm curious what is the business feels better to you were sort of outperforming what you think.

Outperform relative to those those initial expectations and maybe if you could also size for US again, what you would expect inorganic contribution to be for 22 now.

Hey, George Great to hear from you, let me hit the second one first kind of knock out of the way. We're still as you mentioned last year about 60 million in revenue and 20 million of EBITDA.

Forming a little better, but that's kind of where we think the inorganic contribution is.

To your point, let's just walk through the steps, while my last november's call right. We laid out the outlook back in November of the the revenue growth in the 444 6 million EBITDA. This is what we're seeing we're seeing the momentum in U S. Acquiring retail E cash North America, I gaming and integrate ecommerce solutions strong continue.

Momentum as expected, we're executing the recovery direct marketing that's coming through and we're starting to see the green shoots of stabilization and a transition digital wallets.

<unk>.

Running victory laps, yet, but we're seeing the positive proof points around deposits.

Coming into the consumer wallet.

The headwinds are partly because of the geopolitical crisis that we're seeing in the dollar strengthened meaningfully since last November .

And then the other thing that has come up is that if there's further impacts on Russia, and Ukraine, we have an exposure on annualized basis about $20 million revenue, but even with that being said we feel there is enough momentum in the items I mentioned and our execution for us to stay within and confident with our guidance that we laid out in.

November .

Okay.

Okay, that's great and I appreciate that color on on Russia, and Ukraine, because that was going to be the next question. David just a quick follow up on the regulatory side in Europe , you cited Germany, Netherlands are there any other countries any other regions that.

It might move in that direction, as well, where there could be some some regulatory risk relative to where we are now I'll hop off and again congrats on the on the quarter guys.

George I'll take that one on the regulatory piece.

It's great to hear from you look we are in the third quarter, we talked about the impacts of European I gaming regulation.

Which was sizable and the two big features.

One obviously, Germany, they put limits on sports betting on gambling limits as well as taxes on games and that that had on.

So a pretty big impacts and some bigger impacts and expected with the operators.

And then two Holland.

A surprise decree that really impacted the ability for E money institutions to operate in this space.

That was really we continue to feel that was a misplaced basically a mistake that we hope can be reversed.

To give you a sense of the combined impact of those two in the fourth quarter.

Earnings that was a 15 million dollar year on year impact in the quarter alone. So it is a it is sizable in the fourth quarter now we have all of these impacts baked into our guidance what we see first as we expect to start to lap.

The German impacts in the third quarter right they'll start to we'll start to baseline. That's when we started to feel the impacts and in Holland, we expect.

Some sort of partial or full reversal of the.

This regulation in the second half, where we're working with with regulators with the industry on that piece more broadly speaking, we don't see any imminent pieces, there's some small ones.

Countries like Finland will probably have a 23.

Impact that we'll harvest, but that's not it's not a major market.

Other markets like the U K have a really good track record of being very proactive and self regulating so.

Overall, we see Europe is kind of a tougher comp.

But we're working through that working with our clients, we see lots of nice growth, obviously, United States Latin America, we're seeing some nice pickup in growth there as well, but the two big was Germany and Holland, we have baked into our numbers one will baseline one will reverse in the rest of year, we're not seeing any major impacts in the short term.

Medium term.

Great appreciate the color film.

Thanks George.

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

Hey, guys. Thanks.

It's good to see the momentum with a lot of the operators and some of the brands across the system.

So can you just touch on the consumer side for a minute.

We obviously have been seeing the various headwinds to the growth numbers in terms of the user base the consumer user base of escrow and digital wallets, but I'm curious what can and where would you expect an inflection in that on a sequential basis, perhaps in what will be the driving force in terms of marketing to those consumers.

If you could also expand on the Binance relationship I know it sounded like something you brought up a couple of times on the call.

In your prepared remarks, so just a little bit more detail on how how that could play out and what that can really mean for you.

Yes, Thanks, Darren and Great question, So we obviously.

You saw in our Q3 update we had.

Decreases in volumes and active customers and we talked about some of the challenges, especially where we had to really rightsize our pricing our user experience to be much more competitive and what it would've been really happy with is the team and digital wallets.

T Rod they've really done a great job of reorganizing our refocusing and frankly right sizing the business and they are in two we've got really two specific groups. One is focus on that core wallet the custom user experience the pricing the flows.

Really working through that and improving it and then a second group is really working on the bigger growth a growth deals are like squirrel U S. Like the finance deal. So that's how that's how we're operating on the first piece look we took a lot of steps, we simplified lots of steps for sign ons and approvals.

We did make a pricing much more competitive, especially in mature markets like Europe .

And in the presentation I talked a little bit about that so we saw bank deposits Darrin grow 50% on the changes between.

For the September October period to February .

And that drove our net growth in deposits of plus 10%. These are consumer deposits in right. So all form factors that's grew 10%.

Driven by being much more competitive on bank deposits and that's a net positive revenue impacts that we're seeing is consumers being more active in the wallet. We've also seen active customers baseline now right. So it's not dropped it's flattened and.

We expect that to stay flat and then start to veer towards growth towards the second part of the year. So this is not this is not a silver bullet you know you don't just do one action and it changes everything this is a focused and disciplined piece.

There's still a lot more to do we're still working on pricing in other markets. We're working on simplifying the checkout with with merchants, where we're having great engaged conversations with merchants on the changes we've made there with the team with the pricing with the user experience so you're engaging the large merchants who start.

To promote squirrel more than they have in the past kind of year year and a half. So so those are the factors Darrin.

So we should see that baseline flatten and start to get to some more growth in the second part of the year. So that's kind of my view on the inflection point.

We're staying prudent you know.

We've got some nice positive proof points, we like it but we're not willing to say.

Say, it solved and kind of shop from the rooftops, yet we're going to be very disciplined on this.

And work those kpis.

The second way to drive customers is linked to Binance right. So the you know the Binance deal.

Is a big deal for us for the following.

One more broadly we see the the kind of the convergence of crypto and Ftes and kind of web three point out I know, there's some buzzy words, but we absolutely do see this as a mega trend I think they use a virtual currencies.

Actual commerce unleashing millions of digital entrepreneurs, creating digital products.

It will be a huge market will change the way E Commerce works and we think pay safes.

Daily suited for this you've got to be global you have to have multiple ways to pay you have to have great risk and regulatory management to do this so so that's how we see this and we see the same kind of positive pieces, we seeing gaming apply too to this kind of fast emerging market. So that's our overall mindset and with by now.

It's.

Look they.

We've got a single API, so we plug in and they can access all of our products. Initially we white labeled our wallet that that's a big change right. So we can go to market with the skill and the net tenant brand, but we can also unleash the power of our wallet and white label it for specific clients.

So we white labeled our wallet and what that allows us to do is consumers when they're using the binance wallet with our platform. They can buy they can store and they can use crypto in the wallet to buy on the finance platform and to also take the proceeds from sale of crypto as well.

Initially, we're using bank payments to.

To fund the wallet, but we will be expanding both markets.

And we will be expanding payment types, including card processing. Another a P. M overtime. So we see this relationship is building up to something.

<unk> into an important large relationship for for pay safe.

We've been really impressed with the team and we also are this is opening up a pipeline not only in the broader crypto space, but also the white label wallet, we're seeing interest in other industries beyond crypto as well.

He's got a couple of cool angles through and that will drive accounts in right they'll drive lots of consumers sign ups.

And so we're excited to see that start to happen in the next couple of quarters.

Okay.

That's really helpful. One quick one is on the merchant acquiring side I mean, I just love.

Love to hear where you think you are in terms of differentiation and ability to maintain growth in that business, obviously theres been a big reopening benefiting.

But your volume does seem to be trending well versed in networks for example, and when you look first 19 and so if you could just touch on the assets you have versus the assets you need to stay competitive in what's becoming an ever.

Ever changing in the competitive environment, Thanks, guys yeah.

<unk> seen how we were looking at the digital commerce large enterprise clients global bringing all of our global Atms in risk management.

And then you have the U S SMB business right and that's all about scale ease of use speed and convenience and frankly data services to the merchant.

So quite quite quite separate platforms and thats, how we how we see it and that's why we're presenting it that way. So look we are a very scaled U S. SMB player. We have over 200000 merchants, we're one of the top top players.

Five or six in terms of size in the U S. So we have a lot of breadth and scale.

The biggest thing that we've done we've spent a lot of last year working on on the basics to be very very effective so automation of underwriting and servicing has skyrocketed for us. So we've gone from being fairly manual carillon automated business.

Two we have a single application form that can get you a backend processing across multiple processors in the U S and that is an advantage for ISO is and I S vs and agents they see the benefit of that and it also allows us to offer extremely wide menu of smart Pos devices across multiple pronged.

<unk> specific.

Specific gateways that worked for S. N B's R. I S V integrations, so we're able to deploy a really large menu, we're able to do it with a single application, we're able to do it with really really strong automation and strong customer service. So that's our play right now and that's good and that's what's driven the ice growth.

That will continue to drive that nice growth through this year in terms of next kind of iterations of capital investment, it's really about capturing more and more data. So we can do kind of instant payments same day clearing we can go into some wider services beyond just the payment processing. So that's how we see it but for the next 12 months, it's really folks.

On the first part I was talking about in terms of speed automation and service.

Thank you Darrin.

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

Hi, let me echo the congratulations.

Excited for you guys. So I.

I wanted to ask about slide eight in your disclosure on the direct marketing recovery I got my ruler out to look at these.

The bar chart, but I'm just trying to understand is this.

Does this demonstrate.

Sequential growth.

It does look positive and direct marketing, but I think he's still said it was down and wondering also about what you're contemplating for 'twenty, two and as a whole for direct marketing.

Hey, Jamie it's Andy I'll take that question and thanks for your kind words, yes, your ruler probably won't help I saw I'll give you some up some perspective on it.

2021 was a challenging year for direct marketing.

Some numbers in context, we lost roughly $45 million revenue and $35 million EBITDA year on year.

We expect in 2022 based on the momentum we have seen to recover about a third of it.

And then from there grow responsibly are working with our issuing banks working with our merchants as well so hopefully that puts things in context war for that business.

Yeah, that's a great answer that's what I was looking for and then.

Is he since I have you in terms of your.

Assumptions about the EBIT.

You're at 90 million $98 million of thing for the <unk> 'twenty two.

It looks like though you'd need to do a high teens.

Run rate ramp for the guidance for the year. So maybe if you could just I know you mentioned some of this already but if you could just revisit your assumptions about the EBITA sequencing for yes.

<unk>.

Yes, Jamie actually that's it that's a great question. So we think about this way clearly first half of the year, we expect a year on year comps to be to be lower.

Work, primarily through digital wallets the challenges in the second half of the year, we see a couple of things.

I'll begin to three items, a binance is a as a part of it we're slowly ramping up with them were being careful as you rollout new markets new capabilities with a single API and that really starts picking up steam starting in like late Q2 into Q3 and Q4, that's one aspect.

Second aspect that we see is we have a very strong pipeline across I gaming travel and crypto outside of finance and that sort of pick up steam as well that adds to the double digit run rate and the third one is John D. The M&A deals effectively these are.

The high growth platforms that we purchased right. So the run rate you see now even in Q4 dose start become additive and start growing as well as the year goes on.

Those are probably three of the larger components that helped drive to our second half improvement.

And as I think you probably probably notice as we start seeing this momentum.

If you look at Q1, you are slowly slow movement progressing towards kind of deep.

Second half run rate for 2022.

Yeah.

Got it thanks for the color.

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

Hi, Hello.

One of your previous responses. So you talked about an inflection point positive proof points, but you said you were staying measured and you're not yet ready to shouting from the rooftops. So I guess what are you concerned about it or whats stopping you from shouting from the rooftops and then on the progress in digital wallet in the balances growing how much of that is price driven.

Versus non price driven thank you.

Yeah, I think Josh.

We went through our lightest in the third quarter that we were very open about some of the fundamentals we had to fix and what were simply saying is.

You know it's been a good quarter, we like the proof points, we've seen the changes and making it just sign ups and funding easier and more price competitive on bank deposits.

And those have had very very positive impact so far so we like that but there is still more to do we still have an impact.

<unk> to fix on the merchant checkout, we want to continue to test some of the pricing in other markets and we're working with our clients on a one to one basis too.

To really get them to promote squirrel more as we've made these changes so would be it's a positive reception.

We have ice coming up in April which is a really really big conference of all of our clients and we're coming to them.

Not only with the fixes.

We've made in digital wallets, but also approach to the market as a single face with processing with E cash and with digital wallets together not combination drives flows it takes time.

Not just a single thing you'd turn on or off that's what we're saying, it's a positive proof point.

We're very positive, but we're also remaining prudent where we're aware of the Miss last last year in Q3, and we're going to be a very steady and improving our our return there. So that's that's how we think about it and in terms of pricing.

We're basically we're not under pricing we're at market competition with bank deposits and we saw the demand in flow in net net it's been a revenue positive piece, we see more funds come in consumers are active within our wallet that drives revenue. So we like the direction here, we don't see this as a.

Our price giveaway at all it's really about fixing and being more competitive more align with our clients.

And Josh let me dig a little deeper and give you some puts and takes as well like for example, kpis metrics to keep an eye on net deposits into the wallet those are trending in the right direction.

Check out at conversion conversion at checkout, those are looking positive and improving gambling revenues growing up our active customers are stabilizing but at the same time, our crypto and FX trading have been soft so far this year.

And the Russia, Ukraine crisis is putting potential revenue at risk as well so even though we feel really good about some of the core metrics and kpis, we need to kind of see this come through in the revenue on a sustained basis before we start to your point you're shouting from the rooftops.

Very helpful. Thank you.

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

Thanks, guys. Good morning, just wanted to start with a question on the balance sheet you talked about the three five times leverage target what would be your base case in terms of when you think you can get there and where do you think you'll be by the end of this year and as part of that can you just remind us of the mix here of fixed versus variable rate debt. Thank you.

Hey, David Thanks for the question first of all let me knock our second one out fixed variable is basically 50 50.

Is where we have basically what's public debt versus bank debt.

That's the second part of your question first one by the end of 2020.

Two we expect our leverage ratio to be in the low fives again dependent on performance, but it will be in the low fives by the end of 2020.

2022.

Potentially you know it gets down to 3.5 barring.

Barring any <unk>.

The accelerated debt repayment or anything out of the ordinary we'd probably get their buy.

Knock on wood for about 2024.

Okay, Okay understood and can you just tell us.

What is built into this year's guidance for North America gaming.

Yeah, I'll take that I'm sure Philip Aladdin as well right now North America gaming is roughly one 5% of our revenue.

And our expectations for growth for that business in the near term and mid term is about 40% plus revenue CAGR.

Higher volume CAGR as well.

Okay excellent.

Kind of buildup that as well kind of what drives it right. Obviously there is there is growth in existing markets that we're in so we saw the takeaways that we just talked about there is growth in new markets.

And then probably the third piece is just the addition of scale, becoming a bigger factor as far as.

The overall North American gaming revenue and volume so those three factors give us the.

Background and confidence in the 40% plus CAGR in that business.

Okay I appreciate it thank you guys.

Thank you. Your next question today is coming from David took it from Evercore ISI. Your line is now live.

Hey, guys. Thanks for taking my question this dispenser Kennedy on for David.

So youre logos include drafting shoes investing pretty heavily in customer acquisition this year.

I think they're guiding to an EBITDA loss.

825 million to $925 million so.

Some investors actually interpreting this as a modest slowdown in.

Gaming activity moving past, the pandemic and stimulus requiring higher promotional activity. How are you guys are bringing this.

Yes.

We obviously track all those pieces and draft Kings is a is a very old great and deep partner, we got great relationships there.

But there obviously, we do see the.

Cost per consumer acquisition, they they're kind of CAC in that industry is very high and and different players are changing their strategies.

But overall the the the growth fundamentals are incredibly strong when we talk about plus 40%.

CAGR over the next three years for that for that business.

We just have all the fundamentals we're seeing the volume growth now we're not seeing a change in that the.

The existing states. We're in continue to show strong growth.

Obviously, the as you said new markets opening up New York has just opened up and we've seen some nice pick up there, Ontario opens up in April we'll have signed quite a few tier one operators in that market and that represents the fourth largest market in North America, Our Arkansas Merrill.

Lynn most likely potentially Ohio at the end of this year might go into early 'twenty three on even California has a ballot will most likely have something a referendum sometime towards the end of the year related to sports betting. So we continue to see positive signs in the markets, Obviously, Florida was a huge one for us.

For everybody.

That's been delayed due to <unk>.

Legal issues and challenges there so that's going to get pushed out.

Beyond just beyond 'twenty, three we think and then finally like I said, we're adding a new revenue stream here as well. So we're capturing the integration Spencer with all of these clients and we're ready to enter new markets. The same time, we're also adding new products as we had our digital wallet and we add our E cash products you add.

Higher margin.

Vehicles on top of that so that that's what informs our informs our outlook.

Okay.

Super Helpful. And then if I could just quickly follow up so just thinking through crypto and your revenue exposure. There and then I think we've kind of seen a big.

Bitcoin volumes start to trail off a little bit year to date, so any sort of <unk>.

<unk> Youre seeing right now and then also.

I don't know if we might have missed it but just the inorganic contribution to revenue in the fourth quarter.

Thank you gave for the full year, but might have mentioned the fourth quarter. There. Thanks. So yeah I can take the first part and I'll hand over to Azure on the second part so.

Cross within PE safe.

Well, it's about her kind of our crypto activity. So there's really a break it out to three pieces right. One what we currently do to what we're starting to do three what we're going to be doing okay. What we currently do today is two things we were card processor for several crypto.

<unk>, we like that pipeline is growing and then two we allow consumers to buy and sell crypto within our scrilla net tower walnuts right. So we were there about I think about just under 40 currencies available in 90 markets. So those two are existing revenue streams. They represent one five.

5% of our total revenue and they grew over 100% last year.

So that's part one we have seen the crypto trading in the wallet be subdued bitcoin pricing is down the market's a little subdued its a spiky market.

So that's you know I think as he mentioned that as one of the reasons why we're a bit more cautious on the digital wallet Q1 outlook, just just market performance right now that doesn't change our view at all on the broader outlook of where this is going.

Two with the deal the Binance deal. This is the largest crypto exchange in the world They have 30 million consumers.

Consumers love the product are there.

They're a huge share of the of the global market.

We are their white label wallet across.

Most of Europe , we're slowly opening up markets.

We'll be adding more products and services, allowing our wallets another atms as well. So this is a relationship that will grow and we're repeating similar relationships with other exchanges. So that's going to create a second wave of revenue growth for US and then third more featuring typically we're looking at.

Opportunities in decentralized finance, we're looking at it.

N F T marketplaces, we're looking at how do we become more competitive in Fiat on and off ramps in this world, which is really you know deeper risk and regulatory capability. So that's more of a future pieces, but that's where we're focused in investing so we see this business growing at <unk>.

Extremely high rates potentially doubling again this year and beyond so that's our that's our view on crypto.

Yes.

I'll just add to that Spencer.

Phil mentioned.

I mentioned, it's about about the size of our North America gaming business right. So about one 5% revenue and effectively doubling so for year on year.

In terms of the M&A that the two deals that we did close in Q4 you.

You can probably assume it contributes about mercury, 2.5% to 3% of revenue and EBITDA.

It's probably a good modeling assumption.

Okay, Great very helpful guys. Thanks, a lot Jim.

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

Great. Thanks, a lot good morning, and thank you for taking the question I think you guys did a really good job of covering this in a few of the prepared remarks and also during the Q&A on the new U S. Acquiring specific segment. It does sound like Thats, a very SMB focused business I know Culver sits there you talked about the direct marketing piece, but it also has.

E Com it has integrated payments through Clover Theres, a card present mix Theres a card not present mix if you can.

Just maybe give us the pie charts. If you will just to bring to life what the mix of that business is how much is direct indirect et cetera.

Yes, Hey, Tim It says let me take that I think I'll answer it this way.

The U S acquiring segments about a third of our volume is as card not present, meaning E. Commerce are two thirds as card present is how you should think about that and that includes all the elements you mentioned like clover, the indirect or direct marketing and the likes.

Okay.

Yes.

Great.

It's 100% on North America in fact, our U S effectively.

Great. Thank you sorry about that on the debt card present piece, which you mentioned is about two thirds or so should we think about that as also integrated into software platforms, such as clover et cetera or is that a non integrated payments can you just bring that to life a little bit.

Yes.

Pick that one up Tim so the breakout we go to market with a direct sales channel.

ISO partners and highest the integration. So that's part one so we have.

We have gateways, which can integrate we have direct sales that can support the ISP growth. There. So that's an area that we like it we'll continue to see it grow more.

With the Isos and the direct channels, we do sell a series of smart Pos devices Clover is a big part of that sales, we really liked the product we work with one or two other ones as well. So we do integrate into their point of sale device the.

The merchant gets all of the kind of Clover benefits and then we're also that where the backend processor and service agent for that for that P. O S.

So we can know we can offer the on the omni channel online and in store in store only or online only we have the full kind of full suite of products.

Excellent. Thank you for all the context I appreciate both of you.

Thank you we've reached end of our question and answer session I would like to turn the floor back over to management for any further or closing comments.

Now I'll pick up a look first of all I'll reiterate something I said on my presentation, just a huge thanks to my team personally I know, it's been it's been F. Q.

Q3 was tough.

We didn't like where we landed there.

But the team.

Nevertheless, its focus on what we're able to do with our clients, where we can win and we're really excited about that we we love what's happening we love what's happening in the I gaming space, We love what's happening in our ability to go to market as a single proposition. It's a big change for pasting fright single team single API single underwriting this is Chuck.

<unk>, our culture and approach and obviously, we're really excited about some of the big wins like hard rock valleys, and like Binance, which we think do do start to embed future growth.

We were absolutely where theres still a lot of hard work to do.

In the details and that's going to take time and transparency to prove that we're turning it around but we feel good about it and look forward to continuing the conversation and questions with all of you. Thanks a lot bye.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.